Brotman LawTaxpayers can use Form 9465, Installment Agreement Request to request consideration for a monthly installment plan if they cannot pay the full amount shown on the tax return. Taxpayers making payments on a current installment agreement cannot use Form 9465.
Taxpayers are encouraged to pay in full and immediately all delinquent tax liabilities. However, “if full payment cannot be achieved by the Collection Statute Expiration Date (CSED), and taxpayers have some ability to pay, the Service can enter into Partial Payment Installment Agreements (PPIAs)” (IRS.gov, “Part 5. Collecting Process, Chapter 14. Installment Agreements, Section 2. Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED),” 8/21/2013). Before the PPIA can be granted, the equity in the taxpayer’s assets will have to be evaluated to determine if it can be used pay down the tax liability.
The streamlined installment agreement helps taxpayers catch up on their back taxes. The streamlined installment agreement is part of the Fresh Start initiative. The initiative offers benefits to the taxpayer. The benefits are specific to the maximum dollar criteria and the maximum term for the agreement. For example, “the maximum dollar criteria for streamlined installment agreements has been raised from $25,000 to $50,000 and the maximum term has been raised from 60 months to 72 months” (IRS.gov, “Fresh Start Installment Agreements,” 8/20/2013).
An automatic IRS installment agreement is an agreement by which taxpayers can make monthly payments utilizing one of three online payment options as well as self-certifying through an online payment agreement application, which allows taxpayers to work out their payments online rather than face-to-face with a representative. The IRS offers an online payment agreement tool that requires information specific to the taxpayer such as balance due notice from the IRS, Social Security or Taxpayer Identification Number, and a personal identification number generated online.
Taxpayers that are responsible for an outstanding tax liability with the government are responsible for ensuring they meet the obligation. Overdue tax balances are subject to interest and monthly late payment penalties. The IRS advises taxpayers to pay their balances in full to minimize additional charges. “Penalties are also assessed for failure to file a tax return so you should file immediately even if you cannot pay your balance in full” (IRS.gov, “Topic 202 – Tax Payment Options,” 8/19/2013).
A levy can be released while a taxpayer is in currently not collectible status. Section 6343(a)(1) of the Internal Revenue Code requires a levy to be released if the Service determines that the circumstances are appropriate based upon policy. The Internal Revenue Service will require “supporting documentation as is reasonably necessary to determine whether a condition requiring release exists” (IRS.gov, “Part 5. Collecting Process, Chapter 11. Notice of Levy, Section 2. Serving Levies, Releasing Levies and Returning Property, 8/18/2013). The IRS allows the release of a notice of levy when it is clear that circumstances will prevent the taxpayer from making payments and the IRS from receiving payments.
To obtain currently not collectible status, you will need to consider addressing your concerns with a tax attorney who is an expert in resolving IRS back-tax liability and who is competent enough to review your financial situation “for free to determine whether pursuing Currently Not Collectible status is worthwhile; if hired, he or she will also take care of the rest of this process” (Hein).
The pros and cons of receiving a currently not collectible status are specific to the taxpayer’s ability to pay taxes owed. If the taxpayer is unable to pay, then he or she will receive this consideration. If the taxpayer cannot pay the tax owed, and the IRS fails to collect the debt in ten years, then the taxpayer will not have to pay the debt. However, there is a ten-year statute of limitations that the IRS can exercise in the event that the taxpayer is able to begin a payment structure.
IRS Currently Not Collectible (CNC)[1] is defined as the decision the IRS takes in concluding that a taxpayer has no ability to pay their annual federal income taxes. This type of status protects taxpayers from the “aggressive tactics of the IRS Collection Division” (Avvo.com, “Currently Not Collectible Status,” 8/18/2013). The IRS currently not collectible status is useful for taxpayers wishing to negotiate regarding their responsibility to pay off owed taxes. “Negotiating Currently Not Collectible status indicates to the IRS that you are serious about your responsibility to pay off taxes you may owe but do not have the funds to pay at this time” (Hein).
Filing for bankruptcy is an indication to your creditors that you are unable to repay your debts. On the other hand, bankruptcy provides you with protection from your creditors. It provides you with an opportunity to develop an effective debt repayment and management plan.