| Installment Agreements
If you can't pay the full amount you owe the IRS, and you don't presently qualify for an Offer in Compromise, an Installment Agreement may be your next best option. In some cases, an Installment Agreement will allow you to pay the tax liability in smaller, more manageable amounts. Installment Agreements generally require equal monthly payments. The amount of your monthly payment will be based more on your ability to pay than on the amount you owe. You should know, however, that an Installment Agreement can be more expensive than borrowing money from other sources to pay what you owe. This is because the IRS charges interest and penalties even during the period of the Installment Agreement. The interest rate on a bank loan, or even a cash advance on your credit card, may be less than the combination of penalties and interest charged by the IRS. If you can get a second mortgage or home equity line of credit the interest may be deductible, whereas interest and penalties that you pay to the IRS are not deductible. The IRS charges a $43 "user fee" for implementing an Installment Agreement.
Even though you enter into an Installment Agreement and you make the required payments, the IRS may still file a Notice of Federal Tax Lien against you. However, the IRS cannot levy (seize) your property or your wages: - while a request for an Installment Agreement is pending;
- while an Installment Agreement is in effect;
- for 30 days after an Installment Agreement request has been rejected; or
- while an appeal of the rejection of the Installment Agreement request is being appealed.
There are currently three types of Installment Agreements. Balances below $10,000 qualify for a Guaranteed Installment Agreement. Balances above $10,000 but below $25,000 qualify for a Streamlined Installment Agreement. Balances above $25,000 only qualify for Non-streamlined Installment Agreements.
| | Penalty Abatement The IRS penalizes millions of taxpayers each year. There is a penalty for just about anything. The most common penalties are assessed for failures to file a tax return, failure to pay a tax owed, and underpayment of taxes. These and many other penalties can substantially increase the amount you owe in a very short period of time. To make matters worse the IRS charges you interest on penalties. Penalties can be as high as 75% to 100% of the original taxes owed. Oftentimes, a taxpayer has enough money to pay the tax owed but cannot pay the liability in full because there is a large amount of accrued penalties and interest. Relief from, or abatement of, penalties is possible. A taxpayer must demonstrate that the circumstances giving rise to the penalty were due to “reasonable cause” and not “willful neglect” of the taxpayer. Careful presentation of the facts and circumstances surrounding the cause for the penalty is essential to obtaining relief. 
| | Discharging Taxes in Bankruptcy Installment Agreements and Offers in Compromise are useful, but there are situations in which these devices are unavailable, inappropriate or inadequate. And in these cases, relief can often be obtained through bankruptcy. Contrary to popular opinion, a properly timed and structured bankruptcy can discharge many federal and state income tax liabilities, thus providing a much needed "fresh start." Furthermore, bankruptcy can be useful in contesting the amount or validity of a tax when other judicial fora cannot be used.
Generally, all taxes are dischargeable in bankruptcy, subject to the following exceptions: - Taxes are non-dischargeable if the return was due less than three years prior to the filing of the bankruptcy petition.
- Taxes are non-dischargeable if assessed less than 240 days prior to the filing of the bankruptcy petition.
- Taxes are non-dischargeable if the return was not filed, or was filed less than two years prior to the filing of the bankruptcy petition.
Immediately upon filing, an "automatic stay" arises, and all IRS enforced collection action must cease. If assets are seized by the IRS before the filing of the petition but haven't been sold, the trustee can demand that they be surrendered to the estate for the benefit of the creditors. This "turnover" power can be extremely useful if the IRS has seized assets necessary for the operation of the taxpayer's business. As soon as it learns of the filing of a bankruptcy petition, the IRS posts its computer with a "bankruptcy hold" code to avoid inadvertent violation of the automatic stay.
In bankruptcy, the IRS is just another creditor. It can be a secured creditor if a tax lien has been filed, or it can be an unsecured creditor if no lien is filed. The IRS could also be partially secured and partially unsecured if a lien has been filed but the amount owed exceeds the equity in the property covered by the lien. To read about our Bankruptcy services and learn more about Chapter 7 and Chapter 13 Bankruptcies, click here. | |