One of the COVID-19-related provisions is the expansion of the streamlined installment agreement―termed “streamlined” due to the fact that a financial statement disclosure to the IRS is not required.
The Internal Revenue Service announced a number of changes aimed to help struggling taxpayers impacted by COVID-19 resolve outstanding tax debts. If you currently owe back individual income taxes and have been financially impacted by the pandemic, the IRS has expanded options for making payments and provided alternatives to resolve unpaid tax liabilities. These revised COVID-19-related collection procedures are helpful to taxpayers interested in satisfying the unpaid taxes by way of an installment agreement as well as taxpayers who had entered into an offer in compromise and are now unable to continue remitting payments pursuant to a pre-COVID-19 agreement.
Installment Agreements
An installment agreement permits qualified taxpayers with outstanding and unpaid tax liabilities to repay the amount owed via monthly payments over a period of time. In order to qualify for an installment agreement, a taxpayer must have (1) filed all required tax returns and (2) be up to date on the current year’s tax obligations.
One of the COVID-19-related provisions is the expansion of the streamlined installment agreement―termed “streamlined” due to the fact that a financial statement disclosure to the IRS is not required. The limit of outstanding tax liability that would qualify a taxpayer for a streamlined installment agreement was $50,000. The IRS has now expanded the limit to $250,000 of “assessed liability”―not the total liability due the IRS. This expanded limit on liability should allow more taxpayers to qualify and request an installment agreement. Further, some individual taxpayers who have unpaid tax liabilities only for tax year 2019, in an amount less than $250,000, may qualify for an installment agreement without the IRS filing a notice of federal tax lien.
In an effort to assist those taxpayers who have already entered into an installment agreement for earlier years, the IRS will automatically add certain new tax balances (incurred since the effective date of the existing installment agreement) to the existing installment agreements for individuals and out-of-business taxpayers. This negates the need for the IRS to consider the old agreement in default and request the taxpayer to provide additional financial information for a new agreement. Additionally, taxpayers with an existing direct debit installment agreement may now be able to utilize the online payment agreement system to propose a lower monthly payment amount and/or change their payment due dates. Further, for those taxpayers that qualify for a short-term installment plan, they now have up to 180 days to pay the liability in full instead of the previous 120-day period.
Offers in Compromise
The offer in compromise (OIC) program permits qualified taxpayers with outstanding tax liabilities to negotiate a full settlement for an amount that is less than the tax owed. An OIC agreement generally will not be accepted by the IRS if it believes that the outstanding liability can be paid through a lump sum or other type of payment arrangement. The IRS typically reviews the taxpayer’s income, expenses, assets and liabilities in great detail to make a determination regarding the taxpayer’s ability to pay.
In an effort to assist taxpayers who are impacted by COVID-19, the IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of a previously accepted OIC. Previously, the OIC would be considered null and void if required payments were missed. The taxpayer, in conjunction with their representative, should reach out to the IRS to discuss payment options. Taxpayers should never attempt negotiation with the IRS without professional representation.
TAG’s Perspective
We recommend that taxpayers experiencing financial hardship and unable to pay their current tax obligations due to the impact of COVID-19 seek professional representation from an experienced CPA or tax lawyer, such as those in our National Tax Controversy Group, to explore options available for making payments and alternatives to resolve unpaid tax liabilities. These are complex processes fraught with traps for the inexperienced taxpayer that can be very costly.
The IRS continually and aggressively pursues enforced collection of outstanding tax liabilities. In light of the ongoing pandemic, IRS collection efforts now offer some flexibility, which, with proper professional guidance, may reduce the pain by making resolution easier while leading to a fresh start sooner. If you have unpaid tax debt, we urge you to act promptly. While tried and true resolution options such as those within this Alert may be helpful to you, more advanced and flexible options may be needed to reach an attractive settlement of outstanding tax debt. The best advice if you find yourself facing an IRS collection matter is to get into compliance as quickly and strategically as possible. In any instance, do not commence negotiations with the IRS or any taxing authority directly. Always seek professional guidance.
For More Information
If you have any questions regarding this Alert, or for further information, please contact Mary Beth Lee, Michael A. Gillen, any of the practitioners in the Tax Accounting Group or the practitioner with whom you are regularly in contact. For information about other pertinent tax topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.