Volume 18 Issue 5 -- September/October 2006
Some taxpayers, like Biff Hine (“B. Hine”), when facing the
possibility of not being able to pay all of their taxes when they filed their
tax return for 2004, wonder whether they should file the return without adequate
payments and credits and thus be behind in their payments to the IRS?
The answer is categorically, “YES!”
By not filing on time and owing tax, B. Hine will incur late filing
penalties as well as late payment penalties.
These two penalties, together, are 5% of the tax due per month for the
first five months, total 25%. In
addition, there may be other penalties that are too extensive to deal with in
Assuming B. Hine is behind, then the next step is to consider
alternatives. If B. Hine owes
less than $25,000, then he can qualify for special collection relief called a
Why does the IRS call it “streamlined?”
Namely, because it takes less time, effort, and frustration. Without the
streamlined approach, it would be necessary for the IRS to determine if B. Hine
has the ability to pay the tax immediately.
This determination can take weeks or months and involves submitting
detailed financial information for the individual and/or his business, along
with a myriad of supporting documentation.
For example, if B. Hine is a sole proprietor, it would be necessary for
B. Hine to submit a business financial statement (Form 433-B) and a
personal financial statement (Form 433-A) before he can negotiate an installment
agreement approved by the IRS. Preparing
these forms correctly or even the abbreviated form (Form 433-F) is a formidable
task. Most individuals are not up to doing that for themselves.
Taking the “streamlined” approach can avoid most of that process. For
this reason, a streamlined payment agreement can be very important for
individuals who owe relatively smaller amounts of back taxes, say less than
If a taxpayer owes less than $25,000 and decides to take this approach, it
is necessary to submit to the IRS Form 9465, “Installment Agreement
Request.” The other alternative is
to call Automated Collection Service (“ACS”) when the first statement is
received from the IRS indicating that payments are in arrears.
Regardless of the method chosen, it is much easier to negotiate an
installment payment agreement for amounts less than $25,000, and the paperwork
requirements are much less burdensome.
In most cases, no financial statements have to be filed, and often it is
possible to make the arrangements for installment payments over the phone with
ACS. The liability must be paid
within five years.
There is also a $43 service fee for obtaining installment payment
agreements. However, the ability to
obtain the agreement without the other paperwork mentioned above is a
substantial benefit to individuals such as B. Hine who may even consider
Many taxpayers like B. Hine and some tax practitioners are not aware of
the streamlined agreement process, and in some cases IRS employees do not advise
taxpayers correctly concerning the ability to obtain a streamlined agreement.
Also, many professionals are reluctant to assist those who have fallen
behind in the payment of their taxes because of the requirements for obtaining
an installment payment agreement under the non-streamlined approach.
Whether the taxpayer is handling this alone or with the help of a
professional, observe the usual precautions when dealing with the IRS. Some of
these are covered in earlier newsletters.
For example, always document telephone conversations, payments, etc., with a
certified letter - return receipt requested.
The proof of mailing of a discarded certified letter may become the only
record remaining of the negotiations by phone.
Do not totally rely on the IRS computer system.
IRS employees will often state that they have entered information in
their computer system when they, in fact, have not entered it or they have
entered it incorrectly.
When making a payment, keep a copy of the check and the forwarding letter.
Keep these stapled together and affix to these pages the white mailing
receipt and the green certified receipt when it is eventually received.
Also, when calling IRS ACS, be sure to obtain the name of the person you talked with, the employee identification number and the location of that person.
is always important to file tax returns on time even without the necessary
payment so as to avoid penalties. If
the amount due is less than $25,000, an IRS streamlined installment agreement
may be the best course of action.
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
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