Tax & Business Insights

Behind the IRS? – Try Streamlining

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!” Why?

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 this newsletter.

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 “Streamlined Agreement.”

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 $25,000.

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 self help.

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.

It 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.

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.

Redistribution or other commercial use of the material contained in Tax & Business Insights is expressly prohibited without the written permission of Tax and Business Professionals, Inc.

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