Certified Specialist In Taxation Law
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Certified Specialist In Taxation Law |
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INSTALLMENT AGREEMENTS The IRS Restructuring and Reform Act of 1998 made two very important changes to Installment Agreement policies. However, the effective dates differ for each of these new sections. Effective July 22, 1998, SECTION 3467 - GUARANTEES THE AVAILABILITY OF INSTALLMENT AGREEMENTS UNDER CERTAIN CIRCUMSTANCES. An individual income taxpayer now has a statutory right to an installment agreement, at the taxpayer's option, if: 1) the liability is $10,000 or less (excluding penalties and interest); 2) within the previous 5 years, the taxpayer has not failed to file or to pay, nor entered an installment agreement under this provision; 3) if requested by the IRS, the taxpayer submits financial statements, and the IRS determines that the taxpayer is unable to pay the tax due in full; 4) the installment agreement provides for full payment of the liability within 3 years; and 5) the taxpayer agrees to continue to comply with the tax laws and terms of the agreement for the period (up to 3 years) that the agreement is in place. SECTION 3303(A) - LIMITATIONS OF INDIVIDUAL FAILURE TO PAY PENALTY FOR MONTHS DURING PERIOD OF INSTALLMENT AGREEMENT. Effective for months beginning after December 31, 1999, the failure to pay tax penalty for individuals, who file a return of tax on or before the due date (including extensions), is limited by the Restructuring Act to half the usual rate (0.25 percent rather that 0.5 percent) for any month in which an Installment Payment Agreement is in effect. INSTALLMENT AGREEMENT USER FEES Section 9701 of Title 31 of the United States Code authorizes federal agencies to establish charges for services that primarily benefit individual recipients, over and above any benefit that may accrue to the general public. Accordingly, IA user fees are authorized because the taxpayer is allowed the benefit of paying a tax debt over time, rather than being forced to satisfy the debt in a single payment. The Service is required to charge a user fee whenever an IA is granted, reinstated, or restructured. THE CURRENT USER FEE IS $43 FOR AN INITIAL IA AND $24 FOR A REINSTATED OR RESTRUCTURED AGREEMENT. PAYMENT OF INSTALLMENT AGREEMENT USER FEES A taxpayer who is granted an installment agreement will receive a monthly reminder notice, CP521. The reminder notice informs the taxpayer that the user fee will be deducted from the first installment payment. Therefore, when making the first installment payment, the taxpayer must take into account the amount of the user fee. For example, suppose a new installment agreement is established with a monthly payment of $50. When the first payment is received, $43 will be deducted and applied to the user fee account; the remaining $7 will be applied to the taxpayer's delinquent account. However, if the agreement calls for a monthly payment that is less than $43, the taxpayer must pay at least the user fee when submitting the first payment using the envelope provided with the reminder notice voucher. The fee cannot be partially paid. If the taxpayer does not have sufficient funds to pay the user fee, the payment amount will be applied to the taxpayer's tax liability. The second monthly reminder notice will request the user fee again. If the user fee is owed, the CP521 will display, in the body of the letter, a paragraph as follows: * We charge a $43 user fee to cover the cost of providing installment agreements. The $43 fee will be taken from your first monthly payment. OR * We charge a $24 user fee to cover the cost of reinstating installment agreements. The $24 fee will be taken from your first monthly payment. NEW TAX LIABILITIES AND RESTRUCTURED INSTALLMENT AGREEMENTS One of the terms of an IA is that all subsequent tax liabilities be paid timely. NEW LIABILITIES ARE NOT AUTOMATICALLY INCORPORATED INTO AN EXISTING IA. Taxpayers granted IAs who incur new liabilities will receive either a CP523 default notice or a letter stating that the new liability must be paid. If the taxpayer responds to the notice and indicates an inability to pay the new tax liability, the service may, depending on the circumstances, restructure the existing IA to include the new tax liability. In addition, the Service encourages taxpayers to use payroll deduction or a direct debit installment agreement when he or she requests to add a new liability to an existing agreement. The user fee of $24 will become due at the time the taxpayer completes and returns the form to the service center. In addition, the taxpayer must take appropriate corrective actions (e.g., adjust withholding or make estimated tax payments) to avoid future tax liabilities. In cases where the service center cannot restructure the existing IA to include the new liability, additional financial analysis may be required and/or a personal interview with a revenue officer may be necessary.
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