You’re at the mortgage lender’s office, all juiced to purchase that home you’ve had your eye on. You ask the broker where rates are at, what she thinks you’ll be able to qualify for, what kind of origination fee she is contemplating smacking you with, etc. And then she does it (with your authorization of course), pulls your credit like it’s a slot machine at Harrahs. No worries you think, my credit is stellar, I pay my bills on time, I keep low balances on my credit cards … ummm, except I do have that outlandish bill Uncle Sam delivered to me years ago. But it’s fine, it won’t show up, that stuff doesn’t show up on credit reports … WRONG!!! Depending on how long that bill’s been marinating, it is going to show up in one manner or another, most likely as a lien. And guess what the next question from the broker or the bank is? “Mr. Hopeful, what exactly do you plan to do about this tax lien?” More likely than not, you can kiss your chances on purchasing that dream crib good bye. Buh bye.
This is but one of the many reasons to refrain from debt shirking. Especially IRS debt! If there is one entity you do not want to neglect, it is the IRS. They will hunt you down – Hunger Games style. But rest assured, there are options available.
If you are like most of us, you do not have the resources to put down a lump sum to extinguish the debt. Therefore, so long as the debt owed does not exceed $50,000, you can qualify for an installment repayment plan with the IRS. What follows is a brief version of how it works.
The number that matters is termed the “assessed total.” This amount cannot exceed $50K. If your delinquency stems from within the last two most recent tax years, you can estimate your “assessed total” being 80-85% of that intimidating figure eyeballing you from that IRS notice sheet. If the delinquency relates back to more than two tax years ago, you can figure the “assessed total” to lie somewhere between 60-95% of the grand total.
Typically, the term of these installment plans will extend over a maximum 6 year period. However, if the matter warrants appellate IRS review, these folks are usually more understanding and more forgiving and more apt to let you string out the payment plan over the statutory maximum for collection purposes, 10 years.
The rate you can count on (yes, you will have to pay interest over this installment plan) will be in the 6% neighborhood. Not shark water.
For a rough estimated payment, for those of you without a fancy finance calculator, take your assessed total and divide it by 72. Keep in mind, however, that without the fancy calculator, this payment estimate does not account for interest.
As for abating penalties (getting rid of them), the IRS has become increasingly stingier as of late … perhaps this is an indication of our times, the IRS actually laid off 1,000 employees recently. Clearly a sign that the IRS is struggling … yeah, I feel horrible for them too … and therefore acting even greedier than before. Unimaginable but true. The analysis performed in determining whether or not abatement is allowed is termed “reasonable cause criteria.”
The following questions are meant to uncover what may be reasonable causes in your case that may qualify for penalty abatement:
Were any business records lost or destroyed?
Were there any circumstances that led to a substantial drop in collecting on accounts receivable?
Was there any transition in the business that lead to the failure to pay taxes?
Was there a death or serious illness that directly affected the business or personal wages?
Was there any embezzlement of funds, theft of valuable property, or identity theft?
Were there any alcohol or drug abuse issues that affected the business or wage earning capability?
Was there a natural disaster that impacted you or your business?
Did you rely on the advice of a CPA or IRS employee in making tax decisions?
Were there any circumstances that created substantial financial hardship, to the point where you or your business was close to going bankrupt?
Two important reminders:
1. IRS does not contemplate abatement until a resolution is effectively in place. Cart before the horse thingy.
2. Interest on taxes owed is not abated
One of my father’s favorite sayings was “Do not go driving through life looking through the rear-view mirror.” Accept the past for what it is, deal with it responsibly, and you will better off for it tomorrow.
There you have it, the down and dirty on installment plans with the IRS.