A CPA in Wilmington NC discusses IRS Form 9465 Installment Agreements

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It happens sometimes. To all types of taxpayers. You don’t have the cash to pay your taxes when due. Or you get an IRS Notice in the mail. All Wilmington CPAs deal with these issues. Form 9465 is one possible strategy to explore when you can’t pay the IRS what you owe all at once. This article assumes you actually owe what the IRS says you owe. With a new client, I don’t think any Wilmington NC CPA would take that figure for granted. Form 9465 is just one possible strategy.

Let’s review some background information before concentrating on Installment Agreement specifics for IRS Form 9465.

Prevention

The IRS tries to prevent collection situations through their “pay as you go” system: including with holdings on your wages and mandated estimated taxes this year, against next year’s expected tax bill. And of course the IRS requires filing a return every year, so, ideally, the taxpayer can’t fall too far behind. But what happens when the process breaks down and you don’t have the money to pay your taxes? In many cases the IRS will allow you to make monthly payments through their Installment Agreement program through Form 9465.

Non Filing

“It is better to at least file your tax return, even if you can’t immediately send the IRS the taxes due. During a back tax IRS audit, first prepare the un-filed tax returns. Often the correct amount of taxes due is less than the amount the IRS is demanding.”
Gary Bode, CPA
Wilmington NC tax accountant

The IRS has non filing penalties. Their sophisticated revenue matching program assures they will call for your return eventually.

Examination of Notices: Do you actually owe what the IRS is Demanding?

The first step is examining all the IRS notices. The IRS is usually correct in their demands, at least using the information they have. But sometimes they have missing or incorrect information. Three demand components usually exist, the actual tax, assessed penalties and accrued interest. Sometimes penalties can be abated with a good enough excuse. Interest depends on the amounts and how long they were outstanding.

Buying Time

Buying time is the next step. The IRS can tax lien property and perhaps even seize assets. Garnishing wages; Ouch! The CPA needs time to help the taxpayer into IRS acceptable compliance. Usually a polite letter from the CPA achieves a temporary stay of their processes.

Lowering the IRS Demand: Preparing Un-Filed Returns because the Initial IRS Demand is Usually too High

When the IRS calculates taxes due on non filed returns, they use few deductions or credits. They call it preparing a “substitute return.” And their calculation is usually high. I think most Wilmington NC CPAs would agree this is a negotiating ploy to encourage the taxpayer to engage a CPA to prepare the non filed returns. As part of the tax preparation, the CPA obtains the IRS account transcript on the taxpayer for the given tax year(s). Inevitably, in cases with un-filed tax returns, preparing the return reduces the actual tax, as originally demanded by the IRS. These returns can include:

• IRS Form 1040 and NC D400.
• An amended return, IRS Form 1040x.
• C Corporation or LLC return; IRS Form 1120 and NC CD401.
• S Corporation or LLC return; IRS Form 1120 and NC CD401S.
• Partnership or LLC return; IRS Form 1065 and NC D403.
• Estate or Trust return; IRS Form 1041.

Looking to see if Partial Payment Might Suffice: Offer in Compromise: IRS Form 656

Do you even have tompay the entire amount due? In the past, IRS Offers of Compromise, which allow pennies to be paid on dollar, were commonly accepted. After all, collecting anything was better than collecting nothing. But public outcry tightened up the parameters. An Offer in Compromise can still be a valid tactic, but the IRS requires the taxpayer to come out of the process with zero net worth. So even if an Offer in Compromise is accepted by the IRS, it may have unacceptable consequences to the taxpayer. We consider filing IRS Form 656 when appropriate because it can be great tool.

“During the recession, the IRS is more accepting of Installment Agreements.” Gary Bode, CPA Wilmington NC

Installment Agreements: Form 9465

Unlike the Offer in Compromise touched on above, Installment Agreements require the entire amount of taxes, penalties and interest, as calculated by the CPA and agreed to by the IRS, to be repaid over time. Accomplished through IRS Form 9465. With monthly payments, usually with a term no longer than three years. There are setup fees ranging from $43 to $102. They prefer drafting your checking account. Interest wise, the IRS Installment Agreement is usually better than borrowing the cash against a credit card. But there are reasons you may want to borrow the money elsewhere. And the IRS encourages you to do so, stating that external loan interest may be less than their own penalties and interest.

The IRS is a powerful creditor. They can lien your property, garnish your wages and empty your bank account. An Installment Agreement does not always mean the IRS will forego a tax lien. IRS tax liens kill your credit rating. If your Installment Agreement request is more than $25,000, the IRS requires you to complete a Form 433 F which discloses your complete finances. And let’s face it; even at less than 25K, they know your property holdings and bank accounts.

Installment Agreement Tactics: Form 9465

In my experience, as a CPA in Wilmington NC, folks want to pay off the IRS ASAP. Both by an upfront “down payment” to reduce the monthly payments, and, by higher than required monthly payments. Clients also talk about paying extra amounts as they go. But your agreed upon monthly payment is due until your debt is paid in full. Early or accelerated payments don’t take away that obligation. So your request on Form 9465 has to be carefully considered.

I don’t think the IRS will seize your house over a missed payment. But once you’re in their grasp, they’re not an agency to fool around with either. I usually recommend a low, comfortable monthly figure and then paying it on time every month. And then accumulating extra money on the side until you can prepay the balance in full.

For a free initial phone consult with Wilmington NC CPA and tax accountant, call (910) 399-2705.