Use tax Form 9465 to setup an IRS Payment Plan. (910) 399-2705.
CPA accountants work every legitimate tax angle. But sometimes the Client owes tax and can’t immediately pay it. Tax Form 9465 is the IRS installment agreement application and sets up an IRS payment plan. I think many folks file Form 9465 themselves, so here’s some background and potential strategies.
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. 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, you can make IRS monthly payments through their Installment Agreement program via tax Form 9465.
Non Filing
“It’s better to at least file your tax return, even if you can’t immediately send the IRS the taxes due. Always file a correct return before entering into an IRS monthly payment plan. Why? A correct return almost always results in less tax due.”
- Gary Bode, CPA 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: (1) the actual tax, (2) assessed penalties, and (3) 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. Why? They don’t factor in legitimate deductions and tax credits. I think most CPAs would agree this is a negotiating ploy to encourage the taxpayer 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.
Looking to see if Partial Payment Might Suffice: Offer in Compromise: IRS Form 656
Do you even have to pay the entire amount due? Qualifying for an IRS Offers of Compromise, the pennies on the dollar technique, is easier since the Recession. After all, collecting anything is better than collecting nothing.
“During the recession, the IRS is more accepting of Installment Agreements.”
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. 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 usually means 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 accountant, folks want to pay off the IRS ASAP:
- By making a high down payment. Better to go as low as possible.
- By higher than required monthly payments. Again, better to start low.
- Paying extra amounts as they go. Better to put the extra amounts in a reserve until you can off the Form 9465 Install Agreement in full.
You don’t buy any goodwill with the IRS with these good deeds. Think about the possibility you may be short on cash for a few months. Your IRS monthly payment is still due regardless of your past payment history. 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. I usually recommend a low, comfortable monthly figure and then paying it on time every month. Then accumulating extra money on the side until you can prepay the balance in full.
For a free phone consult call (910) 399-2705. We’ve got a virtual office to serve long distance clients.
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