October 28, 2016

By: John A. Grey

Tax Controversy Matters: IRS Softens Criteria for Streamlined Installment Agreements

The IRS has announced on its website that it is testing expanded criteria for the streamlined processing of Installment Agreements. The new criterion is available through September 30, 2017 and will afford more taxpayers the ability to enter into streamlined agreements which as discussed below offer significant advantages.

IRS collection cases come in different flavors and as such, may be settled through different approaches such as making an Offer in Compromise, requesting favorable “Currently Not Collectible” status or negotiating an Installment Agreement.  For example, an Offer in Compromise is an agreement between the IRS and taxpayer to settle the debt for less than the full amount owed.  Each approach is designed to get the taxpayer back on the road to compliance while reducing the deficiencies owed to the government (commonly referred to as the “tax gap”).

Installment Agreements are beneficial to taxpayers as they permit the debt to be paid over time with a reduction in penalties.  The IRS cannot file a tax lien during this period.  Moreover, and unlike other forms of settlement, the IRS must enter into such an agreement where the taxpayer’s aggregate tax liability (without interest, penalties, additions to tax and additional amounts) is not more than $10,000.  There are very few settlements where the government is required to participate and this is one of them; as such, a significant portion of tax debts are settled in this fashion.

In addition, there are “streamlined” Installment Agreements which benefit taxpayers as they are processed quickly, without financial analysis or managerial approval.  The maximum term for a Streamlined Installment Agreement is 72 months. It is noteworthy that where the taxpayer owes no more than $50,000 in back taxes, the IRS may accept a Streamlined Installment Agreement without requiring the taxpayer to produce extensive financial statements (the invasive IRS Form 433).  Indeed, the ability to settle the tax controversy at such an early level without providing sensitive and private financial information is a major advantage.  To illustrate, the IRS Form 433 requires the taxpayer to disclose in writing where they work, the banks they use, whether they earn income from trusts, whether they are a beneficiary of any trust or estate, whether they serve as a trustee of any trust, whether they have ever lived abroad or filed for bankruptcy.  This can be particularly burdensome on clients who are involved with family trusts.  For this very reason, a Streamlined Installment Agreement is often the favored approach to settling tax debts.

Newly Expanded Criteria

Most importantly, the IRS is now testing expanded criteria for processing Streamlined Installment Agreements.  Specifically, and under this new approach, taxpayers who owe up to $100,000 in tax, penalties and interest will qualify for streamlined processing providing their proposed monthly payment meets certain requirements. Once again, the ability to satisfy the debt over time with a reduction in penalties and without disclosing financial information is an advantage as it allows taxpayer’s time to resume their normal activities without much interruption or reduction in their finances. Such new criteria will afford even more taxpayers who owe substantial back taxes the ability to come forward and settle their debt in a fast and non-invasive manner.  In conclusion, the new program is highly taxpayer-friendly and should increase overall resolution thereby closing the tax gap.

For more information or if you have any questions about estate planning and taxation, please contact Judson M. Stein, Chair of the Trusts & Estates Practice Group, at 973-230-2080 or jstein@genovaburns.com or John A. Grey and Lauren M. Ahern, Associates in the Trusts & Estates Practice Group.

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