IRS Payment Plans

The Internal Revenue Service ranks consistently as the most feared agency in the federal government. This probably explains why people often do not feel that they are in a position to bargain with the IRS, which really is too bad -- Congress makes it a point to look out for citizens in this area.

The IRS is required to try to reach a reasonable payment plan with anyone who has fallen into tax debt. Believe it or not, when people explain that they cannot pay, the IRS listens.

What is the cause of so much fear on the part of the taxpayer? Probably the idea that the IRS could file a federal lien against a wide range of personal assets, including wages and savings. Well, what better way to avoid such action than to work with the IRS to develop a payment plan?

Asking for a payment plan has never been easier. When you file your return, simply attach IRS Form 9465 -- an “Installment Agreement Request”. If you fail to attach this form when your taxes are due, call the IRS as soon as possible and explain your need for a payment plan.

Needless to say, the government will not make a deal with someone who deliberately tries to avoid taxes that are fairly due. Just to hammer in the fact that it views payment plans as a benefit and not something to which you are automatically entitled, the IRS charges you to set up a plan (usually $43).

If your debt is less than $10,000, almost all regional offices can arrange payments with you, quickly and easily. If you owe more than $10,000, you most likely will have to file a fairly detailed financial disclosure form, just as you would if you were taking out a loan from a bank. Income will be large factor in the development of your plan. If you are chronically unemployed, for example, it is possible that you even may be listed as non-collectable.

Payment plans also are known as a “time delay strategy”, although it is not a good idea to mention this to the IRS. Still, it only makes sense to consider when you pay taxes as part of your overall financial and debt management.

Businesses also are eligible for payment plans. Unlike individual plans, these may cover a wide range of business activities and often involve larger sums of money. In fact, you may have heard about enormous savings and reductions in taxes by way of either payment plans or ‘offers in compromise’. Most of these deals involve businesses.

Because so many people are afraid of dealing with the IRS, they may fail to make the best financial decisions. As payment plan interest rates creep up to 6.5 %, it certainly is possible that such a plan may cost individuals too much. The problem multiplies itself because of taxes and penalties, which are the first costs that must be paid off to the IRS. Even the IRS cautions that it may make more sense for a taxpayer to borrow from friends or relatives than it would to play “let’s make a deal” with the agency.

Sticking to a strict budget to clear your tax debt is imperative. Some people who find themselves in debt to the IRS claim fewer exemptions than they are entitled to on their tax returns, which will help to pay down debt. If you owe for several years, do not be afraid to ask what exactly is going on with your payment plan.

Also, find out if any of your penalties can be waived, especially if your inability to pay is due to hardships over which you had little or no control, such as injury or disability. You will be pleased to find that the IRS staff is not “mean”, but that they really will help you with customer service. Always be both polite and inquisitive.

The bottom line, however, is that if you choose a payment plan, make the time that you gain of real value. The ultimate test for how well you are managing tax debt is whether or not you continue to fall behind. Use the privilege of a payment plan and a strict monthly budget to slowly but surely relieve yourself of tax debt.