Yesterday, the IRS publicly announced new changes to their collections policies aimed at helping struggling taxpayers impacted by COVID-19 more easily settle their tax debts with the IRS -- changes they’re collectively referring to as the “Taxpayer Relief Initiative (TRI).” Some of these changes were revealed in internal guidance memorandum previously, and have been discussed in this blog, while other changes appear to be new. Most of these measures appear to be temporary in nature, but a number of the provisions have no specified expiration date. As the IRS begins to ramp up its collection efforts following the temporary holds put in place by the People First Initiative in March, it’s worth familiarizing yourself with the new relief measures put in place to ease the burden on taxpayers attempting to settle delinquent tax liabilities with the IRS.
Taxpayers who qualify for short-term payment plans may now have up to 180 days to resolve their tax liabilities instead of 120 days:
For quite some time now, the IRS has offered taxpayers that owe less than $100,000 in combined tax, penalties and interest the option of entering into a short-term payment plan. Functionally, the short-term payment plan provides taxpayers with a 120 day collection hold in exchange for a commitment from the taxpayer to pay the balance in full within 120 days. With the TRI, the IRS has updated short-term payment plan guidelines to allow taxpayers up to 180 days to full-pay their taxes. Unless you have no current ability to make payments but are confident the balance can be fully paid within 180 days, you’re likely better off requesting a streamlined installment agreement on the balance. A streamlined installment agreement for balances of less than $50,000 are generally easy to set up with the IRS and allow the taxpayer up to 6 years to pay off the liability, though you can always make payments above and beyond the minimum required payment if you choose to do so. Additionally, in many instances, entering into a streamlined installment agreement will reduce the rate at which failure-to-pay penalties accrue on the balance, while short term payment plans do not afford such a reduction in penalty accrual. Furthermore, you should not request a short-term payment plan from the IRS if you are not absolutely committed to meeting the payment requirements, as failing to meet the requirements of a short-term installment agreement may make it more difficult to negotiate a collection alternative with the IRS in the future.
The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise:
The IRS issued an interim guidance memorandum on September 8, 2020 outlining procedural changes providing relief to taxpayers who have had an Offer in Compromise accepted by the IRS, but are struggling to meet the requisite payment obligations to satisfy the terms of the Offer. The memorandum indicates that the procedural changes are to be in effect at least through December 31, 2020. In general, the IRS’s OIC guidelines have generally afforded taxpayers the opportunity to request a 120 day extension of time to make payments in accordance with an accepted Offer in Compromise. This 120 extension can apply to lump sum OICs (which generally require full payment of the OIC balance within 5 months of acceptance) and periodic payment OICs (which generally require periodic payments for 24 months following the Offer’s submission. The updated guidance allows taxpayers to request a second 120-day extension or, in the alternative, add any missed payments to the end of the contract terms (including payments that were suspended between March 26th and July 15th, 2020 due to the People First Initiative).
Furthermore, the memorandum highlights taxpayers’ ability to “compromise” an Offer in Compromise or otherwise request a modification to the requisite payment terms. While these are longstanding options for taxpayers unable to meet the terms of an accepted OIC, they were seldom used in the past. Their inclusion in the interim guidance memorandum suggests the IRS may be more open to considering modifications to the standard OIC payment terms in light of the ongoing pandemic, and therefore these options should absolutely be pursued if there’s a risk that you might not be able to satisfy the payment terms of an accepted OIC.
The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out-of-business taxpayers:
This appears to be a new initiative at the IRS, and a welcome one. In the past, any new balance incurred by a taxpayer would need to be fully satisfied upon receipt of a demand letter or an existing installment agreement would be defaulted and require renegotiation. It is not clear at this point what types and sizes of new liabilities would qualify to be automatically added to an existing installment agreement, as the IRS does not appear to have made additional details publicly available. However, I suspect that the qualifications for automatically adding a new balance to an existing installment agreement will closely track with the IRS’s guidelines for reinstating a defaulted installment agreement without requiring managerial approval or a financial statement analysis. In the past, agreements were eligible for this type of reinstatement if the addition of the new liability would result in no more than two additional monthly payments under the terms of the installment agreement and the additional payments would not extend the payment plan beyond the Collection Statute Expiration Date.
Certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient:
This update was revealed in an IRM procedural update dated March 03, 2020, and has been covered previously in this blog. While the IRS has highlighted this as a taxpayer relief initiative associated with COVID-19, the fact that it was released as an IRM Procedural Update in March suggests that the IRS was planning on raising the threshold for a non-streamlined installment agreement (NSIA) prior to the global spread of COVID-19. As the initiative greatly expands the pool of taxpayers that can enter into an installment agreement with the IRS without having to provide a financial disclosure, saving a great deal of time and expense for both taxpayers and the IRS, I am optimistic that this higher threshold is here to stay, even after the negative impact of COVID-19 has subsided.
The updated guidelines allow individual and out-of-business, sole proprietor taxpayers who owe up to $250,000 to enter into an installment agreement without providing a financial disclosure and negotiating regarding their ability to pay so long as they can commit to a monthly payment amount that is sufficient to fully repay the balance, including penalty and interest accruals, before the Collection Statute Expiration Date. It bears mentioning, however, that this option is not available to taxpayers whose account has been referred to a Revenue Officer, so if you currently qualify for this type of installment agreement, it’s worth reaching out to the IRS to get it established sooner rather than later.
Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS:
This also appears to be a newly announced initiative, and additional guidance does not yet appear to be available regarding what installment agreement terms are required to enter into an installment agreement without the IRS filing a notice of federal tax lien (NOFTL). In the past, only streamlined installment agreements on balances of $50,000 qualified for establishment without the filing of a NOFTL, and the interim guidance published related to NSIAs up to $250,000 explicitly states that a lien filing determination must be made before granting the installment agreement. Given the fact that the Taxpayer Relief Initiative pronouncement lists $250,000 as the threshold, I suspect that the TRI will allow taxpayers that only owe for 2019 and are not yet assigned to a Revenue Officer will qualify for an installment agreement without the filing of a NOFTL, provided the installment agreement meets the minimum payment requirements under the new NSIA guidelines.
Qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates:
While taxpayers have been able to request a streamlined installment on balances up to $50,000 online for some time now, they have not previously been afforded the ability to request a modification of the installment agreement online. As the online installment agreement system is automated, and requires a taxpayer to propose a monthly payment that will pay off the assessed balance of tax, penalties, and interest in 72 months or less, I suspect that taxpayers will only be able to lower their monthly payment amount down to the required minimum monthly payment under streamlined installment agreement guidelines. As there’s little incentive to establish an online payment plan for more than the required minimum, this is likely only to help taxpayers who have already committed to paying the minimum each month, though the ability to change the due date of the monthly installments may provide some taxpayers dealing with an unexpected change in their financial circumstances some additional flexibility. Though from prior experience, any requested modification of an installment agreement carries some risk of processing issues at the IRS, which can be frustratingly difficult to rectify. Hopefully the process of requesting a modification online rather than in writing or over the phone with the IRS will greatly reduce the incidence of processing errors in the future.
Now may be the best time to resolve your outstanding tax debts:
These changes show that the IRS is cognizant of the financial and emotional strain placed on taxpayers as a result of the ongoing pandemic. In many ways, I think these relief measures are also indicative of the slowdowns and roadblocks that shutdowns and remote-working has had on IRS operations. From my own experience, it seems that the IRS is being much more lenient in accepting Offers in Compromise that have come up for review since March. There is no indication if and when many of these relaxed collection procedures will sunset, but it seems clear to me that there has never been a better time to resolve a tax liability with the IRS. If you’re dealing with an outstanding tax liability with the IRS, please reach out to us so that we can discuss your options and assist you in resolving your liabilities once and for all.