Tax Problems Blog

September 21, 2017

Installment Agreements and streamlined installment agreements – Taxpayers are entering into agreements they cannot afford

Filed under: IRS Abuse, Misuse, and Taxpayer Rights Violations — Administrator @ 1:46 pm

The Taxpayer Advocate (September, 2017) has posted concerns about the disturbing long term effects on taxpayers entering into installment agreements that prevent them paying basic living expenses. The following are key points:

1. Taxpayers are routinely entering into and making payments on installment agreements despite having monthly income lower than their Allowable living Expenses.

2. Collection alternatives (e.g., Offer in Compromise, installment agreement, currently not collectible), should be designed to set a taxpayer up for success in meeting tax obligations. This includes paying current taxes.

3. The IRS Allowable Living Expenses do not adequately capture all necessary expenses.

4. Installment agreements are the most common collection alternative for taxpayers.

5. Installment agreements that disregard the taxpayer’s ability to pay AND meet basic living expenses, is an agreement set up for failure.

6. The “streamlined” installment agreement is the most frequently used form of installment agreement (in fiscal year 2014, 94.9 percent of installment agreements were streamlined; in fiscal year 2016, 84.4 percent of installment agreements were streamlined).

7. Using a Streamlined installment agreement means that there is NO financial analysis and NO application of the Allowable Living Expense “standards”. The IRS simply divides the balance due by 72 or even 84 months. As a consequence, the required monthly payment bears no relationship to what the taxpayer can actually afford to pay.

8. Disturbing long term effects – study found that 40 percent of all taxpayers who entered into installment agreements in 2014 had income levels below their Allowable Living Expenses – meaning those taxpayers could not meet their basic living expenses.

9. Over 400,000 taxpayer accounts in the study qualified for Currently Not Collectible. Thus, payments to the IRS created economic hardship. The taxpayer making payments were thus foregoing basic living expenses (such as utilities, food and a place to live).

10. The study found that taxpayers who had gone through a financial analysis (through the Advocates Office) to determine if the taxpayer could actually afford the streamline installment agreement payments (without foregoing basic living expenses) had a lower default rate than taxpayers who had not. During this financial analysis, consideration wass given to: the ability to pay basic living expenses, whether there is sufficient withholding to make sure current taxes are full paid, and that self-employed persons have sufficient income to make their estimated tax payments. Read More Here

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