What I find in my Enrolled Agent tax practice in Jacksonville is that clients who owe back taxes and can’t pay are in situations where they filed tax returns with underpaid federal income taxes that include penalties and interest. Unpaid taxes can also occur when the IRS files Substitute Returns when taxpayers fail to file altogether, have underwithheld, and third parties have reported their income to the IRS. Occasionally, a taxpayer may suffer an audit and IRS determines there is now a tax deficiency.
If employed taxpayers do not withhold enough of their wages to full pay their taxes, and self-employed taxpayers fail to make their quarterly estimated payments, they must pay in full by the due date of the return, or they face IRS collection efforts.
Many taxpayers are unable to pay their current tax or past tax debts in full. In order to avoid the more extreme collection tactics such as liens, wage and bank levies (garnishments), threatening letters, and seizures, the IRS does offer installment arrangements.
Taxpayers who owe less than $25,000 in total taxes, interest and penalties qualify automatically for a “streamline” agreement based on the “Six Year Rule.” They can call the IRS collection office and speak to a real person to set it up or they can establish one online by themselves at IRS.gov. Simply put, a streamline installment requires little or no financial analysis and no substantiation of expenses as long as the taxpayer agrees to make monthly installments that are sufficient to full pay the debt within 72 months (6 years) or less.
The streamline installment method does not apply to taxpayers who owe more than $25,000; however, they may still qualify for the Six Year Rule, and for debts up to $50,000 they can still apply online. For debts above $50,000, this rule allows for payment of living expenses that exceed the IRS Collection Financial Standards as long as the debt can be full paid in 72 months usually by direct debit or payroll deduction. Taxpayers may be required to provide financial information in these cases and are subject to IRS approval.
Jeffrey Mitchell, Enrolled Agent, with 23 years experience as an IRS agent, now retired, can best represent the taxpayer and resolve their IRS debt issues.