Feb 1, 2012

IRS officially changes installment agreement rules

On Jan. 20, the IRS released a memorandum (SB/SE 05-0112-013) to its collection employees, formally implementing policy changes to the streamlined installment agreement. These changes come with a new Form 9465-FS, Installment Agreement Request, released last month by the IRS but without any guidance.

According to the form’s instructions, individuals with unpaid liabilities of more than $25,000 and less than $50,000 can use this form to request an IRS direct debit installment agreement to full pay the tax liability within 72 months or within the collection statute of limitations, whichever is shorter.

With this form, the IRS changed the threshold for this type of agreement from $25,000 to $50,000, which will allow the IRS to process the agreements faster. Taxpayers can also avoid filing a detailed financial statement and supporting documentation.

For new balances filed this year, you can attach the paper Form 9465-FS to the front of the tax return. For existing balances, you can mail the form directly to the IRS.

On Jan. 26, the IRS also modified its online payment arrangement (OPA) application at IRS.gov to allow for taxpayers to request installment agreements for balances of up to $50,000. The current application allows for balances of up to $25,000 and payment terms of up to five years.

If your client cannot pay the tax in full within the prescribed period or doesn’t want a direct debit installment agreement, you must submit Form 433A (long form, Collection Information Statement for Wage Earners and Self-employed Individuals) or Form 433F (short form, Collection Information Statement), along with supporting documentation to substantiate your client’s ability to pay.

Taxpayers can also avoid a federal tax lien for balances up to $50,000. Previously, the IRS was required to make a lien determination, and often filed a lien, when a taxpayer owed more than $25,000. As expected, under the new rules, taxpayers who owe less than $50,000 and are in direct debit installment agreements to full pay the taxes owed will not have a tax lien filed.

Beyond415 stays current with the latest IRS changes and has updated its IRS Practice System with the new Form 9465-FS.

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