Tax Insights

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IRS temporarily increases installment agreement thresholds

The IRS has recently announced the temporary expansion of an existing program allowing taxpayers who are unable to afford their tax bill to set up a payment plan with the treasury. Prior to the expansion, taxpayers owing up to $50,000 could be automatically approved for an installment agreement, without being required to submit extensive paperwork regarding their finances. This recent expansion increases that figure from $50,000 to $100,000, and also increases the payment term from six years to seven years. The increase is currently set to run through September 30, 2017, but could be extended or made permanent if the response is positive.

This recent expansion is the second alteration to the Fresh Start Initiative, which was enacted in 2012. Fresh Start originally increased the streamlined installment agreement threshold from $25,000 to $50,000, and produced excellent results. The number of installment agreements has more than doubled since Fresh Start was first enacted, which is likely part of the reasoning behind the further expansion of the program.

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There are a couple of caveats that taxpayers should be aware of when considering an installment agreement. In order to be approved for the streamlined installment agreement program, the taxpayer must agree to enroll in monthly automatic payments made directly from their bank account. Additionally, although the recent threshold increase to $100,000 will allow taxpayers owing between $50,000 and $100,000 to enroll in an installment agreement more easily, the IRS will continue to file a tax lien on the taxpayer’s property, regardless of enrollment in automatic payments, etc. Taxpayers owing less than $50,000 will not be subject to a tax lien, providing they make monthly payments as agreed.

Further changes regarding IRS debt collection rules are expected in the coming months, including the potential for delinquent tax debt to be handed off to private debt collection agencies, similar to credit card or other consumer debt. We’ll keep you posted as these issues continue to be addressed.

Austin Bradley, CPA