IRS Collection Policy Update – Changes to Streamlined Installment Payment Plans

The IRS recently updated rules under 26 U.S.C. § 6159 regarding streamlined installment payment agreements to expand the number of eligible taxpayers and ease certain requirements. The current changes are a test program lasting through September of 2017.

The IRS has authority under the code to enter into payment agreements with taxpayers to facilitate payment and collection of outstanding tax balances. The code requires the IRS accept an installment agreement when a taxpayer has a tax liability of $10,000 or less, is current on filing, and meets the criteria of 26 U.S.C. § 6159(c). The standards to enter into an installment agreement for taxpayers with higher liabilities have been more stringent, including requirements to verify ability to pay, limiting installment payments to tax liabilities under $50,000, and the threat of federal tax liens.

The new, temporary rules ease some hurdles for taxpayers with  higher outstanding tax liabilities. The IRS no longer requires submission of a Collection Information Statement verifying ability to pay and will not require direct debit or payroll deduction for taxpayers with a tax liability between $25,001 and $50,000. However, if the taxpayers choose direct debit or payroll deduction payment, then IRS will no longer require a Notice of Federal Tax Lien. Any taxpayer declining the automatic payment methods will still find itself subject to a determination. These same rules apply to active businesses with tax liability up to $25,000, and to out-of-business sole-proprietorships with up to $50,000 of tax liability.

Taxpayers with tax debt of $50,001 to $100,000, previously excluded from the streamlined installment agreement program, can now qualify for the streamlined process. If accepted for the streamlined process, the taxpayers must make full payment in the lesser of 7 years (84 months), or the number of months necessary to satisfy the liability in full by the Collection Statute Expiration Date. Moreover, the IRS will waive a Collection Information Statement, but only if the taxpayer agrees to payment using direct debit or payroll deductions. The IRS will not waive a determination on Notice of Federal Tax Lien for tax liabilities in this range. The same criteria apply to out-of-business sole-proprietorships.

While temporary, the rule could become permanent if the IRS determines the expanded process improves customer service, reduces taxpayer burdens, and increases agency efficiency. Taxpayers with substantial tax liability should consider whether the expanded eligibility and eased requirements under these announced rules provide a means to pay off outstanding tax debt.

Overall, the IRS has recently updated their operative tax collection rules.  These new rules will substantially reduce red tape and delays for taxpayers owing between $10,000 and $100,000 who wish to enter into an installment agreement.