Question: We just filed our 2022 tax returns due Nov. 16 with the latest California Disaster Relief extension and we owe the IRS almost $10,000. Unfortunately, we do not have the money to pay this tax. Can we make a deal with the IRS to pay them off over time?
Answer: For a taxpayer with $50,000 or less in combined tax liability, interest and penalties, an interactive Online Payment Agreement application is available on the IRS website for requesting an installment agreement. Otherwise, you can ask the IRS to permit you to make monthly installment payments using Form 9465, Installment Agreement Request. If the IRS approves your request, you will be charged a $225 user fee ($107 if you make your payments by direct debit from your bank account).
Alternatively, the user fee is $149 for a taxpayer who applies for an installment agreement through the OPA application process. The user fee is only $31 for a taxpayer who applies through the OPA process and pays by direct debit. However, you may qualify to pay a reduced fee of $43 if your income is below a certain level even if you do not choose direct debit payments. The IRS will let you know whether you qualify for the reduced fee. The IRS will generally let you know within 30 days after they receive Form 9465 whether it is approved or denied. The IRS may also request various financial information from you (monthly income and expenses, assets and liabilities, etc.).
Before requesting an installment agreement, you should consider other less costly alternatives, such as a bank loan. You will be charged interest and may be charged additional late payment penalties on any tax not paid, even if your request to pay in installments is granted.
Upon approval of your request, the IRS will send you a letter explaining how to pay the processing fee, and how to make your first installment payment. After the IRS receives each payment, they will send you a letter showing the remaining amount you owe, and the due date and amount of your next payment. Obviously, you are entitled to prepay your total obligation at any time. Also, Form 9465 provides for optional authorization of monthly payments by direct debit of your designated bank account.
By approving your request, the IRS agrees to let you pay the tax you owe in monthly installments instead of immediately paying the amount in full. In return, you agree to make your monthly payments on time, and agree to meet all your future tax liabilities. This means that you must have adequate withholding or estimated tax payments so that your tax liability for future years is paid in full when you timely file your return. If you do not make your payments on time or have an outstanding past-due amount in a future year, you will be in default on your agreement and the IRS may take enforcement actions to collect the entire amount you owe.
I hope the above helps and good luck!
Barry Dolowich is a certified public accountant and owner of a full-service accounting and tax practice with offices in Monterey. He can be reached at 831-372-7200. Please address any questions to Barry at PO Box 710 Monterey, CA 93942 or email:[email protected]