IRS Tax Installment Agreements: What You Need to Know
The amount taxpayers owe the IRS for unpaid taxes and penalties can add up quickly. Past-due penalties and statutory interest can turn even a modest unpaid tax debt into a significant problem, even for couples making a comfortable living. IRS tax installment payments are an option. But getting an installment agreement isn’t always as easy as you think.
Former Newscaster Gets Unpleasant Tax Bill
A recent opinion from the United States Tax Court shows that no one is immune to tax penalties. Long-time NBC and CNN news correspondent Michael Boettcher, now a professor at Oklahoma University, and his wife Katherine Boettcher, an attorney, faced an IRS collections lawsuit after the IRS determined they were delinquent in filing their federal income tax returns for 2011, 2012, and 2013. Between the unpaid taxes themselves and additional tax penalties for failure to timely file their tax returns, pay estimated self-employment taxes, and pay taxes on time, the couple owed $166,874 as of March 16, 2018.
The Boettchers did not fight the penalties. Instead, they responded to the IRS’s notice of intent to levy by requesting a Collection Due Process (CDP) hearing. At that hearing they asked the IRS to allow them to pay their tax debt in an installment agreement, committing to pay the IRS $1,000 per month until the balance was paid in full.
When Can You Get a Tax Installment Agreement?
The IRS offers different payment plan options to taxpayers with unpaid tax debt. If a taxpayer believes they will be able to pay the taxes in full eventually, they may request a short-term payment plan (paid in less than 120 days) or a long-term installment agreement (paid over more than 120 days). However, the IRS must approve any applications for a long-term payment plan. When the amount owed is significant (generally more than $50,000), that can get complicated.
An IRS settlement officer at a CDP hearing is required to verify that a taxpayer has complied with the tax law and administrative procedures related to the assessment of the tax levy and consider any collections concerns raised by the taxpayer. In the Boettchers’ case, that included the request for an installment agreement. The IRS then balances the government need to efficiently collect taxes with the taxpayer’s concern that collections be no more intrusive than necessary.
Demonstrating the Need for Installment Payments
Ultimately, this decision comes down to the numbers. Taxpayers seeking an installment plan may be asked to complete Form 433-A, disclosing their:
- Wages and other income
- Bank and financial information
- Financial assets
- Homes and real property
- Personal property (such as vehicles, furniture, jewelry, and personal effects)
- Credit available
The form also asks taxpayers to summarize their monthly income and expenses, including everything from housing to health care costs. Taxpayers are also asked to provide documentation substantiating (confirming) the amounts included in the form.
In the Boettcher’s case, their Form 433-A disclosed both spouse’s wages along with an oil royalty, almost all of which was offset by monthly expenses. Their combined monthly net income was only $174 dollars. A CDP hearing was set for September 30, 2016. The settlement officer asked for copies of their 2014 and 2015 tax returns, three months of receipts, and proof that they had been complying with their estimated tax obligations.
The Boettchers sent along Mr. Boettcher’s pay stub and a letter explaining that Mrs. Boettcher had been having medical problems and had not received a paystub in the past three months. They noted that if her health issues continued the couple may become candidates for “currently not collectible” status. They said they were both wage employees, so there were no estimated taxes to be paid. They acknowledged that their 2014 tax return had just recently been filed due to a problem with the e-filing system, but said that their 2015 tax returns were not yet due (presumably because they filed an extension to October 15, 2016).
IRS Settlement Officer’s Denial Doesn’t Add Up, Court Says
Ultimately, those explanations were not enough for the IRS settlement officer. She denied their request for an installment agreement. Her reasons were:
- Form 433-A was not “fully completed” because there were blanks on the bank information section of the second page
- They had failed to include business income and distributions from their outside ventures
- Their reported monthly expenses exceeded the amount allowed by national and local expense allowances
But these reasons didn’t make sense to the U.S. tax court judge reviewing the case. In a recent opinion, Judge Urda noted that the officer hadn’t told the Boettchers or their tax attorney about some of the supposed defects in their request. The Court noted that:
- The officer faulted the Boettchers for failing to include business income from outside ventures while at the same time acknowledging that they had no other income, only wages during 2016.
- She failed to reconcile differences between her calculation of Mr. Boettcher’s income and his own pay stubs.
- She inconsistently checked “Deviation Allowable” with regard to the family’s actual housing expenses of $4,850, but then only adopted a total housing and utility amount of $1,530 because they “did not provide substantiation.”
- The officer did not speak to the Boettchers or give them a chance to review her calculations before issuing a notice of determination rejecting the installment agreement request.
Ultimately, the judge sent the whole case back to the IRS Appeals Office saying the settlement officers’ findings didn’t add up.
The Boettchers’ case shows how important it is to work with a diligent tax attorney who will put pressure on the IRS to keep your case moving forward. Throughout the case, there were several unexplained delays. It was only after repeated requests that the IRS finally issued its determination. Still, when it did, it appears that the denial of installment payments missed the mark.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding IRS collections or installment agreements, contact Joe Viola to schedule a free consultation.