Lawrence Lawler: Hi! I am Lawrence Lawler, National Director of the American Society of Tax Problem Solvers. We are doing a series on solving common tax problems. Today's segment will have to do with payment plans or installment arrangements made with the IRS that are intended to give the taxpayer time to pay what they owe.
There are basically three different types of installment plans or payment plans that the IRS gives to taxpayers. The first one is called the Statutory Plan and that's because it's built into the law. The law provides that a taxpayer is entitled to a payment plan when they owe back taxes if the amount of their tax liability itself, the amount of tax, not the amount if interest and penalties, is $10,000 or less, and it can be paid within three years.
In that circumstance the IRS is required by law to establish a payment plan for the tax payer, giving them up to three years to pay the full amount of tax. The tax liability can be greater than the $10,000 when you include the penalties and interest. It's based on the tax itself, which is a distinction from the next type of plan called the Streamlined Payment Plan.
This is where the taxpayer owes the IRS a grand total, including penalties and interest, so the tax, the penalties, and the interest are all counted. And if the grand total they owe is below $25,000, the IRS has a policy where they will allow a, what they call a Streamlined Payment Plan. Their policy is to give the taxpayer five years in which to pay this tax.
By the way one more thing that I should be mentioning on the Streamlined plan is that the taxpayer does not have to provide full financial disclosure on this type of a plan. The IRS will establish the plan as long as the payments cover the liability within five years. So they don't have to make out a 433-A information form that discloses all of their finances.
However, when they get into a non-statutory or a non-streamlined position, in other words they owe probably over $25,000, they are going to be required to provide full financial information and that is disclosed on a Form 433-A, which is a financial statement basically for an individual. If they have owned a business, they might have to also do a 433-B, which is a Form that is used for their business. That would only be for an incorporated business not for a proprietorship. If it's a proprietorship solely owned by the taxpayer, that can be shown right in the 433-A Form itself.
But once the taxpayer has established what their financial position is, the IRS will take that information and evaluate how much the taxpayer is able to pay on a payment plan and establish a payment plan for the taxpayer.
So remember, if you're filing for a payment plan or requesting a payment plan from the IRS, the type of payment plan that you're going to be looking for has to do with the dollar amount you owe them. Just to recap, if you owe them $10,000 of tax, exclusive of the penalties and interest, you can have a Statutory Plan and you get three years in which to pay. If you owe them a grand total of upto $25,000 tax penalties and interest, you can get five years to pay and not have to give them full financial disclosure. If you owe them more than $25,000, you're going to have to give them full financial disclosure and let the IRS work with you to determine the amount of payment they believe that you can make.
And one final item on these payment plans, there are fees that the IRS charges for filing a payment plan request. It's anywhere from $43 to $105, depending on how you structure your payments. They charge you less if you allow them to, for example, deduct the money from your bank account or automatically charge your credit card.
That's pretty much everything you need to know on the payment plan situation. The next item that we're going to be discussing has to do with Innocent Spouse or the treatment of an Innocent Spouse in a tax matter.