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Most people who owe
IRS are unable to make a single one-time payment that will pay
off the entire amount they owe. Many of these people are even
unable to make a minimal monthly payment of even $25 to $50; in
these cases, IRS may designate the taxpayers as
Currently Non Collectible (CNC) .
However, most people will find
themselves able to pay IRS a monthly payment of some kind to pay
off their old taxes. While many taxpayers will say they are
unable to make any kind of monthly payment or that they can
afford only a small payment, when they discuss their monthly
income and expenses with IRS (as required), they will find that
IRS has a different opinion of whether or not they can make a
payment and how much that payment will be.
Remember, IRS has already determined
and defined the precise calculation that computes what they
refer to as Monthly Net Cash Flow. All taxpayers must use this
method to find out what their particular situation is going to
be and then use it to calculate their precise cash flow.
To put it simply,
the following calculation will be made for all taxpayers:
Monthly Income from All
Sources - Allowable Monthly
Expenses = Monthly Net Cash Flow
Notice the very
important term "allowable". Not all expenses are allowable. To
be defined as allowable, an expense must be "ordinary and
necessary." IRS is very specific about what expenses are
considered "ordinary and necessary," and those expenses that do
not meet this test are not allowed or considered in determining
a taxpayer's Monthly Net Cash Flow.
This calculation will result in
either:
Negative Monthly Cash Flow
Most taxpayers who have Negative
Monthly Cash Flow will not be required to make payments to IRS.
If IRS were to require these people to make payments, they would
then be unable to pay their "ordinary and necessary" monthly
expenses. Requiring monthly payments from these taxpayers would
then force them into what IRS defines as an "undue economic
hardship," which IRS is not allowed to do.
Taxpayers with Negative Monthly Cash Flow will automatically
qualify for what IRS calls Currently Non Collectible Status
(CNC), or Uncollectible Status.
Read more about IRS
Currently Non Collectible Status here.
Positive Monthly Cash Flow
Those taxpayers who have Positive
Monthly Cash Flow will be required to make monthly payments to
IRS that will be credited toward their unpaid balances. These
monthly payments are referred to as Installment Agreements.
Installment Agreement payments can
be made in the following ways:
As long as the
taxpayer meets the following requirements, IRS will not issue
new levies or other types of enforced collection methods:
-
All future tax
returns must be filed on time, including extensions
-
All unpaid
balances on those tax returns must be paid in full when the
tax return is filed
-
All Installment
Agreement payments must be made on time
Failure to meet
these requirements will result in the default of the Installment
Agreement.
If an Installment
Agreement defaults, IRS will then enforce collection through
levies and/or seizures of paychecks, bank accounts, retirement
accounts, government payments, and any other assets. Future
warning and/or contact is not required.
If a taxpayer
defaults on an Installment Agreement, IRS will be more difficult
to deal with since the taxpayer will have shown that (s)he is
untrustworthy.
A taxpayer can
always contact IRS if (s)he anticipates an inability to continue
making Installment Agreement payments or if (s)he actually
defaults on an agreement. IRS representatives are trained to
carefully consider the reasons given for the default and will
often re-establish the agreement or even set up an entirely new
one. If the taxpayer is unable to make payments and the IRS
representative agrees that (s)he meets the requirements for
Currently Non Collectible status, the IRS rep may be able to
classify the taxpayer as CNC.
If you ever have an
Installment Agreement with IRS that you cannot continue, it is
recommended that you contact IRS immediately and discuss the
reasons for your inability to make payments. If you are
reluctant to talk to IRS by yourself, you can contact us or any
other competent professional who can then represent you. |
