The Internal Revenue Service (“IRS”) has tremendous collection powers.  Creditors must usually get a court judgement before seizing your income or assets.  The IRS, by contrast, can generally seize (“levy”) a taxpayer’s income and property to satisfy debts without court involvement, if it has mailed the required notices to a taxpayer who has not timely set up a collection alternative.[i]  This article talks about how you can avoid or stop an IRS levy with a payment plan.

Before applying for a long-term installment agreement (“IA”), it is important to know how they work.

There are many types of agreements, but they all share features.  First, the IRS will only consider a payment plan if you are in “filing and payment compliance,” usually for the past 6 years.[ii]  “Filing compliance” means you have filed all required returns or have an extension.  To be in “payment compliance,” you must be current on required federal tax deposits or estimated payments.  The IRS wants delinquent taxpayers to get into compliance and to stay there.

Second, an installment agreement will only succeed if you meet its terms.  The terms[iii]include:

  • making every plan payment on time;
  • paying every additional tax on time;
  • providing accurate and complete information in the plan application; and
  • if applicable, providing an updated “collection information statement” on request.

If you do not meet all these conditions, the IRS will send you back into collection.

Third, an installment agreement is only a good option if you can manage monthly payments, but you cannot pay your entire debt at once  However, a payment plan can be hard to secure if your proposed payment amount will not fully pay your tax debts and you own valuable property.  In that situation, you might be able to argue that selling the asset would cause you or your business an economic hardship.  Kennedy Law Offices may be able to help taxpayers in that scenario find appropriate financing to leverage your property’s equity instead of selling it.

Finally, a payment plan does not stop interest and penalties from continuing to accrue, and you must pay an application fee unless you are “low income.”

If you think that an installment agreement is the right fit, then it is time to figure out what your monthly payment amount should be.  This is the technical part because the amount the IRS might accept depends on the plan type (there are 8) and your tax situation.  If you want to apply for a payment plan on your own, the simplest way might be use the IRS online payment agreement application (www.irs.gov/OPA).  However, the online application only works for plans that do not require a collection information statement (Form 433 series).  If an online application does not work, then you should draft a collection information statement and an installment agreement request (Form 9465). Once you have completed the forms, you can mail them to the IRS or call the IRS at 800-829-1040 (individual taxes) or 800-829-4933 (business taxes).

Taxpayers who do not want to deal directly with the IRS have options.  Kennedy Law Offices represents business and personal taxpayers throughout Minnesota.  To schedule an appointment, please call 651-262-2080 or email clerk@mpkennedylaw.com

[i]   The IRS must sometimes get a court order to levy property.  For example, the law generally prohibits the IRS from seizing a primary residence without a court order.  26 USC § 6334(a)(13).  In addition, some income is exempt from IRS levies.  26 USC § 6334.

[ii]More information is available in Internal Revenue Manual (“IRM”) section 5.14.1.4.2.

[iii]The terms are listed in IRM section 5.14.11.3(1).

Our office has attorneys that specialize in tax law as well as a tax specialist who worked for the IRS for over twenty years. We frequently receive frantic phone calls from innocent taxpayers who have been targeted by a scammer impersonating the IRS. We know what to look for to know if it is an IRS scam. Here is a list of common takeaways to help identify when you’re being scammed.

1. The IRS called me and demanded payment over the phone.

If someone calls you and demands that you pay your tax debt over the phone, it’s a scam. These scammers are sophisticated and know how to use scare tactics. They use bogus IRS employee names and badge numbers to sound like a real government official. If you don’t answer the phone, these scammers typically leave an urgent voicemail with callback information and threats. Remember, the IRS communicates with taxpayers via mail through distinct notices. If in doubt, reach out to an experienced tax attorney to verify a notice.

2. It says IRS on the caller ID, it must be them.

IRS Notice
This is a mock up of what an IRS notice looks like.

Sophisticated telephone scammers can reroute or alter the caller ID function to make it look like the IRS is calling, once again the IRS communicates with taxpayers via mail through notices. A mock up notice is included for your reference.

3. Make your payment to _________.

A common misconception is that checks to the IRS should be written to the IRS. Checks should be made out to the United States Treasury. The IRS will never ask for credit or debit card numbers over the phone. Your first notice to pay a delinquent tax bill will be through the mail. The IRS will never demand payment be made through a prepaid debit card, gift care, or even wire transfer.

4. The caller threatened to involve the police if I didn’t pay immediately.

A common IRS scam technique is to instill fear in the caller. The fear tricks the caller into giving away confidential, private information. The IRS will never threaten to bring in local police or other law enforcement to have you arrested for not paying. The IRS will also not threaten to deport an individual or suspend a driver’s license.

5. The IRS is at my doorstep.

In special circumstances, the IRS will visit taxpayers at their home or business due to delinquent taxes, an audit, or pending criminal proceedings. Typically, you will receive notices in the mail prior. If an IRS representative visits you, he or she will provide two forms of official identification. The first is called a pocket commission. The second, is called a HSPD-12 card. This card is a government-wide form of identification for federal employees. You have a right to see this card and verify the information. The representative should provide you with an IRS phone number for verifying the information and the individual’s identity.

When in doubt, call for help.

If you unsure if it’s the IRS demanding payment, please do not hesitate to contact Kennedy Law Offices to verify. Our phone number is: 651-262-2080 and email address is: clerk@mpkennedylaw.com. If you are concerned you are being scammed, reach out to local law enforcement.