TAX DEBT "IRS Collections"~ FAQs
How does a business qualify for a streamlined installment agreement?
To qualify, the business must:
- Owe the IRS $25,000 or less in income tax
- Have the ability to pay the entire amount owed in six years or less
- Have filed all required returns
- Be current with federal tax deposits and/or estimated tax payments
How does a business qualify for an in-business trust fund express installment agreement?
To qualify, the business must:
- Be in operation
- Owe the IRS $25,000 or less in trust fund taxes
- Be able to pay the entire amount owed in two years or less
- Have filed all required returns
- Be current (and able to stay current) with federal tax deposits and estimated tax payments
What is a trust fund tax?
Money that an employer is required to withhold from an employee’s wages for federal income tax and FICA taxes. The employer is required to collect the tax and hold the money in trust prior to paying the taxes to the U.S. Treasury.
How long can the business stay in Currently Non-Collectible (CNC) status?
The business can stay in CNC status as long as its financial situation does not improve and the business files and pays future taxes on time.
What happens to the unpaid balance if the business is never able to make a payment?
If the business’s financial situation does not improve and the business is unable to pay the tax liability before the period the IRS has to collect the tax expires, the IRS will remove the unpaid balance from the business’s account.
Will the IRS allow all monthly expenses when determining ability to pay?
The IRS will only allow those expenses that are reasonable and customary for your type of business. Non cash items such as deprecation will not be considered in the ability to pay calculation.
What if the business is unable to pay taxes on a future return by the due date?
Failure to pay can result in the IRS terminating CNC status. Contact your tax professional prior to the due date because the IRS may require updated financial statements.
What if the business cannot pay the balance due in full by the agreed-on date?
If the business is unable to make a payment as agreed, contact your tax professional so he or she can review collection alternatives.
Is there a fee for requesting an extension of time to pay?
No, the IRS does not charge a fee for requesting an extension of time to pay.
Does the IRS charge penalties and interest during the extension period?
The IRS always charges interest on an unpaid balance, even during the extension period. Depending on the type of extension granted, penalties may not be assessed.
What is the CSED?
The CSED is the collection statute expiration date. This is the period of time the IRS has to collect an unpaid tax balance. It’s typically 10 years from the date the tax was assessed.
Does the IRS charge a fee to set up an installment agreement?
Yes, the IRS charges $120, which will be deducted from the first payment. This fee is reduced to $52 if payments are made by direct debit.
What if the business’s financial situation changes and it can no longer make the payments as agreed?
The business will need to provide the IRS with an updated financial statement. Your tax professional can help with re-negotiating the installment agreement.
How much of the business’s income/assets can the IRS levy?
The IRS can take the full amount of the business’s accounts such as bank accounts, accounts receivable payments or merchant payments (up to the levy amount).
Will the IRS give back the funds received from a levy?
Generally, no. Once the IRS has received levied funds, it may return the funds if:
- The IRS did not follow the proper procedures in issuing the levy.
- You prove the levy caused a financial hardship (such as the business is unable to pay its employees)
- The IRS determines that returning the funds will help collect the unpaid balance
- The National Taxpayer Advocate requests return of the levied funds
How long does a tax lien last?
A federal tax lien is in effect from the date the tax is assessed until the lien is satisfied or the collection statue expires.
How can the lien be removed from the business’s credit record?
The IRS may withdraw the Notice of Federal Tax Lien if the business pays the liability in full.
What property is attached to a federal tax lien?
A federal tax lien attaches to all of the business’s property or rights to property, including any property the business acquires after the IRS files the lien. This includes real, personal tangible and intangible property as well as the business’s rights to that property.
Will the business be required to sell its assets pay off the tax debt?
The IRS typically does not require a business to sell assets that are required for the production of income. However, the IRS will require that any assets not required for the production of income be liquidated.
What are the payment options for an Offer in Compromise?
You can choose either of the following options:
- The offer must be paid within five months or less from the date the offer is accepted.
- A 20% initial payment is required with the offer application.
- No additional payments are required until the OIC-DATC is approved.
- The offer must be paid within 24 months from the date the offer is submitted.
- An initial payment must be sent with the offer application.
- Payments must be made monthly while the IRS is reviewing the application.
How is the Trust Fund Recovery Penalty (TFRP) calculated?
The TFRP is 100% of the amount withheld/collected, but not paid over to the U.S. Treasury.
Who may be considered a responsible individual in a TFRP?
A responsible individual is one who has the duty to perform or the power to direct the act of collecting, accounting for or paying over trust fund taxes and willfully fails to do so. Willful in this case refers to knowingly (as opposed to accidently) and does not require bad faith.
Does the IRS always assess the TFRP even if the business is in a non-express IA?
No, in some cases the IRS will ask the responsible individuals to extend the period the IRS has to collect the tax, and will not asses the TFRP on those individuals that agree to sign a waiver. If, at some point, the business defaults on the IA, the IRS will assess the TFRP on those individuals.
In a TFRP, what happens if the business is no longer able to make the IA payments?
If the TFRP has not been assessed, then the IRS will assess the penalty. If the TFRP was assessed, but collection was deferred, the IRS will then pursue collection against all individuals who were assessed the TFRP. This may include filing liens and issuing levies.