You have the right to representation by an Enrolled Agent (EA), CPA or Attorney. You don't have to face the IRS alone, or at all!
Based on Standards the government has set, you may be able to obtain an Installment Agreement to pay your back taxes over time. These standards are not considered to be fair by the Professional Tax Organizations, but we must work within their parameters until change can be brought about through Congress. However, the savvy taxpayer or Tax Professional can help to ease the burden.
The IRS is intent is to collect your back taxes (and the penalty and interest that accrues) within 5 yrs, or less.
If you don't have a prior tax delinquency history you may request a Streamlined Installment Agreement if you owe less than $25,000 and can propose to pay it off within 5 yrs. Otherwise you will need to request a Standard Installment Agreement and provide full financial disclosure.
To request an installment agreement prepare and submit Form 9465. (you will need Adobe Acrobat to open this file. See the Publications page to download.)
The IRS will require a complete financial disclosure from you through the completion of Form 433-A.
Basically the IRS has established what they consider to be reasonable and allowable living expenses, based on Bureau of Labor Statistics (BLS). The bankruptcy courts use these same standards. For example; in Hennepin County in the State of Minnesota, allowable housing expense is $1,258 for a family of 4 or more. This amount includes all housing costs: rent/mortgage payment, mortgage interest, property taxes, insurance, utilities, telephone, maintenance, etc. If the housing costs are more than that, it's not allowed in determining what a taxpayer can pay monthly.
The IRS has also established standards for 'National Standards' (Housekeeping supplies, apparel and services, personal care products & services, food, and miscellaneous); transportation (vehicle loan or lease payments, and operating costs).
Any other expenses are allowable as long as you can prove they are necessary, not elective or discretionary.
After subtracting all allowable expenses from your income, whatever is left over each month is what the IRS will demand for a monthly payment. In reality your real expenses will run higher than what the IRS allows. Often there are expenses that come up periodically that are difficult to predict, or don't even come to mind.
What if you can't pay what the IRS demands?
You have the right to request 1 year to reorganize your finances before beginning payments at the level the IRS wants. You will be required to make some payments in the mean time. The 1 year gives you time to sell a home that is too expensive (for IRS standards) and obtain cheaper housing. Or to make other adjustments like finding cheaper transportation.If you find yourself in this situation, get professional help.
Copyright © 2001-2008 by Gary W. Lundgren, EA
