In response to the coronavirus pandemic, the IRS announced March 25 it was suspending most collection efforts including the requirement to make monthly payments on installment plans (You’ll need to contact your bank to suspend the payments through July. A phone call should do it). Further, no automated levies and liens will be initiated until July 15. The IRS will also stop telling the State Department to suspend delinquent taxpayers’ passports.
This post is for those of us who have been paying (or plan to pay) our IRS tax debts, and coronavirus has messed-up our finances. So, should we just chill — take the payment vacation, and watch Netflix?
(If you can’t pay or chip away at your tax debt in the foreseeable future, read about how to obtain uncollectable status.)
If You Must, Defer Your Payments
So. If you are truly strapped, with no light in sight yet, taking the payment vacation may be the lifeline you need to put food on the table! Just remember that the debt hasn’t gone away, it’s just dozing and July 15 is right around the (ahem) coroner. So, be ready to start paying again, AND, act now to renegotiate your payment amount or cut your tax debt.
Act During IRS Pause to Renegotiate Payment Plan or Prepare a Pay-Less Compromise Offer
If you have a large or unresolved tax debt or run a business affected by the nationwide shutdown, you must get cracking on a recovery plan. One opportunity is to renegotiate your IRS Payment Plan. After all — if your business is hurting, even future cash flow may not support your current payment plan. You’ll have to submit a new Form 433-a to document your Post-COVID-19 financial reality.
Learn Your Reasonable Collection Potential
IRS uses Form 433 to gather future-income data from delinquent taxpayers. The data is used in a formula that yields a Reasonable Collection Potential (RCP) —a future-earnings dollar value the tax agency expects it can collect.
As a tax representative, I employ the same RCP formula with proprietary software so my clients can know in advance what the IRS expects to collect, based on the latest form 433 data. This can help you, as noted above, to establish or renegotiate a payment plan; or if feasible, to save major money by offering to settle your IRS tax debt for less than you owe.
IRs Accepts 40% of Compromise Offers
IRS calls such gambits ‘Offers-in-Compromise’ (OIC) and in 2018 rejected 60% of these offers. The key to landing in the 40% of accepted OICs is an offer close to your RCP. There are other factors, including timing. Which brings us back to the value of filling out or updating your form 433 and determining your RCP now.
Wait, It gets even better!
Tweak Your Reasonable Collection Potential
Now, while you have the time, during this pause in IRS collections activity, you can actually Change (Lower) Your IRS Collection Potential, to save even more money by taking certain steps. My linked article has more details.
Have a Pending Compromise Offer? Modify It, As Needed, by July 15
Do you have a pending Offer-in-Compromise? You now have until July 15th to modify the offer and document changes the coronavirus shutdown is having on your business. Also, any payments that were due with the offer are suspended until July 15.
If you or someone you know needs help with an IRS or state tax issue, please feel free to contact me at either (352) 317-5692 or via email.