The IRS still is receptive to working out "deals" with taxpayers to settle their debts. But it's going to cost many of your clients more to make arrangements in 2014.
Beginning on January 1, 2014, the IRS is increasing the fees for installment agreements, offers in compromise, and other payment arrangements. The fee for entering into an installment agreement goes up from $105 to $120, while the fee restructuring or reinstating an installment agreement rises from $45 to $50. Significantly, the fee for processing an offer in compromise jumps from $150 to $186. The IRS delivered the news in an e-mail to tax practitioners on December 20.
However, the fee owed by low-income taxpayers who request a new installment agreement remains unchanged at $43. The IRS also pointed out this fee is substantially less than its internal cost of $282 for processing a request as well the $120 fee that other taxpayers have to pay. And fees are waived entirely for low-income taxpayers making an offer in compromise.
You can arrange for a client to make monthly payments through an installment agreement if the client isn't financially able to pay his or her tax debt immediately. Before the application is made, the client should:
- File all required tax returns;
- Consider other sources (loan or credit card) to pay the tax debt in full to save money;
- Determine the largest monthly payment the client can make ($25 minimum); and
- Know that future refunds will be applied to the tax debt until it's paid in full.
With an offer in compromise, a taxpayer can settle the tax debt for less than the full amount that's owed. This may a legitimate option if a client can't pay his or her full tax liability or if doing so creates a financial hardship. The IRS will consider the particular facts and circumstances, including the taxpayer's ability to pay, income, expenses, and asset equity.
No one can say the latest fee increases are unexpected. When the IRS issued proposed regulations in August, it stated that these changes would be forthcoming. According to the IRS, it's the first time such fees have been raised since 2007.