IRS to Standardize Delinquent-Taxpayer Plan
The Internal Revenue Service is getting ready for the first time to impose a set of national standards to evaluate deals in which delinquent taxpayers agree to pay what they owe over time.
In the past, these installment agreements were negotiated one-on-one--revenue agent to taxpayer--and were highly subjective. In some cases, taxpayers got favorable terms; in others, they were left with little more than their socks, tax accountants say.
This fall the agency will issue guidelines that delineate just how much taxpayers can spend for specific items such as food, clothing, utilities, transportation and housing while they’re paying their overdue tax bills in monthly installments.
Those who are willing and able to fall into the IRS budget are likely to find their installment agreement requests granted. Those who aren’t are likely to be turned down--unless they can persuade revenue agents that there are compelling circumstances that warrant bending the rules.
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Some say the proposed national guidelines are a signal that the kinder, gentler image that the IRS has been promoting over the past several years is a thing of the past. The IRS is throwing away the carrot and going for the stick, said Peter Berkery, manager of the Research Institute of America’s Washington bureau.
The IRS counters that this is no departure: The national standards are not necessarily stricter than before--they’re just uniform office-to-office, district-to-district, deal-to-deal. Standard rules are necessary to eliminate inconsistent treatment of taxpayers, said Steve Taylor, assistant director of collections at the IRS in Washington.
“We are making these changes to bring more consistency and fairness--and to make this a more predictable process,” Taylor said. “There is no goal to be more harsh, and I don’t think that’s going to be the across-the-board result.”
In some significant ways, the national rules are merely a formalized version of what’s already considered accepted practice. They’ll spell out that the IRS only accepts installment agreements under three basic circumstances: When back tax bills amount to $10,000 or less, can be paid off within three years, or when the taxpayer has no valuable assets or borrowing power that would enable him or her to pay off the bill in any other way.
It will also clarify that the IRS gives taxpayers in the first two categories fairly wide berth in negotiating a deal to pay over time. If you owe a relatively small amount and can pay it off in monthly installments within, say, a year or two, there’s a fairly good chance that the IRS won’t even ask for a financial statement before approving your proposal.
It’s only those who are in the final group--people who owe a lot of money and who expect to need a long time to pay--who will be forced to adhere to the strict national guidelines.
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The rules will note that the IRS breaks taxpayer expenses into just two categories: necessary and conditional.
Necessary expenses keep the taxpayer (and family) healthy, safe and employed. All expenses unrelated to keeping a job, food on the table and a roof over your head are “conditional.” Conditional expenses must be cut for those who intend to pay the IRS over extended periods--more than 36 months.
Where the new rules depart drastically from past practice is in the category of necessary expenses. Here the IRS will put dollar figures on what expenses are acceptable. Some expenses--utilities, housekeeping supplies, apparel, personal care products and services, food and miscellaneous items--will be governed by a national standard.
Other expenditures--such as for housing and transportation costs--will be set on a state or regional basis.
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The IRS has never before imposed a standard budget. Instead it has asked most taxpayers who requested installment agreements to fill out a form that delineated their monthly obligations. A revenue agent would determine whether the taxpayer needed to cut back in order to strike an acceptable payment plan with the government.
The national budget figures are based on income and the number of individuals in the taxpayer’s household. The actual dollar amounts are drawn from average expense statistics compiled by the U.S. Bureau of Labor Statistics. For example, a single person with $1,300 in gross monthly income can spend $208 per month on food while a four-person household surviving on the same income could be expected to spend $378 monthly.
Finally, it’s worth noting that agents will still have some discretion, particularly when it comes to approving necessary expenses that are higher than the national standards, Taylor said.
