The IRS is responding to the Coronavirus (COVID-19) pandemic in many different ways. The IRS specifically addressed installment agreements in Notice IR 2020-59.
For those with an existing installment agreement, the requirement to make monthly payments is suspended for the period April 1, 2020 through July 15, 2020. The IRS will not default installment agreements during that time. The IRS recently announced also that direct debit agreements will continue to be processed, with payments debited from accounts as scheduled. Taxpayers will need to proactively contact their bank to stop payments if they are unable to continue.
For taxpayers that do not have an installment agreement and need to establish one, the options for doing so depend on the status of the case. Revenue Officers have been able to work remotely for many years and are continuing to do so. Taxpayers should continue to work with their Revenue Officer to establish an agreement. For those taxpayers whose cases are being worked in a service center, the only option with the IRS service centers being closed to prevent the spread of COVID-19 is to set up the agreement online. However, not all taxpayers are eligible to set-up an agreement online. Taxpayers are eligible to set up an installment agreement online if:
• They owe $50,000 or less in combined tax, penalties and interest, and filed all required returns for long term agreements; or
• They owe less than $100,000 in combined tax, penalties and interest and can pay in full in less than 120 day.
A large number of taxpayers are left in limbo since their case is not assigned to a Revenue Officer, and they don’t meet the eligibility requirements to set-up an installment agreement online. The IRS should significantly expand the criteria for setting up an installment agreement online, but that issue is a blog for another day.
Those taxpayers unable to set up an installment agreement and who have an ability to make payments in any amount toward their tax liability should make voluntary payments until such time as the case is either assigned to a Revenue Officer, or the service centers resume full operation. Rest assured, the IRS will resume full operation in the very near future.
There is no doubt many who suspended their installment payments during this period will be financially unable to resume payments due to furloughs, layoffs, or a decline in business. If payments are not resumed, the IRS will eventually catch-up with the case and terminate the agreement. The IRS automated system will issue a notification to the taxpayer and then set aside the agreement as defaulted. This does not automatically mean that a taxpayer is shut out of the installment agreement process. Taxpayers can renegotiate an installment agreement. Most cases will require the preparation and presentation of a new financial statement to show a change in circumstance, and a diminished ability to pay.
In some instances, an installment agreement may not be the appropriate resolution due to diminished finances. Careful consideration should be given to filing an offer in compromise to settle the tax liability for less than the owed, Another alternative to consider is “currently not collectible status” enabling the taxpayer to defer payment of tax while a financial hardship exists.