The IRS has created a new payment plan that is unprecedented in size. They will allow taxpayers with tax debts of up to $250,000 to enter into an Installment Agreement (IA), also known as a monthly payment plan. Previously, the largest payment plan allowed was $100,000. As long as the tax debt can be paid off before the Collection Statute Expiration Date (CSED), taxpayers will not have to disclose any of their personal financial information: assets, liabilities, income and expenses. The IRS will however have the discretion to file a Notice of Federal Tax Lien (NFTL) to protect the government’s interest.
As an example, in the past, if a taxpayer had $200,000 in tax debt but owned a home with $400,000 in equity, the IRS would require the taxpayer to disclose the asset and expect the taxpayer to tap the equity in some fashion, such as a refinancing or home equity loan to pay off the tax debt. They could reject a taxpayer request for a payment plan to pay off their tax debt in this situation. Their position could be that the taxpayer can full pay the tax debt with existing assets and therefore is ineligible for a payment plan.
With the new $250,000 payment plan, that same taxpayer does not have to disclose the home ownership and can enter into a payment plan with the IRS and prevent IRS collection enforcement in the form of a tax lien, bank levy, wage garnishment or passport restriction.
This new $250,000 limit will not last, so those that can take advantage of it should move relatively quickly. It is a response to the COVID-19 pandemic. The IRS had far more collection cases than they could handle pre-COVID-19. Now with the pandemic, there has been an explosion of taxpayers that cannot pay their taxes. The $250,000 ceiling will allow the IRS to manage their collection inventory and not cause serious delays in processing their caseloads.
If you have any tax questions, feel free to contact me.