You’ve Received An IRS Balance Due Notice
With the backlogs and confusion created by the pandemic, the IRS announced that it would suppress sending out many balance-due reminder notices until they caught up on processing paper returns, correspondence, and other backlogged items. As it turns out, though, the IRS can’t suppress about 9 million notices that go out every year. These are the first balance-due notices in a series of collection notices. It’s called the CP14 notice and demand for tax.
By law, the CP14 notice is required to be issued within 60 days after the IRS assesses the tax. The bulk of CP14 notices show up in the beginning of June asking for payment within 21 days.
If you received a balance due notice and don’t respond with payment, the IRS can begin the process to collect the taxes by levy or by filing a notice of federal tax lien. Usually, the IRS will send a series of reminder notices, called the collection notice stream, to ask for payment before starting enforced collection. However, there are several options if you can’t pay the amount due in its entirety within the 21-day period.
First and most importantly don’t ignore the notice. If you need help due to the amount you owe or other circumstances, contact our office. Dealing with the IRS is what we do on a daily basis.
Also understand there are options to consider. They each have pros and cons. Your specific circumstances will determine which option is best.
Option 1: Get an extension to pay
The best option may be to get an extension-to-pay agreement with the IRS. The IRS allows an extension of up to 180 days, which it calls a short-term payment agreement.
You can make payments during the 180-day extension period or wait until the end of the 180 days to pay. If you can’t pay the entire balance before the end of the 180 days, you can set up a different option for the remaining balance, such as a payment plan.
Option 2A: Set up a simplified payment plan with the IRS
The next option is the IRS payment plan. The IRS term for a payment plan is an installment agreement (IA). In 2021, almost 4 million taxpayers were in a payment plan.
The IRS offers the guaranteed installment agreement and the streamlined installment agreement. These two agreements are popular because they are easy to get, have fixed payment terms, and avoid a tax lien if the IA gets set up before a lien is filed.
Option 2B: Set up a full-pay non-streamlined payment plan
The IRS introduced this payment plan in 2020. In the full-pay non-streamlined installment agreement, you can owe up to $250,000 and make payments until the end of the collection statute of limitations expiration date. The collection statute of limitations is 10 years from the date the IRS assessed the tax. So, a 2021 tax filer can set up payments for the full 10 years left on the statute to collect.
Option 2C: Get an ability-to-pay payment plan
If you can’t meet the terms for any of the above options or if you owe more than $250,000, you may need to set up a payment plan based on your ability to pay the IRS.
IRS collection agreements get complicated when they involve determining a taxpayer’s ability to pay. The IRS goal is to allow the taxpayer enough money to pay their allowable living expenses — and to send all remaining funds to the IRS to pay their outstanding tax debt.
Option 3: Temporary hardship status, or currently not collectible
Currently-not-collectible (CNC) status is similar to an ability-to-pay plan, with one exception: The analysis of the taxpayer’s finances shows that they have no ability to pay. In these cases, the taxpayer will be put into a temporary non-collectible status that will pause IRS collection on their tax bill. As of the end of 2021, over 616,000 taxpayers with outstanding debts were in CNC status because of financial hardship.
Option 4: Settle the debt with an Offer in Compromise
The last IRS tax debt option is referred to as an Offer in Compromise (OIC). The OIC concludes that the taxpayer does not and will not have enough money to pay the IRS before the collection statute of limitations expires. OICs have many more terms and requirements to qualify and determine how the IRS will accept a settlement. Taxpayers are often drawn to asking about the OIC. It’s overpublicized as a common tax debt option. In 2021, only 14,462 taxpayers had an OIC accepted — about one out of every 1,500 tax debtors.
Dealing with the IRS to settle a tax debt can be complicated and confusing. However, for us, it is what we do. We know the ins and outs and how to get our clients the relief they need without further complicating matters, which often happens when taxpayers do not have professional, legal representation. If you received a balance due notice from the IRS and don’t want to make matters worse, give us a call.