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Loading Installment Agreements

Posted on Aug. 23, 2016

I wrote a couple of months ago about my travails in trying to assist a “friends and family members” client to obtain an installment agreement.  The process took five separate phone calls culminating in a very pleasant call in May with someone in Collection who accepted the installment agreement.  We set up an automated withdrawal from their bank account on the 16th of each month and he told me that the first one would occur on July 16.  I thought that July 16 seemed a little far out since it was only May at the time but did not complain.

I returned from vacation in early August and called my client to see how the first withdrawal went.  I was informed that there was no withdrawal and no communication of any kind from the IRS.  I thought this odd but as I mentioned in the prior post I do not set up many installment agreements.  To find out if it was odd, I contacted someone I knew at the IRS.  I learned that the failure to withdraw the installment agreement amount from my client on the first date set for such a withdrawal happens to others as well because the IRS is behind in loading the installment agreements into its system.  I have now learned that the IRS did not withdraw the money for the installment agreement in August either.  This seems bad for the IRS, a little troubling from the client’s perspective, and worth writing about to a group that probably encounters this more than me.  Unrelated to the story here but connected to the general issue of installment agreements the IRS has recently proposed a new fee schedule for installment agreements.  Like a lot of businesses, the IRS schedule rewards parties that create the installment agreement online without requiring human intervention and they reward parties who allow automatic withdrawals from their bank each month.

The root problem here belongs to the clients because they failed to file returns for several years.  People who do that put a lot of pressure on the system.  They get charged some hefty penalties to compensate the system for their behavior and to financially incentivize them to change their habits, but we know that many, many people do not timely file and that causes a fair amount of work for the IRS.  These clients started having four years of past due returns prepared last fall and finished them just before the filing season began in full swing.  The returns were filed about the time the first rush of 2015 filings occurred.

I waited until March to call the IRS to give it time to process their returns, and learned on my first call that it had not processed two of those returns.  I am confident that they were properly mailed and mark the failure to process the returns as the first of several system failures here by the IRS.  The situation here, and others I have observed, made me wonder if late filed returns should go somewhere different than current year returns in order to avoid confusion.  Maybe that’s too much trouble but processing returns from multiple years during the filing season must create some difficulties for the IRS.  Here, it lost two of four returns which caused delays in the IRS getting payment since I could not enter into the installment agreement until the returns were processed.  Of course, the clients could have started sending in payments while waiting for the installment agreement but also, of course, they did not.

The second and third of my calls last Spring failed because the IRS had not processed all of the returns and the collection officials with whom I spoke did not want to set up an installment agreement until everything was assessed and in their system.  The clients were motivated by me and others last fall to get their taxes in order.  They did it and they were motivated to pay (not quite motivated enough to send in payments without an agreement) and now they are just a couple of months short of one year  from the time they started the process without reaching the finish line of having the installment agreement kick in.  I see their motivation to follow through to solve the problem waning.  I feel like it would be much better if the process of the IRS entering into and starting the installment agreement had begun in March or April instead of sometime in the future.

As I mentioned above, my contact at the IRS indicated that the failure of the IRS to take the money from my clients’ account for the first month (and the second month) happens to others as well.  The IRS wants taxpayers to have installment agreements that provide for withdrawals from their bank accounts; however, it is very slow in loading those installment agreements into its system.  The IRS also does not inform taxpayers that it will miss the deadline for loading the installment agreement and will not take their money.  This leaves taxpayers someone anxious because they fear they may have done something wrong and that the IRS will take the more serious collection action it was threatening that led to the creation of the IA in the first place.  The failure to take the money also leaves the taxpayers somewhat less motivated to keep making sure the money is there to be taken in future months and leaves the IRS without revenue it could have had very easily if it had taken the time to load the installment agreement into the system.

I have not seen a Treasury Inspector General (TIGTA) or Government Accountability Office (GAO) report on this and do not know how widespread the issue is or if it is the result of understaffing, bad staffing allocation, or other factors.  I only know that it was much harder to enter into this installment agreement than I expected and now I am shocked that the IRS is not bothering to gather up the money sitting there for it.  Of course, the clients will pay slightly more interest and penalties because of this delay.  It also pushes back the point at which they can seek lien withdrawal.  Mostly, it just seems like a really bad business plan not to load the installment agreements as quickly as possible and get the money that taxpayers have set aside to pay their taxes at a point at which they are motivated to do so.  Many installment agreements will fall by the wayside as life events overtake the ability of some taxpayers to follow through with payments for several years but the payments at the beginning of the installment agreement would seem like the most likely ones to be there and those are the ones the IRS is not bothering to pick up.

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