Much of the focus in the low-income tax sphere has been focused on CARES Act provisions, and especially ensuring that low-income individuals receive the full “Economic Impact Payment” (EIP) they are entitled to. This is obviously an imminent issue, especially because the IRS has largely stopped collection activities until at least mid-July as part of the “people-first” initiative. Eventually, however, with the aftershocks to the economy I anticipate the focus will shift to collection issues.
To that end, I’d like to focus on an issue that practitioners come across frequently: frustration with installment agreements (IAs) (see PT posts here and here). Specifically, I want to look at how the IRS can systematically make the process easier and more affordable by expanding access to “streamlined” 84-month IAs.
Even before the pandemic the IRS was not exactly renowned for its response time at its service centers. A cocktail of poisons can be cited for the delays that often ensued -foremost to my mind are budget cuts, technology woes, and constant changes in tax law. I think it is fair to say that even with a Congressional fix to one or more of these issues in the short-to-medium term the IRS is going to be struggling to deal with the mountain of paperwork that has piled up over the last few months. To ameliorate this situation, the IRS should focus on systemic fixes wherever possible. Increasing access to streamlined installment agreements could provide a small but important win for all parties: bringing taxpayers to the table and dollars to the fisc.
Why Installment Agreements?
An IA may seem like a fairly modest avenue of relief for those in bad financial shape. And, when compared to an Offer in Compromise (OIC) or Currently Not Collectible (CNC), it certainly is. However, in my experience there is a fairly significant pool of low-income taxpayers that do not have a viable OIC/CNC route, and are left with IAs as their only option. Most of the individuals I work with insist on the lowest monthly payment amount, even if it increases the term of the agreement (and thus total amount paid through interest and penalties).
Frequently, even when paid over 72 months the terms seem unaffordable to the taxpayer -although they technically might not experience what the IRS would consider a “hardship” in agreeing to it. This is to say nothing of the multitude of taxpayers that enter into IAs that are unaffordable even by the IRS’s own standards (see 2019 NTA Report “Most Serious Problem #15”)
Many taxpayers simply want to know what their rights and obligations are -often, they just want to know if they should worry about coming home to a cleaned-out bank account one day. Where the IRS has already issued a Collection Due Process letter (and the vast majority are not responded to (See Keith’s article in Tax Notes here (subscription required)), I cannot say with any real level of certainty whether a levy may be imminent. Entering an IA is one way to get taxpayers back on a track where their rights and obligations are known. Apart from reducing the failure to pay penalty rate (see IRC 6651(h)), putting the taxpayer in compliance (potentially allowing for “First Time Abatement” relief), the biggest benefit to an IA may be the reduction in taxpayer anxiety: when you’re in an IA, no levy can be made on the tax years covered (see IRC 6331(k)(2)(C)). Anecdotally, I’d say this is the driving factor for the majority of IAs that I assist clients with.
Why 84 Month Installment Agreements?
I’m betting there are a few practitioners out there reading this and thinking, “if your client legitimately cannot afford to pay over 72 months, it is your duty as their attorney to prove that to the IRS. If you’re doing your job well, you’d get them into a PPIA or some sort of resolution with the IRS.” The point that you should advocate zealously for your client is certainly well-taken. Still, taxpayers are (mostly) living in the IRS’s world with IAs and if the IRS employee isn’t buying what you’re selling you don’t have a whole lot of recourse. Yes, you can go to the Tax Court if the IA is part of a CDP hearing, but the discretion to accept or reject mostly remains with the IRS. And in my experience working with the low-income taxpayers, exercise of that discretion can be fairly rigid. Oftentimes that discretion isn’t much more than a look at “what does the IRM say” with a default of “reject if I can’t find a clear answer.” A clear answer of “accept if it will full-pay in 84 months” would speed up and simplify the process for many taxpayers.
Further, and more importantly, a streamlined 84-month IA would obviate the need for submitting financials (generally a Form 433-A or Form 433-F). There are any number of reasons why not having to submit such financials would be appealing to a taxpayer, but there is one rather big one that, as a practitioner, I can vouch for: the frequent difficulty in getting that information from many low-to-moderate income taxpayers in a timely manner. Not having to submit such financials would greatly speed up the process and result in more case closings.
84 months might seem like an arbitrary number, but it would build on an existing IRS program -hopefully making it easier for the IRS to implement in the process. In what seems like ages ago (2018), the IRS provided “expanded criteria” for who could get a “streamlined” IA. The expanded criteria allowed streamlined IAs for individual taxpayers that owed between $50,000 and $100,000 who would agree to pay over 84 months, or the duration of the CSED, whichever was shorter.
But somewhat mind-bogglingly, for taxpayers that owe less than $50,000 (which are likely to be lower-income taxpayers) the expanded criteria doesn’t apply. However, and in a strange twist, if your tax liability was being serviced by a Private Debt Collection Agency (PDCA) you could enter an 84-month plan regardless of the size of your debt (note that this was only made possible because of a the “Taxpayer First Act.” See H.R. 3151 at sec 1205). In other words, there was a benefit to working with a PDCA rather than the IRS to settle your debts. This seemingly arbitrary distinction was noted by TIGTA in a report here (at page 26 of the report). I note in passing that the TIGTA report cites to the Taxpayer Bill of Rights as one reason why this arrangement should be changed.
Certainly, the IRS may have legitimate concerns about entering IAs that span so long a period of time -remember, the CSED is still ticking away while you’re in an IA (see IRC 6331(k)(3)(B)). There is the serious chance that as the CSED nears, the taxpayer will just default and disappear. But that problem exists with equal or greater force for the relatively large tax debts that the IRS already allows 84-month plans for. If anything, a tax debt of $10,000 that may run out the clock with $2,000 remaining should be of less concern than a tax debt of $100,000 with $20,000 remaining.
The IRS is going to have to make some changes, as we all are, to adapt to the realities of the pandemic and post-pandemic world. The first changes should be the easy ones. And this change, to me, represents extremely low-hanging fruit for the IRS. There is no statutory reason why they cannot include liabilities below $50,000 to be allowed streamlined 84-month IAs. There is no policy reason why the IRS should make it easier for PDCAs to collect than the IRS itself. There is no reason why the IRS should disadvantage taxpayers that are not assigned to PDCAs, or those with debts less than $50,000. There is, in short, no reason that I can think of not to expand the 84-month IA to smaller debts.