One of the easiest solutions for negotiating a tax relief settlement with the IRS is to sign up for an Installment Agreement. With this plan, you pay a small amount towards your tax debt each month over a period of time, which is generally around five years. Your debt continues to accrue penalty fees and interest, but the penalty fees are half of what they would be if you just continued to not pay. When you negotiate an agreement, you get to choose the amount of money you pay to the IRS each month, making it easier to find an acceptable amount that fits into your budget. This provides you with more room to pay for your other expenses than a wage garnishment, which leaves you with a very small amount of your income each paycheck.
Although most Installment Agreements are approved, especially for those who owe less than $50,000, there are circumstances that lead to a rejection. Through knowing the most common ones, you can create a stronger application to increase your chances of a speedy approval.
Missing or Incorrect Information on the Application
The most common reason that people find their Installment Agreement rejected is simply that they did not fill out the form correctly, or at all. To apply for an Installment Agreement, you have to fill out Form 433, which is the Collection Information Statement. You want to fill out every section to the best of your ability. Under no circumstances do you want to lie or misinform the IRS, as this could not only lead to a rejection of the deal, in some circumstances, it could get you into hot water with the IRS, especially if they feel you purposely lied to them.
It helps to work with a tax professional if you are unsure how to proceed or what to include. This ensures you fill out the form accurately the first time, saving you a lot of time and effort.
A Bad Deal
An Installment Agreement has to make sense economically to the IRS. It is a mutually beneficial arrangement: it helps you pay your debt in an affordable way, and the IRS receives its funds in a reasonable amount of time. If you request such a long-term that your debt will pass the statue of limitations, then the IRS might be less willing to approve the deal. The same goes if your monthly payments are so low that they barely make a dent in the payment. Generally, as long as your deal is reasonable, especially in cases of lower tax bills, then you most likely will have an approval.
You Have “Unnecessary” Expenses
An Installment Agreement’s purpose is to provide you with sufficient funds to pay your living expenses and pay off your tax debt. As part of the application, you have to detail your monthly expenses and income. The IRS is looking to ensure that you are spending as much as you can toward paying down your tax debt without putting you into a difficult financial situation. However, if they feel that some of your itemized monthly expenses are unnecessary, then they might decide to deny your Installment Agreement. Examples of unnecessary expenses might include high car payments, high rent, private school tuition and more.
You Are Not In Compliance Or Have a History of Defaulting
One of the main criteria for an Installment Agreement is that you are in compliance with your other tax payments and that you do not miss filing or paying in the future. Therefore, if you enter a tax agreement for one tax year and then do not file or pay your taxes the next year, the IRS will reject or cancel your Installment Agreement. If you have a history of defaulting on Installment Agreements, then the IRS might also reject your application for a new one. If you are already in an Installment Agreement and struggle to pay your taxes in a future year, you might be able to renegotiate your agreement, although there is no guarantee that the IRS will approve it.
What To Do After a Rejection
When you receive the notice from the IRS about your rejected Installment Agreement application, it is not the end of the story. You have the right to appeal the decision. Upon receipt of the rejection letter, call the IRS using the phone number found on the official letter from the IRS. Explain why you feel that your Installment agreement should be approved. In simple cases, especially if the rejection was due to an error when you filled out the form, you might get an immediate response.
If this does not work, then fill out Form 9423, which is an official Collection Appeal Request. You should include a written explanation as to why you are appealing the decision. You have 30 days in which to appeal the decision. The appeal decision is the final decision. Therefore, you want to make sure that you fill out the appeal correctly and include all the necessary information. Working with a tax professional or lawyer can help you increase your chances of a successful appeal.
Although setting up an Installment Agreement might seem easy, there is a chance of rejection. That is why many people find it easier to work with a tax professional, such as those at Fidelity Tax Relief, from the start. This reduces your hassle and stress, and it improves the chances of a successful decision the first time. Contact us today at 877-372-2520 to discuss your situation and start the process to apply for an Installment Agreement.