Tax debt sucks. This is an irrefutable truth. If you have a lot of tax debt, this program may be your savior!
If you have the ability to pay your tax debt back over time, then the 72 month installment agreement will be exactly what you need. How do you qualify? How do you apply? Is this the best option available?
We’d all love that “Pennies on the Dollar” settlement, but most won’t qualify. (take a look at this article to see if you do) And no one wants to pay more than they have to.
Let’s take a look at the IRS Fresh Start 72 Month Installment Agreement and how it can help you. As always, I explain to myself like I’m a 7-Year-Old.
Why does the 72 Month Installment Agreement exist?
The IRS Fresh Start 72 Month Installment Agreement is a repayment plan that allows you to repay your tax debt over an extended period. Another benefit is interest and penalty will NOT continue to accrue to your account (add to your balance)
The duration (6 years as opposed to a more typical 5 year plan) has been extended 12 months in an attempt to assist small business owners and other taxpayers with their cash flow.
By extending the term by 12 months, your payments are reduced. Because of the Fresh Start program, your payment would be $833, instead of $1,000 under a 60 month plan.
Your interest and penalty charges will also be less. This is a nice gift.
With these savings, you can put the money back into marketing and make more money.
Ok. Sounds Good. How Do I Qualify?
You can’t owe more than $50,000 in federal tax debt. This is the biggie. If you are close (for argument, you owe $55k), borrow the money to pay your balance down to the $50k limit.
You must be sure you have filed all required tax returns and if you’re a business with employees, this includes all payroll tax returns. This needs to be done before you can apply with the IRS.
What Taxes are Eligible?
In my career I haven’t found any tax assessed by the IRS that doesn’t qualify. For this reason, we’ll assume this includes Income Tax, Payroll Taxes, Self-Employment Taxes and Excise Taxes.
What’s The Big Deal About the Fresh Start 72 Month Installment Agreement?
- The biggie is the extended payback period of 72 months. By taking advantage of the additional 12 months, you will be reducing your monthly payment.
- This in turn helps alleviate your financial hardship, if only a little. At this point you should do as many “small things” as possible. They add up.
- By enrolling you also avoid harsher collection activity. The IRS can farm out collections to private firms who only collect money. Those collections horror stories aren’t all urban legends.
How Do I Apply?
- Fill out and submit form 9465 – Installment Agreement Request. This is the first step.
- If the IRS needs more info, they will request form 433-A.
- Self-Employed taxpayers will need to prepare form 433-B.
- In some cases (like a partial pay installment agreement) the IRS may ask for further documentation. They will ask for form 433-D.
What would cause a rejection or default?
- The IRS may not agree with your ability to pay a certain amount, so they will ask for additional information.
- You must agree to ongoing tax compliance, so don’t miss filling your returns. Pay your taxes when required. Make estimated tax payments if required. Non-compliance will default you
What’s The Approval Process Like?
For the most part, approval is automatic. If the IRS feels you may have trouble with your payment, the max would be $694.44, they will request additional information so that they can further evaluate your case.
Can The 72 Month Installment Agreement automatically Take the Money from My Account?
You have the choice to send them a check, or have them auto deduct from your account. By selecting auto deduct you also receive a reduced application fee.
Should You Seek Professional Help?
I’m a fan of DIY projects. Generally, though, when someone has a tax problem, I advise them to let a pro handle it.
I think you can handle this option without professional help. If you owe the IRS $25-35,000 or more and have an income that can support an almost $700 payment, you can do the 72 month installment agreement online. I think the online fee with debit payments is $35.
The IRS may start asking for additional documents, or has questions about your application that you’re not sure how to answer. So at that point you should consider calling a pro.
A Quick and Easy 72 Month Installment Agreement Case Study
Let’s go through a case. A new client walked through the door today.
Her name is Dianna Banana. She’s self-employed selling carbonated Lemon Drops at farmer’s markets up and down the west coast. Because of her travels, she’s also late filing her tax returns.
Dianna owes payroll taxes, self-employment taxes and income taxes. Her total owed is $35,000. She has not filled her 2022 or 2023 returns so that’s first.
Backwork done
We prepare the 2022 return and her total due is $6,000 ( additionally including late filing penalty).
We prepare the 2023 return and her total due is $7,500 (also including late filing penalty).
Her total due is now $48,500. After discussing options with Dianna we find her finances are doing well (she kicked her loser boyfriend out) and business is doing great.
She doesn’t have the full amount to pay, but could afford about $1,000 per month. We recommend the IRS Fresh Start 72 Month Installment Agreement as a solution.
Let’s File The Forms
We prepare and file form 9465 for her and wait for the IRS response. When filing a 9465 you must be prepared to make your first payment within a month. It usually takes about 60 days to process and review an application.
After 30 days (and Dianna making her first payment) the IRS comes back asking for more info regarding her business. So we will prepare form 433-B and financial statements in response to their request.
After receiving the additional documents (including bank statements, credit card statements and any other financial information needed to corroborate her income), the IRS will again take up to 60 days to review her info. This step very rarely takes 60 days. I’ve heard back within a week.
2 weeks later the IRS approves the installment agreement. Dianna has elected to have the IRS auto debit the monthly payment from her bank account.
Dianna is happy and brings me a 6 pack of her Lemon Drops. After 2 of her awesome Lemon Drops, I’m happy.
Conclusion
The IRS Fresh Start 72 Month Installment Agreement is my favorite option.
People get so caught up in the advertising for “pennies on the dollar” results from those tax resolution firms. They’re pushing Offers in Compromise if that wasn’t clear.
The reality is very few people are accepted. About 30% of those that apply are accepted. Sounds like a big number, right? It’s not. That’s of the people who have APPLIED. I’ve done 2 in 30 years. To an ethical tax resolution expert, very few would qualify, so there’s no point in applying. Stealing money from folks with little to spare is just bad juju.
The Fresh Start 72-month Installment Agreement is easy to apply for and they give you an extra year to pay your debt back so you can avoid the crazy aggressive collection activity.
It’s Not Absolutely Automatic
There are qualifications to meet, the most important is the tax debt must be less than $50,000. If your debt is close but over, find a way to get it below the $50k threshold.
Another requirement is the filing of all returns. This includes all payroll and excise tax returns if usually done in the course of running a business.
If you qualify this is the best option for you. I know this disappoints a lot of you hoping to get out of paying anything if possible, but it’s the reality.
Think of it this way. If you qualify for an Offer in Compromise, you are very close to destitute. This is why the IRS Fresh Start 72 Month Installment Agreement is the best solution. You must make sure the money will be available. We always hope for money to be available.
That’s it for today. If you have questions let me know in the comment. I’m back after having to take a few months off, but will be posting weekly again.
Stay cool and we’ll talk soon.
JKC