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IRS COLLECTION > Collection Alternatives > Flashcards

Collection Alternatives Flashcards

1
Q

What are the options for resolving a tax debt?

A
  • Installment agreement
  • Uncollectible status
  • Offer in compromise
  • Bankruptcy
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2
Q

When do Installment Agreements typically default, per the IRS?

A

IRS data shows that IAs historically default in 48 months

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3
Q

What are the variations of Installment Agreements?

A
  • Automatic (when TP owes less than 10k
  • Streamlined (when TP owes less than 50k)
  • Non-streamlined (TP owes less than 250k)
  • Regular
  • Partial Pay
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4
Q

Automatic Installment Agreement requirements?

A

No need for financial info and

  • TP owes less than 10k
  • for the previous 5 yrs TP has not had an unpaid tax balance or an IA
  • TP agrees to pay total tax owed in 3 years
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5
Q

How to apply for IA?

A

Apply

  • IRS website
  • in-person at the IRS
  • call the IRS
  • mail F9465

Submit application fee (low-income cheaper)
$31/$149
- IRS website

$107 / $225

  • in-person at the IRS
  • call the IRS
  • mail F9465
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6
Q

Streamlined Agreements

A

For ACS, no financials needed

  • TP owes less than 50k
  • pays full amount within the CSED
  • TP owes less than 100k
  • pays full amount over 84 months

For RO, no financials needed

  • TP owes less than 50k
  • pays full amount over 72 months
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7
Q

Non-streamlined Agreements?

A

No financials needed

  • TP owes less than 250k
  • pay full amount over the CSED
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8
Q

What is the 1-year rule and the 6-year rule?

A

Practitioner Secret - determining full pay Regular IAs
(IRM 5.14.1.4.1)

  • can use actual expenses for 1st year, send letter to IRS, standard expenses for remainder
  • if TP can full pay in 6 years, use actual expenses for all 6 years
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9
Q

Interest and Penalties still accrue during an IA?

A

Yes

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10
Q

What is a Partial Pay IA?

A

Same as a Regular IA, except that TP doesn’t show ability to full pay over the CSED. IRS will set up payment plan based on TP’s ability to pay and will revisit TP’s financial condition usually within 2 years to see if TP can pay more.

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11
Q

When is an IA in default?

A
  • a new tax debt or penalty is incurred
  • tax return is non-timely filed
  • installment payment is not made
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12
Q

What are the TP options when they receive a letter (CP 523) from the IRS, informing TP of intent to Terminate IA?

A
  • pay remaining balance in full
  • request an Appeal under the Collection Appeals Process (F9423)
  • contact collections to negotiate for a new IA
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13
Q

When is a TP uncollectible (CNC)?

A

TP is CNC when TP has no equity in available assets and income is not enough to cover the IRS allowable expenses.

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14
Q

What happens when TP is CNC?

A
  • CNC does not resolve the tax debt. TP still owes money to IRS
  • TP’s IRS account is coded as CNC so that IRS does not levy
  • 10 yr CSED continues to run
  • IRS will not take enforcement action on TP’s assets or income
  • however, IRS may file NFTL to secure interest in anything TP may acquire later
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15
Q

Why is CNC an alternative for TP if tax debt is still owed?

A
  • 10 year CSED is expiring soon. File docs needed for CNC to keep statute running
  • TP not eligible for OIC due to dissipated assets. OIC will require the addition of the TP’s dissipated assets to any offer made by TP for the next 3 years
  • TP has past year compliance problems due to lack of records. Thus, can’t file past TRs. Statutory exception for TP that is in economic hardship (uncollectible). IRS can’t levy even though TP not in compliance. TP that has missing TRs can file a CIS (F433) so that IRS doesn’t levy. Buys TP time to file the previous 6 yrs of TRs.
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16
Q

What is an OIC?

A
  • offer accepted by IRS where TP pays less than the amount owed.
  • offer acceptance is determined by formula. must meet the IRS’ calculated RCP
17
Q

TP Qualification to make an offer?

A
  • must be in TR compliance, last 6 years filed

- current tax payments made

18
Q

Types of OIC?

A
  • Doubt as to Collectibility

- Doubt as to Liability

19
Q

Types of DATC OIC?

A
  • lump sum offers

- short-term deferred offers

20
Q

What is a lump sum OIC offer?

A
  • TP pays the offered amount in less than 6 months
21
Q

Process for submitting a lump sum OIC offer?

A
  • calculate TP’s RCP
  • offer filed based upon 2 components to calculate RCP:
    Net Equity in Assets, and
    12 months of Future Income
  • 2 checks accompany the offer:
    application fee (currently $186?)
    20% of the amount offered
  • upon acceptance TP has 5 months to pay the remainder of the offer
22
Q

What is a short term deferred OIC offer?

A
  • TP makes monthly payments while offer is pending
  • upon acceptance pays balance remaining in 6 to 24 months
  • RCP is calculated using 24 months of future income instead of 12 months
23
Q

What is the basis for the RCP calculation?

A
  • net equity in assets

- future income

24
Q

What is TP’s net equity in assets for RCP?

A
  • it’s equity in all TP assets, sold at quick sale value of 80%

With the proceeds

  • any creditor ahead of the IRS is paid
  • remaining equity is TP’s be equity in assets
25
Q

What are some exceptions to the net equity in assets for RCP calculation?

A
  • Cash: 1k exemption for bank accounts. IRS allows TP to keep 1 month’s worth of allowable expenses
  • Cars: $3450 exemption for each vehicle
  • Retirement Accounts: 70% quick sale sale if TP is subject to 10% penalty (less than 59.5yo)
  • Professional Books; Tools of the Trade: $4,450 exemption for that used in TP’s trade or business
  • Personal Assets: $9,540 exemption for personal effects and household furnishings
26
Q

What is the Future Income calculation for RCP purposes?

A
  • Gross monthly income
  • minus IRS allowable expenses

Think of it as a cash flow analysis

  • money coming in
  • minus amount IRS will let you spend it on
27
Q

What are the types of expenses that are considered by the IRS for RCP purposes?

A
  • actual
  • national standard
  • local standard
28
Q

What are some of the expense categories to consider in calculating the RCP?

A
  • Food and Clothing: national
  • Housing and Utilities: lesser of actual or local
  • Car ownership: lesser of actual or national
  • Car operating: local (older car gets additional $200)
  • Public transportation: national
  • Health insurance: actual
  • OOP health costs: higher of actual or national
  • Court ordered payments: actual
  • Child or dependent care: actual (necessary)
  • Term life insurance: actual (reasonable)
  • Life insurance with cash value: viewed as asset and cash value is available for collection
  • Taxes CY: actual (federal, state and local, SS, FICA, SE
  • Secured debts: actual
  • State tax delinquent: percentage of state debt to IRS debt
29
Q

What are other factors IRS considers once RCP is calculated?

A
  • dissipated assets
  • average income
  • potential future income
  • best interest of the government
  • if RCP shows that TP can full pay over the CSED, then not OIC eligible. Must pay via IA
30
Q

What are the various forms of bankruptcy?

A
  • Chapter 7: debts discharged. If for a business, then complete liquidation
  • Chapter 13: reorganization for individuals overseen by a bankruptcy trustee. Forced plan of repayment to creditors, usually lasting no longer than 60 months. Some debts may be discharged.
  • Chapter 11: reorganization for businesses overseen by a bankruptcy trustee. Forced plan of repayment to creditors, usually lasting no longer than 60 months. Some creditors may agree to a longer repayment term. Some debts may be discharged.
31
Q

Potential benefits of a bankruptcy to resolve tax debt?

A
  • Automatic Stay: all collection activity by creditors must stop. This removes TP’s case from Collections and moves it to Insolvency Unit, which may be more amenable to working out a plan that Collections would not consider.
  • Discharging of taxes: only income tax may be discharged assuming certain parameters are met
  • Payment Plan: especially an IA over 60 months whether the IRS likes it or not.
32
Q

What is the effect of bankruptcy on a tax lien?

A

Even if the tax debt is old enough to be discharged in bankruptcy, a federal tax lien passes thru and the assets that are attached to that lien are still subject to collection to satisfy the tax debt. An OIC is an option for dealing with such liens.

33
Q

What are the parameters for a possible discharge of a tax debt?

A
  • TR, including extensions, was due more than 3 years ago.
  • if TR is late, it’s been on file for at least 2 years
  • any add’l assessments (e.g. from an audit or amended TR) are at least 240 days old
  • TP did not commit fraud or attempt to evade a tax
  • it is an income tax

IRS COLLECTION (1 decks)

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