COVID-19 and Recent IRS Relief to Taxpayers Having Payment Problems

On November 2, 2020, the Internal Revenue Service announced a new program, the Taxpayer Relief Initiative (“TRI”), to help taxpayers who are unable to pay their taxes because of the pandemic. Taxpayers who owe taxes and cannot not pay have always had options such as installment agreements and offers in compromise, but now they have more flexible options. Currently, there are over 20 million taxpayers (individual, business, and specialty taxpayers) who owe the IRS back tax debt.

Here are some relief provisions of the TRI:

  1. Penalty Relief: Taxpayers subject to late payment penalties are encouraged to file for penalty relief. There are two main penalty relief provisions: reasonable cause and first-time abatement. The unknown: will the IRS streamline penalty abatement requests for reasonable cause, which presently can take months or longer?
  2. More Flexibility for Making Payments Pursuant to an Offer in Compromise (“OIC”): An OIC allows you to settle your tax debt for less than the full amount you owe. The IRS considers a host of circumstances including the ability to pay; income; expenses; and asset equity. The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
  3. Tax Liabilities Automatically Added to Existing Installment Agreements: The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.
  4. Less Documentation for Installment Agreements:Setting up installment agreements can require a lot of paperwork. Now, the IRS says that certain qualified individual taxpayers who owe less than $250,000 may set them up without providing a financial statement or substantiation if their monthly payment proposal is sufficient.
  5. Lien Relief for 2019 Tax Debtors: Normally, the IRS will file a tax lien if a taxpayer is in a payment plan and owes more than $50,000—or if they are in a payment plan and owe more than $10,000 and must pay the balance off in more than six years. Under the new TRI, 2019 tax return debtors (2019 tax year only) can apply for one installment agreement with a balance up to $250,000 and avoid a Notice of Federal Tax Lien filing. Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a Notice of Federal Tax Lien filed by the IRS.
  6. Online Opportunities to Make Changes: Rather than having to make changes to existing installment agreements by speaking to an IRS employee, qualified taxpayers may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.
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