Say for instance that you have followed the advice given at the end of IRS Payment Plan Options: Installment Agreements. You have taken stock of your bills and income, have taken the balance due, divided it by 60, came up the minimum required monthly payment and find that the IRS’ minimum payment is more like your “no can do” payment. If you find yourself in this situation, don’t despair. First, congratulate yourself on the fact that you were proactive and not reactive. Now that you know what you can do, you will know what to expect when you call. When you tell the representative that you are unable to make the minimum payment, proof of this fact is usually required. This is the Form 433-F, Financial Information Statement. The purpose of this form is to list your assets and liabilities in total. This allows the office to see whether or not there might be a way for you to meet the minimum payment if you make some “lifestyle adjustments”, such as cutting out cable and any other debt that the office deems unnecessary. Fill out this form completely and accurately. Failure to do so might result in your terms being set higher than they should. Also, answer truthfully. This form comes with a perjury warning. Instead of your installment agreement being set up according to the IRS predetermined schedule of 60 months, your terms will be based solely on information provided by the 433F. This usually allows you to get a payment that is lower than the minimum installment. Usually most people are able to make the payment on this lower figure comfortably and all is well. But what if your financial situation is such that you can’t pay anything at all? If so, the representative will attempt to approve you for a status called CNC, or Currently Not Collectible. Once your account is issued this status, the account is put on hold. You are not required to make a monthly payment. Instead of receiving monthly notices, you will receive an annual reminder notice, CP71 (which is just what is says) that lets you know that you that you have a balance outstanding. This status allows you to pay whatever you can whenever you can without the monthly payment burden. Of course, if you are able to make payment, do so in order to reduce the amount of principal that interest and penalties will be charged against.
Aspects common to all pay later options:
1) Interest and penalties (unless abated) will continue to accrue until the balance is paid in full.
Aspects common to the installment agreement and currently non-collectible statuses:
1) Any refund that you are expecting when subsequent returns will be applied to your outstanding balance.
2) The agreement is subject to review after a certain period of time. If after review it is felt that your financial situation has improved, you will receive notice from the office advising of either an increase in the payment or a proposal to pay a certain amount per month. You are given time to respond to the notice. (If you cannot pay what the office is proposing, be ready to show documentation as to why, since they have access to your income and know how much you make a year in order to make this assumption on.)
Cora Parks is a lifelong Atlantan whose vision is to bring year round proactive tax counsel and personal responsibility to the masses. In addition to the Tax Today blog, she has published the books “Everyday Tax Tips, Part I” and “Beware Of Preparer”.