Unfortunately, when money is tight, certain tax debts go unpaid. Yet, because of the significant collection powers that the IRS possesses, these unpaid taxes can result in the unraveling and failure of a business enterprise. When a business cannot pay the taxes shown on a return, often the business or its owner simply fails to file the tax return. This is a bad idea. When this happens, not only must the tax and interest be paid, but penalties based on the failure to pay and the failure to file will be added.
To limit the assertion of penalties, it is best for a taxpayer to file tax returns even if the tax cannot be paid. The unpaid tax can then be addressed by an installment agreement. If an installment agreement is entered into, the IRS will not attempt to collect any tax by forcible means (i.e. levies, garnishments or seizures) and unless the debt is substantial, it may refrain from filing a federal tax lien.
The lesson is that by filing and working to address the tax liabilities, rather than running from the tax, the result will be a more manageable resolution to the debt.
The IRS has also made the payment of taxes under certain dollar amounts more manageable by changing how certain repayment plans are administered. Historically, the IRS would file a federal tax lien against a taxpayer owing more than $10,000. It has recently raised that threshold to $25,000 for both businesses and individuals if certain requirements are met. To avoid the filing of a federal tax lien, an individual taxpayer must be able to pay off the tax debt over a period a period of sixty (60) months, agree to have payments directly debited from their account and must otherwise be compliant with the federal tax law (filings and payments as required). A business entity must meet the same requirements, however, the tax debt must be paid off in the same manner over a period of 24 months. Of course, this is an IRS policy and not a provision of the Internal Revenue Code so the IRS reserves the right to modify or apply the policy differently based on the facts and circumstances of a particular case.
The reason for the change is purported to be an accommodation for the hard economic times facing individuals and businesses. Currently, many taxpayers are struggling to pay their tax obligations. By creating a more flexible framework for those repayments, the IRS hopes to collect additional tax due. Additionally, the economic times have created an increased workload on the IRS collection agents. Hiring has not been proportionate with the increased workload and the least popular agency in government must find new mechanisms to relieve the burden on its employees while collecting as much of the outstanding tax obligations as possible.
