For the past two years a call to the Internal Revenue Service (IRS) collections division often included waiting for an hour on hold just to talk to someone about your outstanding tax bill that the IRS was trying to collect. Even the IRS thinks staying on hold for an hour is too long and recently started an initiative called “Fresh Start.”

A part of the “Fresh Start” initiative is meant to streamline the installment agreements that allow taxpayers to catch up on back taxes by making payments over time. Prior to this initiative anyone owing more than $25,000 total to the IRS was required to submit extensive financial statements and documentation before the agreement to make payments over time in installments could be approved.

The advantage of the installment agreement is that it stops the collection activities. If you keep making the payments on time the IRS will not levy against your bank account or garnish your wages to collect the past due taxes.

Under the initiative the maximum dollar criterion for a streamlined installment agreement was raised from $25,000 to $50,000.and the maximum term was raised from 60 months to 72 months.  To qualify for the streamlined agreement you cannot owe more than $50,000 total, you must have filed or extended your 2011 tax return, you must have paid any necessary estimated taxes for 2012 and your payments must be large enough to pay the entire taxes owed and interest in 72 months (6 years.)  If you owe more than $25,000 total the IRS will ask for information verbally but will not require completion of the Form 433.

Installment payments must be made at least monthly on a specific day of the month, which you can request. If you are late for even one installment payment the agreement is voided and you must re-apply, therefore, if you anticipate that you will not be able to make a payment on time immediately contact the IRS to ask for a short extension.

The agreement will also be voided if when you file your 2011 taxes and there is an amount owing that is not paid with the return filing. If you anticipate owing on your 2011 tax return it is better to file the return and set up a payment plan for both the 2011 taxes and the prior years taxes.

NOTE: The installment agreement will not stop the IRS from filing a tax lien against your property. The IRS was very aggressive with tax liens filing them for as little as little as $5,000 owed. See Part II of III on Fresh Start Notice of Federal Tax Liens in next month’s AZREIA Advantage.