I wrote a couple of months ago about my travails in trying to assist a “friends and family members” client to obtain an installment agreement. The process took five separate phone calls culminating in a very pleasant call in May with someone in Collection who accepted the installment agreement. We set up an automated withdrawal from their bank account on the 16th of each month and he told me that the first one would occur on July 16. I thought that July 16 seemed a little far out since it was only May at the time but did not complain.
I returned from vacation in early August and called my client to see how the first withdrawal went. I was informed that there was no withdrawal and no communication of any kind from the IRS. I thought this odd but as I mentioned in the prior post I do not set up many installment agreements. To find out if it was odd, I contacted someone I knew at the IRS. I learned that the failure to withdraw the installment agreement amount from my client on the first date set for such a withdrawal happens to others as well because the IRS is behind in loading the installment agreements into its system. I have now learned that the IRS did not withdraw the money for the installment agreement in August either. This seems bad for the IRS, a little troubling from the client’s perspective, and worth writing about to a group that probably encounters this more than me. Unrelated to the story here but connected to the general issue of installment agreements the IRS has recently proposed a new fee schedule for installment agreements. Like a lot of businesses, the IRS schedule rewards parties that create the installment agreement online without requiring human intervention and they reward parties who allow automatic withdrawals from their bank each month.
read more...The root problem here belongs to the clients because they failed to file returns for several years. People who do that put a lot of pressure on the system. They get charged some hefty penalties to compensate the system for their behavior and to financially incentivize them to change their habits, but we know that many, many people do not timely file and that causes a fair amount of work for the IRS. These clients started having four years of past due returns prepared last fall and finished them just before the filing season began in full swing. The returns were filed about the time the first rush of 2015 filings occurred.
I waited until March to call the IRS to give it time to process their returns, and learned on my first call that it had not processed two of those returns. I am confident that they were properly mailed and mark the failure to process the returns as the first of several system failures here by the IRS. The situation here, and others I have observed, made me wonder if late filed returns should go somewhere different than current year returns in order to avoid confusion. Maybe that’s too much trouble but processing returns from multiple years during the filing season must create some difficulties for the IRS. Here, it lost two of four returns which caused delays in the IRS getting payment since I could not enter into the installment agreement until the returns were processed. Of course, the clients could have started sending in payments while waiting for the installment agreement but also, of course, they did not.
The second and third of my calls last Spring failed because the IRS had not processed all of the returns and the collection officials with whom I spoke did not want to set up an installment agreement until everything was assessed and in their system. The clients were motivated by me and others last fall to get their taxes in order. They did it and they were motivated to pay (not quite motivated enough to send in payments without an agreement) and now they are just a couple of months short of one year from the time they started the process without reaching the finish line of having the installment agreement kick in. I see their motivation to follow through to solve the problem waning. I feel like it would be much better if the process of the IRS entering into and starting the installment agreement had begun in March or April instead of sometime in the future.
As I mentioned above, my contact at the IRS indicated that the failure of the IRS to take the money from my clients’ account for the first month (and the second month) happens to others as well. The IRS wants taxpayers to have installment agreements that provide for withdrawals from their bank accounts; however, it is very slow in loading those installment agreements into its system. The IRS also does not inform taxpayers that it will miss the deadline for loading the installment agreement and will not take their money. This leaves taxpayers someone anxious because they fear they may have done something wrong and that the IRS will take the more serious collection action it was threatening that led to the creation of the IA in the first place. The failure to take the money also leaves the taxpayers somewhat less motivated to keep making sure the money is there to be taken in future months and leaves the IRS without revenue it could have had very easily if it had taken the time to load the installment agreement into the system.
I have not seen a Treasury Inspector General (TIGTA) or Government Accountability Office (GAO) report on this and do not know how widespread the issue is or if it is the result of understaffing, bad staffing allocation, or other factors. I only know that it was much harder to enter into this installment agreement than I expected and now I am shocked that the IRS is not bothering to gather up the money sitting there for it. Of course, the clients will pay slightly more interest and penalties because of this delay. It also pushes back the point at which they can seek lien withdrawal. Mostly, it just seems like a really bad business plan not to load the installment agreements as quickly as possible and get the money that taxpayers have set aside to pay their taxes at a point at which they are motivated to do so. Many installment agreements will fall by the wayside as life events overtake the ability of some taxpayers to follow through with payments for several years but the payments at the beginning of the installment agreement would seem like the most likely ones to be there and those are the ones the IRS is not bothering to pick up.
This is widespread. It happens to me and fellow practitioners I talk to all the time. I usually advise clients to make direct pay payments and then I follow up 3 months after I send in the installment agreement with direct withdrawal information. If it still isn’t auto-processed, I call in and the person in collections or priority practitioner will usually enter it in herself. This has increased the cost to clients since I usually need to call in 2-3 times on a file instead of just once.
How many keystrokes does it take to “load” (what a heavy word) an instalment agreement? Routing number, account number, SSN, tax periods — I just paid a credit card bill over the phone, using an automated keypad system, and it took maybe three minutes.
IRS remains one of the best tax collection agencies of the 1960s.
I have had several instances where IRS employees warned me about how long it may take for the installment agreement direct debits to kick in, and some advised my clients to begin voluntarily paying the monthly installment amounts until they saw a direct debit. I have followed that advice.
I give clients multiple vouchers for a specific year and desired $$ amount, and instructions to write Apply to 1040 tax for 201x per Rev Proc 2002-26, copy it and the check and mail it certified mail return receipt requested.
The check gets cashed and applied, thus reducing the interest when the installment agreement actually kicks in.
Your client could be anyone of mine. In my experience Offers in Compromise, Installment Payment plans, Lien Releases, CP2900 responses, Entity Selection, anything that goes into centralized processing takes an inordinate amount of time and that time is increasing. You are right to point out the financial costs to all parties. However, the poor performance by the Service is discouraging to practitioners who really want their clients to get back on the tax rolls, comply with federal and state law, and leave the anxiety and stress behind. I have had several clients revert to “off the radar, cash only” lives when encountering delays and/or nonsensical communications from the Service. I don’t fault individual employees at the IRS. Congress needs to fund a major overhaul of computer systems and recruitment of additional staff. Amen.
Installment Agreements have been so bad for so long that I typically advise clients, like Steve, to mail in a monthly payment with instructions to apply it to the unpaid tax.
In most cases the tax, interest and penalty are paid prior to when the IA, that they would have had to pay for, would have taken effect.
Less is better.
I’ve rarely experience a problem with the IRS cashing a check. I generally avoid the direct deposit system, but mostly to maintain integrity of my client’s sensitive information (all while wearing a aluminum foil hat, but I digress). Once I get an agreement approved, I wait for the payment vouchers to show up, and then I (meaning my secretary) forward them to the client with instructions to write a check to the Service. I typically follow up with the clients to make sure everything is going as planned, and I haven’t had a problem yet. Then again, I haven’t been practicing too long so I’ll keep my fingers crossed.
I do not think that this is something new where the I.R.S. is backlogged and doesn’t get the installment agreement established in a timely manner. I’ve routinely worked with the I.R.S. for the past seven years, and they have always informed me that the establishment of a direct debit installment agreement can take 30 to 60 days.
Sometimes, the revenue officer will instruct the taxpayer to mail the first payment, and to continue to mail subsequent payments if the direct debit is not withdrawn on the scheduled date. This is usually done when the taxpayer has entered into an installment agreement that will fully pay the balance owed within a specific amount of time. Because that amount of time is calculated with the assumption that a payment will be remitted next month, the I.R.S. does not want there to be a missed payment that would cause the agreement to not full pay within that amount of time.
In instances where fully paying the balance before a specific date is not an issue, the I.R.S. usually sends out a letter confirming that the direct debit installment agreement has been accepted and is being processed. That letter instructs the taxpayer not to contact the I.R.S. until at least 60 days has passed. If 60 days has passed and no direct debit withdrawal has occurred, then there may be an issue and the I.R.S. needs to be contacted. Again, this letter has been standard with the I.R.S. for as long as I have been working with them.
As far as the issues relating to setting up an installment agreement when returns are being processed, this is related to how the I.R.S.’s system monitors installment agreements, as well as how revenue officers are directed to handle cases based on the balances owed.
If an installment agreement is negotiated, and then a return is processed that shows a balance owed, then the system will default the installment agreement. This is why the Internal Revenue Manual requires compliance with filing all past due returns before an installment agreement can be negotiated. So while it’s annoying to have to wait on the I.R.S. to process a return, it’s just as (or more) annoying to have to reestablish an installment agreement after it has defaulted.
Additionally, the manner in which a revenue officer can close a taxpayer’s case is heavily dependent upon the total balance owed. If a taxpayer has less than $50,000 owed, then they are eligible for a streamlined installment agreement. But if they file a return that puts them over the $50,000 balance, then they are no longer eligible for the streamlined agreement. So negotiating a payment plan prior to knowing the total balance owed is problematic, which is another reason why full compliance is required prior to negotiating a payment plan.