In August 2013, the IRS proposed regulation changes for the first time since 2007. They suggested an increase to the processing fees for tax installment payment agreements and offers in compromise, and all other payment arrangements. From January 2014 onwards, the increased processing fees for standard installment agreements and offer in compromise will be applicable while the fees for direct debit installment agreements and low-income fees/fee waivers will remain unchanged. AG Tax analysts have prepared a brief summary on the new fee amounts, which may be useful to taxpayers considering alternative ways (Read: IRS Payment Plans) to clear their tax liability.

IRS Installment Payment Service Proposed Processing Fees

–     Installment agreement                                                                                $120 (increased from $105)

–     Restructuring/Re-instating an installment agreement                           $50 (increased from $45)

–     Offer in Compromise                                                                                    $186 (increased from $150)

–     Fee for low-income taxpayers requesting a new installment agreement would remain unchanged at $43

Installment Payment Processing Fee Waiver from the IRS

The IRS and U.S. Treasury Department also provided clarification on the commotion that arose as a result of the announcement to the reduced fees for installment agreements and fee waiver for offers in compromise, stating that:

  • The installment agreement fee is charged only when the taxpayer enters into an installment agreement, but for an offer in compromise to even be considered a ‘non-refundable’ fee has to be paid first, irrespective of whether the offer in compromise option will be provided to the taxpayer or not. Therefore, in order to prevent low-income taxpayers from choosing only the installment agreement over the offer in compromise option, the IRS has provided a fee waiver for offer in compromise option.
  • Secondly, the Internal Revenue Code (IRC) Section 7122(d) (3)(A) states that the IRS should not reject an offer from a low-income taxpayer based solely on the offered amount, and the inability to pay a fee and it is quite apparent that the low-income taxpayer making an offer in compromise does not have the ability to pay the full tax liability, unlike taxpayers applying for installment agreements who usually are able to clear their entire tax liability over a certain period of time.

If a taxpayer is facing financial hardships, and is not be able to pay off his/her tax liability in the allotted time, it is recommended that s/he consult a tax professional and apply for a payment plan that best suits their situation. If an individual does not take the necessary steps to pay off their tax liability the IRS holds significant powers by the federal government (such as withholding wages/salaries, seizing bank account or other assets) by which it can obtain the  taxes due from the taxpayer.

AG Tax LLP Can Help

If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance

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