Accountants CPA Hartford: William Brighenti, CPA
IRS Installment Agreement and Penalty Abatement Relief

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46 Mildrum Road, Berlin, CT 06037                Telephone: (860) 828-3269                Email:  info@cpa-connecticut.com

During these dire economic times, just paying state and federal income taxes can be very challenging, to say the least.  Many taxpayers lack the necessary funds to pay their taxes and then fail to file extensions and tax returns to the Internal Revenue Service.  Although you may not be able to pay your taxes, you should always file extensions and your tax returns, even though you do not include payment to the IRS.  If you timely contact the Internal Revenue Service, arrange installment payments or make some other arrangement of payment with the IRS, and file a request for abatement of penalties, you may be spared penalties for failure to file a tax return and late payment of taxes, which can amount to material amounts of monies.  The late filing penalty is 5% per month of the tax due, up to a maximum amount of 25%.  The late payment penalty is .5% per month of the unpaid tax, up to a maximum amount of 25%.  Consequently, you can see how easy it is to double your tax liability when you include interest on your taxes due and you wait until the IRS catches up with you to pay your taxes.

Form 9465:  Installment Agreement Request

To arrange an installment agreement with the Internal Revenue Service, download
Form 9465, Installment Agreement Request,
from the IRS's website and fill in the amount that you can pay each month, the day you wish to make your payment each month (consider choosing the 28th day, the last monthly date the IRS will accept), your name, address, social security number; etc.  Generally, you can have up to 60 months to pay.  In certain circumstances, you can have longer to pay or your agreement can be approved for an amount that is less than the amount of tax you owe (these two alternatives are not explored in this article).  Your request for an installment agreement cannot be turned down if the tax you owe is not more than $10,000 and all three of the following conditions apply:
  1. During the past 5 tax years, you (and your spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax. 
  2. The IRS determines that you cannot pay the tax owed in full when it is due and you give the IRS any information needed to make that determination.
  3. You agree to pay the full amount you owe within 3 years and to comply with the tax laws while the agreement is in effect.
After the installment agreement is approved, the IRS will send you a monthly notice showing the remaining amount you owe, and the due date and amount of your next payment on a detachable voucher.

Form 843:  Claim for Refund and Request for Abatement

To abate all penalties for late filing of your tax return and late payment of taxes, you need to file Form 843, Claim for Refund and Request for Abatement
Fill in your name, address, social security number, the tax year on line 1, the dollar amount of the abatement on line 2, the date(s) of any payments on line 5b, and select "Income" as the type of tax on line 3, and "1040" as the type of return on line 6.  For line 5a, check "Reasonable cause or other reason allowed under the law (other than erroneous written advice) can be shown for not assessing a penalty or addition to tax", which you then have to explain in detail on line 7 and any attached sheets, if necessary.  Line 4 requests the Internal Revenue Code sections on which the penalties are based; generally they are one or more of the following types and can be found on the Notice of Assessment you received from the IRS:
  1. Section 6651:  Penalty for Filing Return Late
  2. Section 6654:  Penalty for Not Paying a Proper Estimated Tax for Individuals
  3. Section 6651:  Penalty for Paying Taxes Late
Typically you will insert codes 6651 and 6654 on Line 4.

Sign and date at the bottom of the form.  If you are filing Form 843 in response to an IRS notice, send it with any attachments to the address shown in the notice. Otherwise, file Form 843 with the service center where you would be required to file a current tax return for the tax to which your request relates.

As mentioned above, in certain circumstances, you can have longer to pay or your agreement can be approved for an amount that is less than the amount of tax you owe.  You may wish to file Form 656, Offer in Compromise.  If you are considering these alternatives, or are in need of assistance with the preparation of the above-mentioned forms, or require other accounting and tax services, please contact us via our website:  Accountants CPA Hartford: William Brighenti.  We would be happy to assist you.

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