Delayed Tax Payments? It’s Time to Pay Up

July 14, 2020
Retro alarm clock

On March 25, 2020, the IRS created the People First Initiative in response to the COVID-19 pandemic. The new People First initiative was established to provide immediate relief to taxpayers that were facing financial uncertainty over their taxes because of the coronavirus. The relief period started March 25 and ends July 15, 2020. With that date looming—what happens now?

Existing Installment Agreements
For taxpayers that had existing installment agreements with the IRS as of March 25, 2020, any payments due between April 1 and July 15, 2020, were suspended. However, interest continued to accrue on the unpaid balances. Now that we are approaching the end of the relief period, taxpayers will need to start making their monthly payments by their first due date after July 15 to avoid penalties.

Taxpayers who had their direct debit installment agreement payments suspended by their financial institutions need to contact their financial institution to restart the payments to avoid penalties. If taxpayers cannot afford to make the monthly payments under their current agreement, they will need to contact the IRS and attempt to revise the agreement. Depending on the specific facts and circumstances of each taxpayer, current financial information may be required to reduce the monthly payment.

Pending Offer in Compromises
For taxpayers that had pending offer in compromises with the IRS as of March 25, 2020, the IRS allowed taxpayers additional time (to July 15, 2020) to provide any requested information. Therefore, any taxpayer that used the time delay to gather the requested information that has not been provided to the IRS must respond and comply by July 15. If the IRS offer unit does not receive the requested information by July 15, 2020, the offer will most likely be closed and returned to the taxpayer.

If a taxpayer was making required payments to the IRS while their offer was under review and suspended those payments under the People’s First Initiative, they must start making the required payments again on July 15. For any skipped payments (from March 25 through July 15), the IRS will amend the taxpayer’s offer in compromise to allow them to make up the payments and the end of the offer period should their offer be accepted.

Accepted Offer in Compromises
For taxpayers that had an accepted offer in compromise, the initiative gave them the option to suspend all payments until July 15, 2020. Generally, when an offer is accepted, the taxpayer has the option of choosing either a lump sum cash offer payment, which allows a taxpayer five months to pay the remaining 80% of their offer amount (20% of the offer amount is required to be paid at the time the offer is submitted to the IRS), or a short-term payment plan offer that allows a taxpayer 24 months to pay the accepted offer amount. Therefore, regardless of how many payments the taxpayer had left as of March 25, 2020, they did not have to make any payments from April 1, 2020, to July 15, 2020.

Now, the taxpayer must restart their payments and make up the payments they missed by July 15. If the taxpayer cannot make up the missed payments, they will need to contact the IRS offer unit.

Additionally, for taxpayers with an accepted offer in compromise, they must timely file and timely pay their taxes for the next five years (from the date their offer was accepted). If the taxpayer is not in filing compliance, their offer in compromise will default and the taxpayer will be responsible for all the tax, penalties and interest. However, under the new People First Initiative, the IRS will not default an offer in compromise for those taxpayers that have not timely filed their 2018 tax return. However, any unfiled 2018 returns must be filed by July 15, 2020. For 2019, if an extension is filed by July 15, 2020, a taxpayer should be protected until the extended due date of October 15, 2020. Otherwise, their accepted offer in compromise will default.

Accounts in Collections
Taxpayers that have not reached a resolution with the IRS for their unpaid taxes will eventually make their way to collections and be subject to enforced collection action. Depending on the type of tax due, the amount of the unpaid balances due, and how much time is left for the IRS to collect the outstanding balances, a taxpayer may be assigned to a field office for collection. Examples of cases that are transferred to the field office and then a revenue officer are those where a taxpayer has unpaid payroll taxes or has balances due above $250,000. A revenue officer has the authority to file federal tax liens to protect the government’s interest and issue levies (bank levy, account receivable levies, wage garnishments, etc.) to collect on the outstanding balances due. Under the People First Initiative however, field revenue officers were not initiating liens and levies during the suspension period (April 1 to July 15). With the suspension period now coming to an end, Revenue Officers can and will continue with enforced collections as deemed needed.

Taxpayers that have not been transferred to a field office and remain with Automated Collections (ACS) will once again start receiving new automatic or systematic liens or levies if the situation calls for it.

While the People First Initiative was in play, new delinquent accounts were not forwarded to outside collection agencies such as Pioneer, CRE Group, Performant, etc. However, if taxpayers were making payments to private debt collection agencies prior to the relief period, they must restart their payments by July 15.

IRS issues can be intimidating. 

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About the Author

Ben Peeler

Ben J. PeelerJ.D., CPA, LL.M.

Partner/IRS Tax Controversy Practice Leader