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To listen, click Play below.  Blog transcript follows.
Bestowed by the “Kindler, Gentler,” IRS, the “Streamlined Installment Agreement” promised to help taxpayers who owe less than $25,000 quickly reach a resolution of back tax debt.  Hidden in its benevolent promise, though, is a trap of quicksand, waiting to sink those who dial the IRS’ toll free telephone number and sign up.

Under regulations updated in August, 2010, the Streamlined Installment Agreement allows taxpayers to enter into an extended payment arrangement without submitting financial information.  So long as the taxpayer owes less than $25,000 and has filed outstanding tax returns, your friendly IRS employee must grant a payment plan if the taxes owed can be paid off in less than 60 months or before the statute of limitations for collection expires.  The name for this extended payment arrangement, “Streamlined Installment Agreement,” derives from the elimination of the requirement to review financial information or obtain managerial approval.

So what could be dangerous about an easier, quicker way to set up a payment plan?  How could the opportunity to negotiate with the IRS and not have to expose financial information about a bank account or current employer be considered a quicksand trap?

The answer is simple.  Many taxpayers jump at the chance to set up a payment plan without having a clear understanding of their finances.  Faced with high interest and penalties and afraid of the IRS, they often pick a monthly payment that breaks their budget.  “Let’s see.  I owe $20,000?  Hmmm…I’ll pay that off in forty months with a $500 monthly payment.  No problem,” they think. 

It’s not that easy though.  On an annual income of $50,000, a mortgage, two car payments, and supporting two children, finding the $500 each month becomes more and more challenging.  Before long, the taxpayer defaults on the Installment Agreement.

Eliminating the requirement to review financial information has removed an important reality check that made many installment agreements successful over the long haul.  Without the review of an experienced tax representative, many of these new installment agreements are destined to fail, placing the taxpayer in worse danger of enforced collection.

While optimism is a positive character trait, too much optimism can sink you.  An unknown author once said:  “Don’t be too optimistic.  The light at the end of the tunnel may be another train.”

Could this “unknown author” have been a taxpayer staring into the blinding light of a monthly IRS payment too high to pay?  Or a taxpayer lying in the wreck of a derailed Streamlined Installment Agreement?  Perhaps “Kindler and Gentler” isn’t always better.
 
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Murray Singerman, JD, LLM

Author

Self-dubbed "Tax Knight," Murray Singerman writes in defense of the "humble citizen," often beaten down by the IRS and state taxing authorities.  Enjoy his short ruminations about the ever-changing area of tax controversy law.  Written with accountants in mind, Murray offers useful info and a chuckle to make your day a bit more enjoyable.

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