Ohara & Associates LLC

12/01/2025

Great review from Peloo... "Dan is a great help; he’s very attentive, knowledgeable, and persistent. I’ve had nothing but a great experience with him, he’s always on top of his job, something that is quite rare nowadays. I’m so pleased with his quality of work and performance. He’s the one to rely on and trust with your work, simply because of his dedication."

"Dan is a great help; he’s very attentive, knowledgeable, and persistent. I’ve had nothing but a great experience with him, he’s always on top of his job, something that is quite rare nowadays. I’m so pleased with his quality of work and performance. He’s the one to rely on and trust with ...

09/18/2024

Great review from Andrey... "I can’t say enough good things about working with Dan! He’s been super responsive, incredibly knowledgeable, and always had helpful suggestions. He worked with me with various scenarios, making sure I made the best decisions for my situation. Dealing with taxes and the IRS was very stressful, but Dan made the whole process so much easier. Honestly, I don’t know how I would’ve solved my tax issues without his help. I’m so grateful to have found him and would highly recommend him to anyone!"

"I can’t say enough good things about working with Dan! He’s been super responsive, incredibly knowledgeable, and always had helpful suggestions. He worked with me with various scenarios, making sure I made the best decisions for my situation. Dealing with taxes and the IRS was very stressful, b...

04/12/2024

Great review from Stephen... "Dan Ohara is able to sort thru all kinds of tax messes and get you back into compliance. I appreciate his hard work in sorting thru a myriad of IRS and FTB paperwork. He made it possible to get thru tax court and for that I'm eternally grateful."

"Dan Ohara is able to sort thru all kinds of tax messes and get you back into compliance. I appreciate his hard work in sorting thru a myriad of IRS and FTB paperwork. He made it possible to get thru tax court and for that I'm eternally grateful."

01/26/2024

Follow your heart and pursue that goal to fruition.

12/14/2023

There is always something to be thankful and blessed for. Allow your heart and mind to go there and be relieved of stress.

12/14/2023

Know Your Taxpayer Bill of Rights

In IRS adopted the Taxpayer's Bill of Rights in 2014. Making taxpayers aware of these rights is vitally important for the taxpayers well-being. These ten rights assist taxpayers in their interactions with the IRS. They also provide clarity on the IRS's powers and limitations when it comes to handling taxpayers' taxes.

Even though the taxpayer may owe taxes and have problems with taxes, the IRS must follow guidelines, policies, and treat taxpayers fairly.

Here is an overview of the Taxpayer Bill of Rights

​Right to Be Informed

When taxpayers receive any form of communication indicating there is an issue with their taxes, the IRS must explain what is needed to adhere to the tax laws. This is not something that the taxpayer should need to research. The IRS must explain tax laws and procedures for tax forms, instructions, publications, notices, and correspondence clearly.

The IRS is required to notify the taxpayer about any decisions made regarding their account. They must also provide a clear explanation of the factors that influenced the decision. When properly informed of situation, there should not be any surprises or left in the dark.

The Right to Quality Service

Taxpayers are to be treated with a high level of customer service. When dealing with the IRS, the interaction should be one that is courteous, prompt, and of a professional attitude. This includes being contacted at reasonable hours between 8 a.m. and 9 p.m.

The IRS should communicate clearly and make sure instructions are easy to understand. Taxpayers can make a complaint if they think the service provided was inadequate or unprofessional.

The Right to Pay No More than the Correct Amount of Tax

Taxpayers should pay only what they owe in taxes, and the IRS must correctly handle all tax payments. The IRS must provide a notice of deficiency or proposal of change if they want to change the amount of tax you owe.

The notice should provide the right to challenge the proposed changes in Tax Court without first paying the adjusted amount. The taxpayer can file for a refund if they feel they have overpaid the taxes. If the IRS is charging interest because of delays on their part, the taxpayer can request to have the charges removed.

The Right to Challenge the IRS's Position and Be Heard

When the IRS suggests actions or proposals, the taxpayer can disagree and offer more evidence to support their stance. The IRS is obligated to consider the objections and documentation promptly and in a fair manner.

The IRS must respond with a notice of deficiency explaining why the tax increase is taking place. The taxpayer has the right to petition the Tax Court if they do not agree with the increase.

The Right to Appeal an IRS Decision in an Independent Forum

In the majority of cases involving IRS decisions, such as various penalties, taxpayers are entitled to exercise their right to a just and unbiased administrative appeal process.
They also have the right to receive a written response from the Office of Appeals regarding the decision. Even if the case loses in appeals, the taxpayer generally retains the right to bring the case to court.

Right to Finality

The taxpayer has the right to know exactly how much time they have to dispute the position of the IRS, and the amount of time the IRS has to either audit a specific tax year or collect a tax liability. The IRS must inform the taxpayer when an audit has been completed.

Typically, the IRS has a period of three years starting from the day you file your return to calculate and collect any extra taxes that might be due for that specific year. This time limit does not apply when the taxpayer fails to file a return, files a false or fraudulent return. Under these circumstances the IRS has unlimited to assess the tax for that year.

Typically, the IRS has a period of ten years to recover outstanding taxes from the assessment date.es. The IRS cannot extend this period unless the taxpayer agrees to extend the period as part of an installment agreement to pay off liability or the IRS has received a court judgment. But there are circumstances where the ten-year collection period can be suspended and picked up where it left off. An example would be when there is a bankruptcy filed or a collection due process proceeding.

It is available to file for a refund if the taxpayer feels that they overpaid on taxes. This should be done within a three-year period from the date the original return was filed, or two years from the date the tax was paid, whichever is later.

Any notice received from the IRS requesting an additional tax due must include the date by which the taxpayer has in order to file a petition to challenge the additional amount in Tax Court.

Generally, the taxpayer is subject to an audit/examination only once per tax year, but exams from previous years may be reopened if the IRS deems necessary. An example of this would be when there is evidence of fraud.

Right to Privacy

Taxpayers can expect that any inquiry, examination or enforcement action on the part of the IRS will comply with law and be no more intrusive than warranted. All due process rights will be adhered to.

The IRS is limited to how much wages can be levied. The amount of standard deductions and personal exemptions are protected from levy.

Some personal items cannot be seized, such as schoolbooks, clothing, and a certain amount of furniture and household items. A taxpayer's personal residence cannot be seized without court approval, and it must show that there is no other reasonable alternative for collecting the debt.

Without any reasonable indication that the taxpayer has unreported income, the IRS is not allowed to seek intrusive lifestyle information.

If a taxpayer makes an offer to pay only what is owed in a doubt as to liability offer in compromise, full financial disclosure need not be made.

Right to Confidentiality

Information that is provided to the IRS by the taxpayer is expected to be kept undisclosed to other parties unless authorized by the taxpayer or required by law. Taxpayers have the right to see that anyone found wrongfully disclosing their information has appropriate actions taken against them.

Without taxpayer's consent the IRS has no right to disclose tax information to third parties.

Third parties such as employers, neighbors, or financial institutes are not to be contacted by the IRS in an effort obtain information about adjusting or collecting the taxpayer liability without a notice in advance.

Taxpayers can expect from federally authorized practitioners such as enrolled agents, the same confidentiality of that of an attorney-client relation. These confidential communications include:

Advise on tax matters that fall within the scope of the tax practitioner's authority to practice before the IRS - Would be confidential between and attorney and clients - Related to noncriminal tax matters before the IRS - or relate to noncriminal tax proceedings brought in federal court by or against the United States.

Right to Retain Representation

Taxpayers have the right to retain authorized representative of their choice to represent them before all levels of the IRS in resolving whatever tax issue they have. In case the taxpayer has limited financial resources, they are entitled to request aid from a Low Income Clinic.

​The taxpayer can select an authorized representative such as an attorney, certified public accountant, or an enrolled agent to represent and stand in for you at any interview with the IRS, unless the taxpayer received a formal summons to appear before the IRS.

The taxpayer has the right to consult with a representative, and the IRS in most situations is required to suspend an interview.

Anyone permitted to represent the taxpayer and has not been disbarred or suspended from practice before the IRS, may submit a written power of attorney to represent a taxpayer before the IRS.

With low income taxpayers, they have the right to ask a Low Income Taxpayer Clinic for representation for no or minimal cost.

The Right to a Fair and Just Tax System

​The taxpayer has the right to expect a just tax system that takes into consideration both fact and circumstances that could have an effect on the tax liabilities at hand, the ability to pay the liabilities, or provide information in a timely manner.

When faced with financial difficulties or the IRS is not providing proper or timely resolve to the tax issues through the normal channels used in dealing with the IRS.

​If the taxpayer cannot pay debt in full, and certain conditions are met, the taxpayer has the right to enter into a payment plan.

An offer in compromise may be submitted to pay less than full payment if you believe that you do not owe the amount assessed, if you are unable to pay the amount in the time allotted, or if paying the full amount would result in financial hardship.

National and local cost of living expense guidelines are not to be used if the result of using the guidelines causes the inability to pay basic living expenses. Actual expenses will be used instead.

The IRS is not allowed to seize all wages in order to collect unpaid taxes. There must be a portion allowed to support living expenses.

The IRS may abate a portion of tax debts that is excessive in amount, assessed after the statutory period of limitations has expired, or is erroneously or illegally assessed.

If an IRS employee caused an unreasonable delay or error resulting in the underpayment of taxes owed by the taxpayer, the IRS may abate the interest penalty.

If you have any questions regarding the Taxpayer Bill of Rights in San Jose, CA feel free to contact Dan Ohara at (408) 684-8505 or email at [email protected]

11/30/2023

Payroll Tax: Impact on the Individual

The average person doesn't think about payroll taxes as they would income tax or sales tax. Business owners know the importance and impact it has on their business and possibly on their personal tax situation.

Payroll taxes are a major reason businesses and their owners fall into serious tax issues. Many times, businesses find that a cash flow problem exists, and payroll taxes is a place where they can get temporary help. But this often results in the snowball effect of a growing, out of control payroll tax liability. What appears to be a possible solution, can end up being a major trap with heavy tax consequences.

When business slows down, it's tempting to use the money set aside for payroll taxes to cover other costs. The thought is that business will pick back up next month and there will be sufficient funds to catch up on taxes. However, the business doesn't improve, and the cycle continues, with penalties and interest being added to the debt.

If the business does not pay, the owner or other officers may personally bear responsibility. With severe liabilities, this could destroy personal finances. This occurs far too often.

Businesses collect and pay income tax and F**A taxes to the government based on their payroll size. Two taxes make up the F**A. One is a 6.2% tax for Social Security and the other is a 1.45% tax for Medicare. The employer also contributes the same amount for both taxes.

The money deducted from employees' paychecks for income taxes and F**A is referred to as "Trust Funds." This money is held by the employer in trust for the U.S. Government and is a protected source of revenue. IRC §6672 lets the IRS penalize individuals and/or businesses who willfully do not pay the payroll taxes.

This penalty applies to individuals responsible for collecting, accounting for, and paying payroll taxes, and is imposed on those who willfully fail to fulfill this duty or attempt to evade tax payment.

This penalty is the Trust Fund Recovery Penalty (TRFP), and there are two key elements required for IRC §6672 TFRP:

The individual had to collect, account for, and pay over the payroll taxes.
The person must have willfully neglected to do so.

Willfulness Requirement

For IRC §6672 the failure to account for and pay over the payroll taxes must have been a willful action. According to Revenue Ruling 54-158, the IRS takes the stance that willfulness is present where "money withheld from employees as taxes, in lieu of being paid over to the Government, was knowingly and intentionally used to pay the operating expenses of the business, or for other purposes."

Stating that there were not enough funds to cover both the employee expenses and the payroll tax is not a defense. Employers would be expected to pay employees a prorated amount that would allow for the full payroll taxes to be paid. When employees are not paid their full amount for a full day of work, businesses face a significant problem. This is because such employees may choose to leave the company.

100% Penalty

The Trust Fund Recovery Penalty is a 100% penalty, which sounds extreme. But the original amount does not have 100% of the payroll tax added to it. This means that the IRS policy is to collect 100% of the payroll taxes that the business did not pay. The penalty is that the IRS comes after the individual on their personal account.

This means that the business and the individuals will be making payments on the same original amount. The IRS now increases the chances that they can collect payment of payroll taxes. Unfortunately for the individual, they could have issues with their personal finances.

Collection Statute

Upon assessment of the taxes, the IRS has ten years to collect the tax. If there is no payment activity for a while, the IRS make an assessment for the TFRP. This assessment is called the 6672 Civil Penalty. This starts a new ten-year collection statute for the parties assessed.

The statute will run until either it the statute expires or the Trust Fund taxes are collected. This is true even if the statute for the company expires. The individual taxpayer will cover the company's shortfall in paying the taxes.

Another thing to consider for the statute is that there are events that will toll or stop the statute from running. The IRS will add the time it takes for the events to take place to the statute. Here are some events that will toll the statute:

Filing for a Collection Due Process (CDP) Hearing
Requesting an Installment Agreement(I/A)
Request for Innocent Spouse Relief
Submitting an Offer in Compromise (OIC)
Living outside the U.S. for 6 months or more

Who is a Responsible Person

In many business operations, there may be a number of persons who could be held responsible. A person's title doesn't automatically make that person responsible. A high-ranking officer who has nothing to do with finances may not be responsible for the payroll taxes.

The president who has put in place a finance staff to manage the payroll taxes, may be functionally responsible. As president, that person is responsible for the oversight of the entire company.

There could be a staff accountant who has the authority to pay taxes and also make payments to other creditors. This lower-level employee would be functionally responsible for willfully not paying the taxes. Any employee involved in the finances of the company and who can decide on which creditors to pay may be held responsible for the unpaid taxes.

Here is a list of usual employees that would be considered responsible:

Sole Proprietors
Partners
Bookkeepers
Lenders/Creditors
Accounting Firms

Taxpayers must know their financial duty as a business owner, officer, or employee regarding payroll taxes. Failure to pay the payroll taxes could result in a personal liability from an IRS civil penalty. This leads to dealing with collections and possible filing of liens and levies on personal property assets. It can cause great personal financial stress and pain when the payroll taxes of a business are not paid.

For more information on Payroll Taxes, feel free to contact Dan Ohara at (408) 684-8505 or email at [email protected].

11/17/2023

Make the decision to forge ahead to prevail and leave behind the things that hinder success.

11/17/2023

Hobby Losses Exam: Do You Have a Business or a Hobby?

An area that extends beyond merely monitoring income and expenditures is the management of a hobby loss assessment. Here, you must make a determination regarding whether you possess a valid business or merely a hobby. Is it a legitimate business with numerous deductible expenses, or just a hobby with limited deductions based on hobby income?

The IRS is checking how people report their businesses. Taxpayers must know the rules about hobby losses for federal taxes, as opposed to business deductions. Do you have a hobby or business for tax purposes?

You have more at stake in this exam than your basic audit of a business run for profit. You need to question your entire business, purpose, and past actions, which means you need to prepare very differently. You need to show that the business loss that you claimed is not actually a hobby loss.

Revenue Code §162 states that to be deemed a business, one must meet the following requirements.

The taxpayer must actively engage in the activity with continuity.
The taxpayer must actively engage in the activity on a regular basis.
The taxpayer’s primary purpose for carrying on the activity must be for income or profit.

We need to make an evaluation to determine if the above requirements have been fulfilled. If the taxpayer has a hobby instead of a business, their expenses are restricted by Revenue Code §183. They can only claim expenses up to the amount of income they earn from the hobby.

Is Activity Loss a Bonafide Business Loss or Hobby Loss

The Treasury Regulation §1.183-2(b) has nine factors to decide if someone has a business loss or a hobby loss:

The manner in which the taxpayer conducts the activity.
The expertise of the activity that the taxpayer has.
How much time and effort is put forth to carry out activity.
Expectation that assets utilized in the activity may appreciate in value.
The success of the taxpayer in carrying out other activity endeavors.
The taxpayer’s past income and loss while engaging in activity.
The amount of occasional earned profits.
The taxpayer's financial status, are there funds to support activity.
Level of personal pleasure or recreation.

Determining whether an activity is performed for profit or not, does not rely on one determinative factor. Every case will be examined, and all circumstances and factors will have an impact on the decision.

Steps to Take to Ensure Activity is a Business and Not a Hobby

There are three areas that are very evident in U.S. Tax Court decisions regarding hobby loss. These are:

The way in which the taxpayer performs the activity.
His or her expertise in the field of activity.
What changes did the business make in response to the financial results and changes in the economic climate?

With this in mind, it is essential that the taxpayer pay close attention to the following:

The taxpayer must have a detailed business plan and act accordingly. The goal of any business is to turn a profit and have a successful business.

You should monitor the business plan annually or more often, depending on the business. This is to ensure that any required adjustments or modifications are implemented. These adjustments are based on the performance of the business and potential economic changes. The mindset is to maximize future profits and success.

The business must be operated as a business and not a pleasure hobby. Books are used to track income and expenses, assets, and business records. Companies use many ways to promote products and services, find the most affordable ways to operate, and conduct research.

The taxpayer should have expertise in their field of business. People can gain expertise by training, attending seminars, consulting experts, volunteering, and reading from discussion groups. These methods help them become experts in their field.

It's important to show that you're running a business, not a hobby, by making sure you have everything in order. This is especially true in areas that could seem more like a hobby than a bona fide business. Activities like photography, music, art, horse breeding, auto racing, and restoration can be looked upon as hobbies. To avoid being categorized as a hobby, it is important to focus on the business aspects of these activities.

If you have any questions regarding hobby losses, feel free to contact me at (408) 684-8505 or email me at [email protected]

11/05/2023

Change isn't always easy, but the results are almost always postitive, and there is always learning, growth, and overcoming fears.

11/04/2023

Bankruptcy and Tax Debt Discharge

Filing for bankruptcy might not be the best way to resolve tax debt. But, depending on your individual circumstance, bankruptcy might be the best option. Change your mind that bankruptcy is only negative and ruins your credit. Instead, think about how it can help you with your current tax problem, relieve stress, and get you back on the right track.

Can tax debt be discharged in bankruptcy?

In general, bankruptcy does not discharge taxes unless it meets several exceptions. With this in mind, bankruptcy can have a great beneficial impact on resolving tax and other debts. Bankruptcy will not discharge all taxes, but it can help get you in a position to arrange a payment plan to settle the remaining debt.

Be sure to consult with a bankruptcy attorney who has full knowledge and understanding of the bankruptcy laws. They can discern what is dischargeable and what can determine what is best in filing a chapter 7, 11, or 13.

What are the various types of bankruptcy?

Chapter 7 - This is a where the taxpayer is seeking to have their debts discharged without any repayment plan to follow. Certain conditions must be met to qualify for the discharging of taxes. In a Chapter 7 business bankruptcy, the filing is done with the knowledge that a complete liquidation of the business assets will be done and creditors paid.

Chapter 11 - Used primarily for restructuring of business debts, although individuals also use it for personal debt. This allows the debtor to discharge the debt that is dischargeable, and then restructure or reorganize the remaining debt into a payment plan that is overseen by the bankruptcy trustee.

Chapter 13 - Is a plan for debt reorganization and repayment to creditors. Designed for individuals who wish to pay back their creditors. Generally, the payment plans must be paid in full within 60 months, though creditors could extend the repayment period.

Potential benefits of bankruptcy to resolve tax debt.

Bankruptcy can provide the benefit of having another way of resolving a tax issue. Some examples are automatic stay, discharge of taxes, interest, penalties, and forcing the government to accept a payment plan. The payment plan is through bankruptcy trustee, not the IRS Collections.

The Automatic Stay

Upon the filing of a bankruptcy petition, all collection activity by creditors must cease. This includes the IRS and state tax agencies. So, there is the immediate benefit of stopping the IRS and state from collection efforts against the taxpayer. Bankruptcy will effectually remove the case from the IRS Collections Division and move it to the IRS Insolvency Unit.

This gives the taxpayer immediate relief from collections pressure and can now work out a plan through bankruptcy. The IRS may not have been willing to work with the taxpayer in the same manner before the bankruptcy.

Discharging Taxes

The discharging of tax debt as opposed to unsecured debt can get complicated and it depends on a number of factors. Several factors determine if taxes can be discharged or not. These factors include the type of tax, its age, filing date, and events that occur after filing.

In a Chapter 7 bankruptcy filing, there are rules for determination of tax dischargeability. To discharge a tax obligation, these must be satisfied.

Three-Year Rule - The tax debt in question must be more than 3 years old. This is dated from when the tax return was due to be filed. Generally, the due date would be April 15th, or October 15th with an extension filed. The calculation does not consider the actual filing date.

Two-Year Rule - A tax return that is filed late needs to have been submitted at least two years prior to the bankruptcy filing.

240 Day Rule - The related tax debt must have been assessed more than 240 days before the bankruptcy petition date. If an Offer in Compromise is pending, then that time is added to the 240 days plus 30 days. When an amended return, examination of a return, or audit results in an additional assessment, a new 240-day period is applied to the increased assessment. The original tax that was dischargeable would still be dischargeable.

Non-Fraudulent Return Rule - The tax return for the year in question must be non-fraudulent. The IRS will generally consider the following in determining fraudulent or non-fraudulent.

Knowledge of falsehood of the tax return
An intent to evade taxes
An underpayment of taxes
Non-Evasion Rule - The taxpayer must not have willfully attempted to evade or defeat taxes. The courts only need to establish the following to prove that taxpayer willfully attempted to evade of defeat taxes:

Taxpayer (debtor) had a duty to pay the tax
Taxpayer knew of the duty to pay the tax, and
Taxpayer voluntarily and intentionally violated the duty to pay the tax
The mere act of not paying taxes is insufficient proof of evasion. It requires the willful act to evade or defeat the collections of taxes.

Unassessed Income Taxes - All tax must have been assessed as of the petition date to be dischargeable. If the tax is dischargeable but the IRS can still examine the related tax year, any additional assessment after the submission date will not be eligible for discharge.

Payroll, Withholding, and Other Trust Fund Taxes - Tax that is required to be collected or withheld for which the debtor is liable is a trust-fund tax and is ordinarily not dischargeable. This would include federal and state payroll withholding taxes and sales tax.

Property Taxes - Property taxes are dischargeable if they are assessed and payable without penalty more than one year from the bankruptcy petition date. If the same takes place within one year, property taxes are not dischargeable.

Employment, Excise Taxes, and Custom Duties - There are certain employment and excise taxes that are not dischargeable. If these are imposed on transactions within three years of the petition, they are not dischargeable. Customs duties that arise out of the importation of merchandise are also non-dischargeable.

Gap Claims - This refers to a scenario where the taxpayer is compelled into bankruptcy by their creditors, and subsequently faces a tax claim from the creditor prior to the appointment of a bankruptcy trustee or before the relief order is issued. This would be the "gap period" and claims in this period are not dischargeable.

For more information regarding Bankruptcy and Tax Debt Discharge, please contact Dan Ohara at (408) 684-8505 or email at [email protected].

10/24/2023

Installments Agreements and Uncollectible Status

Here are two collection alternatives that are available and will provide some breathing room and relieve stress. We will cover the various installment agreements and the IRS currently not collectible status when experiencing IRS financial hardship.

A previous blog discussed the offer-in-compromise, and we will discuss bankruptcy in the future.

Not being able to fully pay your income tax liability can bring about great concern and worry. But the IRS offers ways to solve tax issues by letting you pay gradually without facing financial difficulties. This might require a lifestyle change and an adapted mindset, but it is doable.

Installment Agreements

Installment agreements are not one size fits all. There are various forms of installment agreements, and each has special rules. One may work better than another for the individual taxpayer.

The IRS allows payment plans, but they do not like extending them for the entire collection period unless necessary. The reason behind this is that taxpayers will default on making payments within 48 months. So, the IRS will base that payment plan on the taxpayer's financials.

For example: The taxpayer owes $80,000 and the financials show that $1,200 is available for monthly payments based on actual expenses. The IRS will base the financials on income less IRS allowable expenses. The taxpayer can also liquidate their retirement account and add this amount to the monthly payment.

Now, the IRS proposes installment agreement of $2,500 per month. This amount is reasonable according to the financials and it is what the IRS will expect. The IRS won't accept the $1,200/month plan, even if you achieve payment in full before the collection statute expires. It would not be in the best interest of the federal government to extend the length of the payment plan.

Five Variations of Installment Agreements

Automatic is when the taxpayer owes less than $10,000.
Short-Term is where the taxpayer has 180 day to full pay the liability without providing financials. The IRS will not file the Notice of Federal Tax Lien.
Streamlined is when the taxpayer owes less than $50,000 when assigned to the Field Collection Force (i.e., assigned to a Revenue Officer). This is a 72-month payment plan.
Regular is where the taxpayer doesn't qualify for an IRS Streamlined Installment Agreement.
Partial Pay is where the taxpayer does not have the ability to full pay before collection statute expires.
Automatic Installment Agreement

Taxpayer can get an automatic installment agreement when they owe less than $10,000 in tax and:

Over the past 5-year period, taxpayer has not owed any tax or been in an installment agreement, and
The taxpayer agrees to full pay the liability within three years.
You can create the agreement online or by completing Form 9465 Installment Agreement Request and sending it to the IRS. There are no financials required for this plan.

Short-Term Installment Agreement

Is simply making full payment in 180 days or less and is available only to individuals.
Apply online or by phone, mail, or in person.
Use IRS Direct Pay for direct payment from checking or savings account, Or
Use Electronic Federal Tax Payment System (EFTPS) (enrollment required), Or
Pay by check, money order, or debit/credit cards. Card fees do apply.
No setup fees.
Streamlined Installment Agreement

Like the automatic installment agreement, there is no requirement for financials. You can set up the agreement online or by contacting the IRS, provided you meet the following criteria.

The taxpayer owes less than $50,000 in taxes.
The taxpayer has not had back-tax debt or been in an installment agreement over the past five years.
The taxpayer agrees to make payment in full within 72 months of equal payments.
Regular Installment Agreement

Taxpayers who owe more than $50,000 or cannot pay within 72 months must provide detailed financial information. This requirement applies to those who do not meet the criteria for the streamlined agreement.

Cases held by a Revenue Officer will require a Form 433-A, Collection Information Statement. If Automated Collection Services, ACS, handles the case, they will request a Form 433-F Collection Information Statement. If the taxpayer owns a business, they will need to submit a 433-B.

There is also a new Form 433-H, introduced in 2019. Use this form if you do not qualify for a streamlined payment plan. This installment agreement bases its monthly payment calculations on the taxpayer's income minus the IRS allowable expenses. The payment plan will run until the collection stature expires.

If the expiration of the statute allows for full payment, then this qualifies as a regular installment agreement. Form 433-H is for requesting an installment agreement and providing bank details for a direct debit installment agreement. It combines Form 433-F and Form 433-D.

The regular installment agreement has two options that the taxpayer could find beneficial for their tax situation. These are the one-year rule and six-year rule.

One-Year Rule

Under this rule, the IRS will allow the taxpayer to make a monthly payment based on actual expenses for one year. Then the payment amount would increase to the monthly amount calculated with IRS allowable expenses. Monthly payment for the first year cannot be zero.

For instance, the taxpayer is currently unable to make the $800 monthly payments because his housing expenses are too high. He could make a minimum monthly payment of $25 for the first year, then increase to $800. During that time, the taxpayer can look to relocate into cheaper housing. The taxpayer still needs to make full payment by expiration of statute.

Six-Year Rule

The six-year rule applies to people who cannot pay taxes right away and don't qualify for a streamlined agreement. The taxpayer would need to provide financial information but would not need to substantiate the reasonable expenses. If the taxpayer can full pay within six years and remains in compliance, the IRS usually agrees to accept reasonable expenses.

Partial Pay

Unlike the regular agreement, the taxpayer does not have the ability to full pay the liability. The IRS cannot collect more than is available. The amount paid by the end of the collection statute is all the IRS will get. The IRS will ask for updated financial information in 18-24 months to check their ability to pay.

Uncollectible Status

Taxpayers struggling to pay can qualify for the Currently Not Collectible status if they cannot make payments without hardship. Financials will need to support that the taxpayer does not have the funds to cover the IRS allowable expenses.

Being in the uncollectible status does not indicate that the tax issue has been resolved. The taxpayer still has the tax liability, and the IRS will keep an eye on it. But there is some good that comes from the uncollectible status.

The 10-year collection statute continues to run.
The IRS cannot take levy action against the taxpayer, which would put them in hardship.
Interest will continue to accrue since the taxpayer still owes the tax. The IRS can still file a Notice of Federal Tax Lien to secure their interest in any asset the taxpayer has or will secure in the future.

The IRS will make request for updated financials usually within 18-24 months to see if taxpayer can afford to pay. If nothing has changed, then the statute continues to run with the uncollectible status still in place.

For more information regarding Installment Agreements and Uncollectible Status, contact Dan Ohara at (408) 684-8505 or e-mail at [email protected].