FBAR Preparation and Ethical Risks
Many practitioners are likely to have several clients that owe back taxes to the IRS. Increased salary and bonus, a better investment year, more self-employment income, and repayment of an excess advance premium tax credit are some common reasons. Whatever the reason, clients often are unable to immediately pay the debt. They need help from their CPA to set up a payment arrangement--often, a monthly payment plan. Installment agreements are the most common payment arrangement. Taxpayers make monthly payments, usually by direct debit or payroll deduction. The IRS charges a setup fee of $120 ($52 if a client makes payments by direct debit and $43 for low-income taxpayers). Interest and late-payment penalties continue to accrue during the installment period, but the late-payment penalty is cut in half for any month an installment agreement is in effect. To set up an installment agreement, taxpayers or their representatives may call the IRS, use the Service's Online Payment Agreement (OPA) tool, or file Form 9465, Installment Agreement Request. (See Internal Revenue Manual (IRM) [section]5.14.1, Exhibit 5.14.1-5, for the types of installment agreements and the conditions under which the IRS will generally approve them.) [ILLUSTRATION OMITTED] OPA TOOL The OPA tool allows qualified taxpayers and their representatives to request an installment agreement online and receive immediate notification of its acceptance. The process takes about 30 minutes, often quicker than calling the IRS. To use the tool, an individual taxpayer must owe $50,000 or less in combined tax, interest, and penalties, and all required returns must be filed. A business taxpayer must owe $25,000 or less in combined tax, penalties, and interest, and all required returns must be filed. FORM 9465 Form 9465 can be filed at any time to request an installment agreement for an individual taxpayer, but it is often best to file it simultaneously with a balance-due return. Clients should pay as much of the balance as possible when filing the return to save on interest and late-payment penalties and then request a monthly payment plan for the remaining balance. The form recommends that the monthly payments be as high as possible to save on interest and penalties. However, some advisers recommend a lower amount to protect clients from defaulting if they suffer economic shocks. If the taxpayer does not put a payment amount on the form, the IRS will determine the payment by dividing the balance due by 72 months. Typically, the IRS responds to a Form 9465 request within 30 days. Though a practitioner could use the OPA tool or call the IRS for a quicker response, attaching Form 9465 to a balance-due return can be the most efficient method. The form can be completed quickly (most tax preparation software can automatically fill out much of the form), and it is seamlessly submitted to the IRS with the return. Clients should continue to pay the IRS as much as they can while they wait for a response. ADDITIONAL FINANCIAL INFORMATION Most installment agreements are straightforward-- almost all are automatically approved with litde information and effort. However, in certain cases, such as if a client cannot pay the entire balance within the collection statute-of-limitation period (typically 10 years) or owes more than the streamlined amount ($50,000 for an individual taxpayer), the IRS will require more information before granting the agreement. Form 433-F, Collection Information Statement, must be completed when an individual taxpayer, including a self-employed one, owes more than $50,000 or does not agree to make payments by direct debit or payroll deduction. It asks detailed questions about the taxpayer's financial situation. …