If you find yourself owing a tax debt to the Internal Revenue Service that you cannot afford to pay, there are tax relief options that must be explored. These options range from petitioning to have the tax debt placed on a hardship non-pay status, reducing the overall debt, or making payments to pay the debt over time. For debt reduction and payment plan cases, there are normally processing fees associated with pursuing these options. Those fees will be increasing effective January 1, 2014. Interestingly however, the increase in user fees will still not cover the processing and administration expenses incurred by the government in granting tax relief petitions, according to the government.
The Independent Offices Appropriations Act authorizes federal agencies, such as the IRS, to prescribe regulations that establish user fees for government-provided services that provide benefits to specific individuals instead of the general public. An agency that seeks to impose a user fee for government-provided services must calculate its full cost of providing those services. The user fee charged should recover the cost of providing the service, unless an exception is granted. Although tax relief processing fees are increasing slightly, the new user fees could have been even higher.
Offer in compromise user fees
An offer in compromise is the legal mechanism used to reduce or settle a taxpayer’s tax debt. There are different types of offers in compromise available based on the taxpayer’s unique situation. Depending on the type of offer in compromise filed, generally, the IRS processing fee is $150. This has been the fee required since 2003.
Beginning January 1, 2014, the offer in compromise processing fee will increase to $186. However, according to the IRS, they are losing $2,568 under the current fee schedule for each offer in compromise; and the cost to the IRS to process an offer in compromise, rejected or accepted, is $2,718. However, according to the government, requiring such a high user fee is outweighed by the goal of encouraging taxpayers to make an offer to compromise and pay their tax debt.
Installment agreement user fees
Here is the fancy description from the IRS of a payment plan: “A taxpayer that enters into an installment agreement therefore receives a special benefit of being allowed to pay an outstanding tax obligation over time.”
How lucky! And of course, that special benefit has a user fee. The current user fee for an IRS installment agreement is $105 for payments by check (manual payments) and $52 for direct debit payments. These have been the fees since 2007. Beginning January 1, 2014, the user fee for manual payments will increase to $120 while the fee for direct debit will remain the same.
Obviously, the government wants to be able to collect your money without needing to have you remember to mail it. Hence, the reason the direct debit user fees are not increasing. However, in both types of payment methods, the government is still losing money on processing and administering these types of tax resolutions. According to the IRS, their cost of processing and administering a manually paid installment agreement is $282 and $122 for a direct debit agreement.
Although the actual increase in user fees is not so significant to prohibit taxpayers from continuing to pursue tax relief alternatives, taxpayers facing a tax debt should not wait to resolve their tax matter. Tax relief regulation changes the last couple years have been in favor of the taxpayer. This increase in user fees coupled with an overall improving economy may foreshadow other significant tax collection policy changes that favor the government, not the taxpayer.This article is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.