IRS Law Blog

At times, it feels hard to trust the IRS.

After all, tax laws are complicated and lengthy – you may find yourself thinking they’re purposefully written for you not to understand them.

However, there is a way to better understand tax laws: the Internal Revenue Manual, a set of guidelines drafted by the IRS that collection agents should know backward and forward. Agents are hired and trained to enforce our tax laws through this manual. 

But we must remember that IRS collection agents are human – often, they cannot keep up with the amount of information they need to know. Or, other times, they may know information to help your case but fail to tell it to you or are improperly trained. 

A prime example of these IRS shortcomings is demonstrated in negotiating installment agreements with Automated Collection Service agents. When you receive a monthly payment calculated by an IRS collection agent, do not presume the calculations are correct. In fact, the IRS can overstate the amount of your payment, calculating it to be higher than it should be – and no one needs their monthly budget crashed by paying more to the IRS than is required. 

Miscalculations by IRS collection agents frequently occur in installment agreements, as agents are misinformed and lack awareness about the two types of streamlined installment agreements. 

The first type of streamlined installment agreement is for balances owed under $50,000, with repayment calculated over a maximum of 72 months. For example, if you owed the IRS $40,000, and they had a minimum of 72 months left to collect, the IRS agent should automatically approve a payment plan for 72 months – no questions asked. 

The second type of streamlined installment agreement is for balances owed between $50,000 to $250,000, and is calculated from the time the IRS has left to collect, which can be up to 120 months. In other words, the more you owe, the longer period of time the IRS can give you to pay, and the lower your monthly payment can be – again, no questions asked. 

Streamlined installment agreements are beneficial as they allow us to enter into a repayment plan with the IRS without providing any financial disclosures: we don’t have to tell the IRS where you bank, where you work, the equity in your house, money in a retirement account, and your monthly living expenses. 

To help understand how IRS streamlined installment agreement calculations can go wrong, I will share a moment that exemplifies extra costs that the IRS can charge you due to an IRS agent’s errors.

Below is an exchange between myself and an IRS collection agent, where I caught her mistake in confusing the two types of streamlined installment agreements and negotiated the lowest-cost plan for my client:

I begin the phone call: “Good morning Agent Smith. My name is Howard Levy, I am an attorney in Cincinnati. I am calling to set up a streamlined installment agreement for balances under $250,000 for my client.”

The IRS agent first verifies my identity and power of attorney authorization, and then continues the conversation: “Sure Mr. Levy, I can help you with that. I am going to place you on hold for five minutes to research your client’s file. Please hold.” 

I respond, “Not a problem, I understand, and appreciate your assistance in getting this taxpayer’s account resolved.” 

After doing her research, the IRS agent returns to the phone: “I have calculated a payment of $3,677/month with interest and penalty accruals to fully pay the taxpayer’s account over 72 months.”

Prior to calling, I had completed an estimated payment plan calculation; the agent’s number was significantly higher than what I had previously settled on. 

I respond:  “Okay, thank you – your payment calculation seems to be too high. Can you please verify the years and amounts owed, and how much time remains on the collection statute?”

She returns and states: “The taxpayer owes $215,804, broken down as $99, 241 for 2016, $37,826 for 2019, and lastly, $78,736 for 2020. The collection statute has 97 months remaining.” 

This is a problem. The agent calculated my client’s monthly payment and amortization over 72 months, but she stated he has 97 months remaining.

If he owed less than $50,000, he would be restricted to the 72 month plan, but because he owes over $50,000, he is entitled to the longer term, 97 month plan. The agent never considered this second plan, which allows him a lower payment because it is spread out over a longer amount of time.

If I didn’t catch her mistake, we were going to be overcharged by the IRS. 

I continue the conversation with the IRS collection agent:  “I think you are confusing the different installment agreements the IRS offers in making your monthly payment calculation. My client owes more than $50,000 and less than $250,000. So, they are entitled to a monthly payment calculated over the remaining time the IRS has to collect, which you said is 97 months.” 

As a result, I request that she provide a monthly payment calculation based on 97 months, not 72 months.

After being placed on hold (yes, this is how it goes), she provides a new and corrected monthly payment of $2,478.00/month.

The corrected payment results in a monthly savings outlay to my client of $1,199 ($3,677 minus $2,478).

Now, that’s more like it.

I accept the revised calculation and now my client has a full pay agreement which should not be disturbed or subject to any further IRS review, provided all payments are made and we remain in compliance with tax return filing and payment obligations.

The moral of the story is clear: when negotiating with the IRS, it is important to know more than what the IRS knows. We cannot rely on IRS agents to represent our best interests. The IRS makes mistakes – and in my experience, they are rarely intentional, but they can be costly if not corrected. Our example shows the IRS overstating the amount of a monthly installment agreement, but this could have just as easily been mistakes made in valuing an offer in compromise, not following guidelines in a financial statement (Form 433A/B), or sending out a premature levy. Catching IRS agents’ mistakes is essential to getting the right results, and saving you from being overcharged.