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IRS Update: Payment Plan Default!!!

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Well isn’t the IRS just a bucket of sunshine to deal with? (Said dripping with sarcasm)

I wrote (here) about how the IRS was one of my top 3 organizations/entities that I hated dealing with (the other two, Navient and Social Security Administration are still at the top of my S-list, too!)

How it all started…

We owed a lot of money for our 2016 taxes and it took us a LOOOOOOONG time to set up a payment plan. I explained the whole back-story and why it was taking so long in this old post from back in October 2017. Basically, to initiate a payment plan we had to sign an agreement that said we agreed with the tax debt owed. Under advice of our CPA, we were trying to contest a portion of the amount due so we couldn’t arrange a payment plan for the remaining balance since we wouldn’t sign to agree to the full debt. It took a long time and a lot of back-and-forth to come to an agreement. We finally did that in October of 2017 (again – this is for taxes that were due for tax year 2016). That’s a reallllllly long time to come to an agreement!

So here we are, faithfully making our monthly payments. I have never missed a month and never been late with a payment.

Things unraveled quickly…

Imagine my surprise, then, when I opened an incredibly thick envelope from the IRS to receive a notice:

“Send us $XX,XXX [full amount of taxes owed] or we may seize (levy) your property on or after July 18, 2018.”

WTF??? What are they talking about? We’ve been making our agreed monthly payments faithfully! Why would they demand full payment within one month??? Or else they’ll seize our property???? Holy crap!!!

That was sufficient to scare the crap out of me. The IRS means business.

I logged into my online account where I always make payments. All of my payments have been recorded as normal. I tried to click to view our payment plan information, but it says the system is not available and provides a phone number to call. It literally took me 3 days of nearly constant calling to connect with an individual. I kept getting a message that “due to high call volume, we cannot accept your call at this time.” Finally today I made it into the cue to wait to speak with a real person. Per usual, it took over a half hour before I was even able to get someone on the phone.

When I finally got a person on the line, I explained the situation. It took her a little bit of digging into the account but then she discovered, we’ve been considered defaulted on our payment agreement since November 2017 (it was just established in October 2017, so November was our very first scheduled payment!!!)

I’ve always done direct payments on the IRS website. When I do so, I have entered my social security number to identify the tax debt. But when we filed our 2016 taxes, we filed as married filing jointly and used my husband’s social as the primary. Because I had made our payments with my social security number instead of my husbands’, they didn’t register as normal monthly payments. Someone had to manually change the payments every month from my social to the joint filing account (which is why I did, indeed, receive credit for the payments). But because of the way the system works, if it’s not filed under hubs’ social security number, the system considers the payment to have NOT been made. And it immediately considered us to be in default.

Our payment plan is no longer even in place!

Even though I’ve been making every single payment on time every single month. Even though I never received any notification of default. Even though I had no idea I had to make the payments under hubs’ social or else it wouldn’t “count” in the system.

I have to start all over. We have to re-do the whole payment plan. The real pain with this (in addition to the waste of time and stress, etc), is that there’s a $225 fee to set up a new payment plan. There’s apparently no way to waive this fee given the circumstances (the representative even said she felt bad for us and that she personally thought it was unfair, but her hands are tied). There are cheaper ways to set up the plan: I could do it online or I could schedule auto-debit (instead of paying direct-pay as I had been doing). When I explained that I’d tried to see the payment plans in the IRS’s online system and it wouldn’t let me and told me I had to call to speak to a representative, she said “oh sorry, I guess that’s not an option for you.” She said there’s a new online system and that some people simply are not eligible to set up payments through the online system. She didn’t explain whether there was rhyme or reason for this (e.g., Is it because we owe over $10,000?? Is it because the system says we’ve defaulted on a previous payment plan??? No one knows).

Establishing a new payment plan

I will receive a new payment plan agreement in the mail and I’ll be charged a lesser amount if I agree to the auto-debit (which is what I’ll do), but it’s still a fee of $149 to establish the payment plan. The same payment plan that I already thought we had in place. That I was already paying toward every month. Or so I thought. UGH.

Thankfully, the representative said she does not believe we will be at risk of having our property seized as the IRS notice indicated. If we set up an auto-draft where the IRS has direct access to debit from our bank account, we should be fine. They will only debit the agreed-upon monthly payment and the auto-debit will also eliminate the possibility of incorrect payment. Since I will no longer be doing direct-pay, I won’t be entering a social security number one way or the other – the payment will just be taken and applied appropriately.

A huge pain in the butt and a costly lesson to have to re-establish a payment plan. But hopefully (fingers crossed????) this should resolve the issue. And we’ll continue making the same payment we’ve been making all along so nothing changes in terms of our monthly budget.

Have you ever experienced something similar when dealing with the IRS? I’m still shocked I never received any notice of default. Until this notice that the IRS was going to seize our property, I had no indication whatsoever of a problem! Scary stuff!

 

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30 Comments

  • Reply debtor |

    Ashley,

    I really think you need to get a tax lawyer. These things pile up and I don’t think you have the time to devote all the attention (and record keeping) that is needed. Having worked in tax before, I’m sure that something else will bubble up in the future so it would be good to have someones whose only job is to take care of your tax needs.

    This sounds frustrating AF.

    • Reply Ashley |

      Yikes! I hear lawyer and think $$$$$. That’s money we definitely do NOT have. What do you think of the commenter’s advice (below) to take a 401k loan to pay off the IRS debt and re-pay myself through a payroll deduction??? I’d have to gather info to see if I can do that and how to set it all up. Curious what the BAD community thinks of this idea.

      • Reply Laura |

        It might be worth it, but really research and do the math. You will be taxed heavily on what you withdraw and there might be penalties on top of that.

        • Reply Angie |

          Do you even have enough in your retirement to take a loan to pay it off? I was under the assumption you’ve only been contributing the minimum %. Generally loans, if available, are only up to 50% of your balance and are required to be repaid in 5 years. More details would be needed to do the math on this. Along with this you should do full review of all your debts and create a consolidated strategy for payoff.

          Are you on track to pay off any 0% balance transfers you have before they convert to interest bearing?

          • Ashley |

            Only using 50% of my balance, I’ve got very close to the amount needed to pay off the IRS debt. Still off by a couple thousand, but close. I’m still not sure about this, after doing a little research. I’d basically be tied to my job here until the loan is paid off and it’s currently on a 5-year plan. I’ve signed a non-compete so I’m for sure here for another 2 years, but although I have no plans of moving or going elsewhere, it feels like a lot to commit to another full 3 years on top of my existing 2. Sooooo….I need to think more (and may write a whole blog post about the option to get more opinions from the BAD community).

            I’ve prioritized the 0% balance transfer (there’s only one) and am on track to pay it off before it converts (it converts in October).

  • Reply Shanna |

    At this point, I think I would borrow from your retirement and pay it all off at once. I think you can borrow at no penalty and pay yourself back through a paycheck deduction if you have a 401K. Academia may be different. You are still paying the same amount out each month but at least you don’t have the IRS hanging over you. That would make me unable to sleep at night!!!

    • Reply Ashley |

      Hmmmmm….not a bad idea. I hate taking the money out of retirement, but we’re also paying an arm-and-a-leg in interest and penalties so it might be worth it.. I need to think on this.

  • Reply Carrie |

    Have you checked to see if your federal refund and state refund for 2017 has been credited to your account?

  • Reply Walnut |

    If your accountant was involved in setting up the payment plan in the first place, you should loop them in. The accountant may credit you the fees to set it up twice.

    • Reply Ashley |

      The first year we hired the CPA was for 2017 taxes, but he looked over our 2016 stuff and provided advice when we first established a relationship with him. He wasn’t actually directly involved with establishing the payment plan for 2016 taxes. He provided advice, but didn’t have his hand in it (2016 was the last year we did our own taxes….the huge amount owed is what sent us to a CPA for the first time).

      • Reply Walnut |

        I thought the accountant was helping you protest part of the amount owed? Regardless, I would be careful about setting up an ACH debit with the IRS. Read the fine print. Is there ever an opportunity where the IRS might attempt to pull the full amount owed from your checking account in one fell swoop?

        I’m probably paranoid, but it would make me really nervous.

        • Reply Ashley |

          I’ll definitely check out the fine print when I receive the agreement. I agree, I don’t love the idea of giving them direct access to my account.
          The accountant had advised us on protesting part of the debt (he went so far as to give us exact language/wording to use), but he didn’t actually do it himself. And we didn’t pay for that part of his service. It was kind of a nice gesture of goodwill when we first got in touch with him regarding 2017 taxes.

          • Angel |

            You might want to open a separate checking out for just the tax expenses and fund that. That will give you peace of mind that they won’t take everything in one swoop.

  • Reply Shanna |

    You should not be taxed on a 401 K loan as long as you repay it within the time frame set and you don’t leave your place of employment while money is outstanding, I believe. It isn’t a withdrawal, it is a loan. A withdrawal would be another story. But that being said, please do confirm all the details with your tax professional. This stuff changes all the time.

  • Reply Sarah |

    No, no, no…do not take a 401k loan. If you leave your work for any reason, you will have to pay it back within 60 days (or whatever the time frame is) or it will become taxable income. It also sets your retirement back. I’m not sure if the retirement is tied to your work (I seem to remember you have a required contribution amount) but if you are flexible on the amount, maybe lower how much you are contributing.

    You just need to stay buckled down and get everything paid off.

    https://www.daveramsey.com/blog/hands-off-that-401k

    • Reply Ashley |

      Yeah, in researching it more I came across some of the limitations you pointed out above (being tied to my job, if I leave I have to pay it off in full, etc.). My work requires a minimum 7% contribution. I used to invest more than that – I had it set at 10% for the first couple years I worked here. But I’ve already reduced it down to the minimum 7% in the past year when our finances went south. I can’t reduce any further at this point.

  • Reply Sarah |

    Ashely, I’m here for you on your debt journey and am really rooting for you. But it bothers me to read you whining about obligations you have. You took out the student loans. You failed to pay your taxes properly. They’re frustrating and that’s fine (I paid off $100k of student loan debt myself). But you were clearly glad to take Navient’s money when they offered it to you. As a mother, I hope you’re displaying a more mature attitude toward your obligations for your girls. I feel like there’s a huge difference between saying, “I’m frustrated that my decisions and obligations are entailing even more logistical work from me” and saying “Navient is stupid/evil and I hate them!”

    • Reply Sarah |

      I actually think Ashley’s comments about Navient are more about their customer service than owing the money. She has had so many issues with them not crediting the correct loans with her payments that she is very frustrated with them.

    • Reply Joanna |

      I think her negative comments regarding Navient and the IRS have more to do with the issues relating to servicing rather than the loan or company.
      I curse my student loan provider regularly due to Customer service issues and ridiculous wait times on the phone. Not due to the money owed. I wouldn’t be where I am today without those student loans….. it’s the servicer I have issues with.

  • Reply J |

    I actually wouldn’t be entirely opposed to a 401k loan (not withdrawal) if your company offers it. As long as you do thorough research and understand it fully, I think it’s a fully personal decision and could understand why you’d choose to go that route. Yes, you’re depriving yourself of the interest that money could be making, but you may very well be paying more in interest through the IRS. My company’s plan is a flat administrative fee (around $100) and 5% interest which ultimately goes back to you. While there is certainly some opportunity cost in missed time building that money, it’d also probably make your monthly payments a little cheaper and all that interest you’re paying will ultimately go back to you. Similar to what a pp said, if you leave your job, you’d probably have to pay it back within a certain time period or it would be marked as a withdrawal incurring heavy penalties. As I said, it’s a really personal decision, but I would support it if you fully researched it and know what you’re getting into.

  • Reply Vee |

    Definitely agree with it being a personal decision to take a 401k loan, however, I wold suggest you also read your plan documents properly to understand how a loan works. It’s rare, but my company offers continued payments with automatic withdrawals should I leave the company. Upside, as many noted, you will be paying less interest and with a lower payment, if your plan allows, you can pay the difference you are paying to the IRS to the 401k loan – effectively paying it down sooner.

  • Reply Den |

    Can you get a free first visit with a tax attorney? Might be worth a visit…

  • Reply Anon |

    I would fight the $149 fee. Maybe contact an IRS ombudsman? I mean maybe pay it now to get started but then fight it to get is applied to your balance.

  • Reply marezy-d |

    A reinstatement is only supposed to be $89. They seem to be charging you like you are setting up a new plan for yourself rather than reinstating the one under your husbands number. Just reinstate you husbands plan, and pay it off using his account.

    You have now seen a good example of how the IRS works. For the love of all that is good, do not give them access to your bank account. This is the way they work. Stuff goes wrong, they say its your fault and there is nothing they can do. Don’t do it. If you must, set up a new account at an online bank like capital one, and keep a few months payments in there for them to draft off. At least you wont ge sitting there with an empty account and thirty bounced payment fees when they decide to “bring you up to date” by drafting all your mother ney out.

    • Reply Ashley |

      Great idea! I already have Capital One 360, so it’s easy to just make a new account specifically for the IRS. I’m still weighing options, so we’ll see. Also, thanks for the tip about reinstatement. I wasn’t told anything about that, so I’ll have to check that out, too!

  • Reply Brianne Archer |

    If you haven’t already, maybe check out the tax subreddit and ask for assistance there. I follow it out of curiosity but I’d actually read about someone who similarly had a payment not credited because they sent a check and wrote the SSNs out of order. https://www.reddit.com/r/tax/

  • Reply Danielle |

    You should call your Senator or your congressman (or woman). This is something they should be able to help you with. If constituent services calls the IRS on your behalf – the IRS will listen better to them rather than to you.

  • Reply Karen |

    The IRS keeps sending me letters stating I have not paid my 2012 taxes. I send them the proof then they turn around and state I didn’t pay for 2013. I send them the proof and back and forth and back and forth. I have never successfully gotten through to a human.

So, what do you think ?