Has the IRS contacted you to update your financial information? This may be why.

Recently I called the Internal Revenue Service (IRS) in response to a letter asking a client for updated financial information while they (IRS) review her payment plan.  A very helpful agent took the time to explain why this is happening to a few of my clients.

As the IRS Agent explained, the IRS will no longer keep financial information on file for more than 1 year (instead of 2 or 3 years as had been done) and anyone (individual or business) who submitted financial information to process a payment plan will received a letter requiring updated financial information about 2 months prior to the anniversary date of a payment plan being established.

Once the IRS receives the updated financial information, an analysis will be made to determine if your payment amount should be adjusted (higher or lower).  Please realize you may be asked for backup information, including but not limited to:

• Pay Stubs
• Bank Statements
• Utility Bills
• Mortgage or Car Note Statements
• Insurance Policies (especially Whole Life Policies)
• Statements from Investment and/or Retirement Funds
• Backup for large expenses

Please realize if you are paying on an accepted Offer In Compromise (IRS Form 656), sending in new financial information does not apply.  The Offer In Compromise is set up specifically for payments of a certain amount over a specified period of time and (aside from prepayments) is rarely modified.

Also not affected are payment plans created without sending in financial data – normally for amounts owed under $50,000.  Normally the IRS does not ask for financial information if it was not needed for the original payment plan.

One reason this is done is to see if the amount owed can be paid off quicker.  Administering payment plans takes time and manpower and the IRS has been cutting back staff in recent years due to budget cuts.  So, if they can speed up collections, then less time/manpower needs to be allocated to payment plans and IRS personnel can work on other matters.

So, if you’ve applied for a payment plan that included your financial information with the IRS and it has been accepted, and the plan lasts for more than a year, you will more than likely get a letter requesting financial information by filling out an IRS form and return it to the IRS, or call them with the figures by a certain due date.  Normally you’ve got less than 30 days to prepare the IRS form and even if you call the IRS phone number, you may not get an extension as to when the financial information must be sent in (I was told the date was ‘fixed and could not be changed’).  Be prepared to send in the original signed form even if you call in the numbers.

You will receive one of the following 3 forms, depending on how much is currently owed on your payment plan:

• IRS Form 433-D – used when the payment plan is for less than $50,000
• IRS Form 433-A – Financial information for Individuals who owe more than $50,000
• IRS Form 433-B – Financial information for Businesses that owe more than $50,000

Be aware this change impacts all types of payment plans – income tax, sales tax, payroll tax, civil penalties, etc.

If your payment plan is set up for several years (the limit is six years) and you had to send in your financial information to set up the plan, then you’ll get a demand for updated financial information annually until the dollar amount is paid off.

Please let me know if you’ve got any questions – lots of people get nervous (understandably!) when receiving a letter from the IRS.  I’m happy to work with you on completing the IRS forms.  Please write your comments or questions below.

Cheers!

Thomas C. Hodge
President

Hodge Group LLC
3943 N. Austin Avenue
Chicago, IL 60618

773.237.6369

www.thehodgegroup.com

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