IRS Payment Plans for Variable Income

Recently, we posted an article about the professional boxer and irregular-income earner Floyd Mayweather, and his troubles paying his IRS tax debt. But today, we would like to discuss more IRS payment plans for the irregular or seasonal income for regular, everyday people, such as:

• Farm workers
• Business owners
• Sales people
• Teachers
• Athletes
• Entertainers
• Even tax return preparers.

Anyone call fall into a situation where they owe back taxes. If an IRS payment plan is needed, it is not always easy, but usually, one can be arranged. For most people, there is a source of regular, continuing income to support some amount of tax payment. But what about those whose income changes from month to month, or is only during certain times of the year?

Does IRS Care That I have Seasonal Income?

Your ability to pay an IRS Installment Agreement definitely matters to the government. Even in situations where the IRS has become aggressive, and collection enforcement has begun, IRS prefers to have “Voluntary Compliance.” Basically, this means all tax returns are filed on time, and all taxes are paid on time. Anyone making voluntary payments who need a little accommodation due to their payment schedule can have a special timing for their payments.

Why Would the IRS Work with My Situation?

There are limitations for both IRS and the taxpayer. There are a few rules that the IRS must follow:

• When IRS enforces collection by levy (like a garnishment), then that levy continues until it is released. But it only applies to income to which the Taxpayer has a “fixed and determinable right.” This means that IRS cannot levy what the Taxpayer has not yet earned. If that person’s future performance is required to earn funds which IRS could levy, then that otherwise continuous levy could possibly be released. We reference the Internal Revenue Manual 5.11.5.3. Often, the IRS officer recognizes that the levy may be defeated and that it is better to agree on a voluntary, future payment of funds not yet earned. Note: This “defeat of levy” just does not apply to someone with regularly recurring salary or wages.

• To effect a levy, the IRS must complete an investigation and documentation process that often can be counterproductive to the Revenue Officer’s time. If there is a more efficient, more effective way to effect a collection of tax payments, the IRS will encourage a structured payment plan. This installment plan may include a lesser payment amount that will be accepted during months when income is lower, and a larger payment during more profitable months. This benefits the IRS by better facilitating a voluntary payment agreement that is less likely to be defaulted.

• If income is seasonal, irregular, or like Mayweather’s, sporadic, the IRS will use the previous year’s annual income W-2 or Form 1040 as a guide to calculate the current year’s average monthly income. If necessary, the Revenue Officer will vary the payment amounts to accommodate the leaner months.
Installment plans, just like IRS levies and collection enforcement measures, are applied on a case-by-case basis. But also, like the case for Mr. Mayweather, the IRS does not have to grant an installment agreement. In cases where one person avoids making payment but has abundantly sufficient assets from which he/she can use to pay – well … that’s a different story.

IRS Tax Attorney

If you find yourself in need of legal assistance, be sure to contact the professionals at Tax Law Offices! We can provide a free consultation and represent you if the need should arise. Reach out today to get started!

by  Shavonne Taylor. Ms. Taylor is a Law Case Analyst and occasional blogger at Tax Law Offices.