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IRS Payment Arrangement Fees to Increase in 2014

On August 30, 2013, the IRS released proposed regulations that would raise the fees associated with installment agreements and offers in compromise as of January 1, 2014.

Currently, a taxpayer must pay $105 for an installment agreement to be set up, $52 for a direct debit installment agreement, and $45 for an installment agreement to be reinstated after default. Low-income taxpayers may qualify for a reduced $43 fee for the direct debit agreement. The proposed regulations would raise these fees to $120 for the agreement and $50 for reinstatement, though the fees for direct debit agreements would remain the same.

For an Offer in Compromise, a taxpayer must currently pay $150 for an offer to be processed, unless they certify that they are a low-income taxpayer per specified guidelines. There is no processing fee for low-income taxpayers. The proposed regulations would raise the fee to $186, and the fee for low-income taxpayers would continue to be waived.

Though these increases may seem steep, the fees are minimal compared to the IRS's reported costs for setting up these payment arrangements. In fact, the IRS currently estimates that the full cost of processing an Offer in Compromise is $2,718. The proposed fee increase fails to meet even ten percent of this cost. Though the federal Office of Management and Budget does charge its agencies with determining "fair" fees based on government costs, the value of the service, the public interest, and other relevant facts - these relatively minor increases are not likely to meet much resistance before they are passed.

Though the IRS payment arrangement process was designed to be user-friendly, many taxpayers shy away from any direct contact with the agency out of intimidation. However, with the fee increases set to implement on January 1, taxpayers would serve their own best interests by facing up to their delinquent tax liabilities as soon as possible.

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