Taxpayers on Direct Debit Installment Agreement Can Take Action To Suspend Payments During People First Initiative

ByJustin Hughes - JD, CPA, LLM

Over the last two weeks, the IRS has put out a flurry of guidance on the recent legislation[1]  aimed at providing relief from the economic fallout of the coronavirus. On March 25, 2020, the Commissioner of the IRS announced the People First Initiative (PFI)[2], which is largely predicated on the IRS’s discretion to take or not take certain actions.

Under the PFI, the IRS announced a series of sweeping series of steps to assist taxpayers by providing relief on a variety issues. Notably, the IRS provided that payments on existing installment agreements, due between April 1 and July 15, 2020 are suspended.

Taxpayers that submit payments manually may choose to stop sending the IRS payments between April 1 and July 15, 2020 without defaulting their installment agreement. However, interest will continue to accrue on the balance. This relief will allow taxpayers the ability to maintain payment plans but hold onto needed funds during the economic downturn.

However, the IRS will continue to debit payments under direct debit installment agreements (DDIAs) during the suspension period. (The rationale is not stated, but, based upon my experience, it is likely due to the fact that the IRS cannot easily turn off such auto-debits). Nevertheless, the IRS recently put information on their website confirming how taxpayers on DDIAs  may act to suspend payments.

Under the IRS guidance, if a taxpayer on a DDIA wants to suspend payments, then the taxpayer can take the affirmative step of stopping payment with the taxpayer’s bank.  Taxpayers must work with their bank to lift any stop payments so that scheduled payments after July 15th will be made timely. Typically, this means that taxpayers must contact their bank at least two weeks before July 15 to ensure that any subsequent payments will not be stopped.

The IRS guidance on suspending DDIAs during the PFI can be found here: https://www.irs.gov/newsroom/installment-agreement-direct-debit-frequently-asked-questions

Notes:

[1] See Family First Coronavirus Response Act – H.R.6201 — 116th Congress (2019-2020); CARES Act – H.R.748 — 116th Congress (2019-2020).

[2] For more on the People First Initiative see https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program

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