Under certain circumstances it might be difficult or even impossible for an Alabama taxpayer to full pay his or her tax debt in a timely manner. If this is the case, the Alabama Department of Revenue can consider payment back taxes in monthly installments, as long as the debt, including penalties and interest, is paid within twelve months. It is sometimes possible to extend this agreement for a longer period of time, but it usually requires negotiations with the Department of Revenue to prove that extending the time to full pay the state tax debt will benefit the state of Alabama.
In order to apply for the state installment agreement, a delinquent taxpayer needs to complete Form C:41E, State of Alabama Department of Revenue Collection Services Division Affidavit and Collection Information Statement. This document is designed to collect financial information from the taxpayer who would like to apply for an Installment Agreement. The main items that the state Collection Services Division is looking at are money a taxpayer has in bank accounts, equity in assets that can be liquidated, and disposable monthly income. Therefore, before completing this statement, you need to have available your three most recent bank statements, proof of income for the past two months, and detailed proof of all expenses.
Although it is not difficult to complete the state Affidavit and Collection Information Statement, negotiating a requested payment plan is a complex task, and might require a help from a tax professional. There are many companies offering assistance with IRS tax debt, but not all of them specialize in resolving tax issues with the states.
To authorize someone else to negotiate with the state of Alabama Department of Revenue on your behalf, you need to complete the state form 2848A – Power of Attorney and Declaration of Representative. This form needs to be signed by you and the person whom you authorize to resolve your state tax problems, and sent to the state of Alabama Department of Revenue for processing.
Even if you delegated the authority to set up a payment plan with the state of Alabama to your representative, you still need to complete the state Affidavit and Collection Information Statement and provide all necessary documents to support this statement. These documents will provide grounds for negotiations regarding your ability to pay. In other words, it is in your best interest to supply your tax representative with accurate records.
After your payment plan is accepted by the state of Alabama Department of Revenue, you will start making monthly installment payments in addition to paying your regular taxes. It is important to remember that in some cases the state is allowed to terminate your payment plan agreement. For example, if the state commissioner discovers that the taxpayer provided false, inaccurate or incomplete information before the agreement was accepted, or if the state does not receive an installment payment, as agreed, a payment plan can be terminated. In addition, failure to file the state tax return and make a payment on current taxes may also default the Installment Agreement with the state.
In some cases in addition to negotiation a payment plan for the state of Alabama back taxes, it is also possible to abate assessed penalties. However, the state will only consider penalty abatement if a taxpayer has a reasonable case to be forgiven for falling behind on state tax payments.
Please check out our new blog Tax Debt Questions for more tax related articles.