Author: Kienitz Tax Law

kienitz tax lien levy

The Difference Between an IRS Tax Lien and Levy

Having an IRS tax lien or levy imposed is one of the scariest situations a taxpayer can encounter. This fear is completely understandable given the immense power of the IRS. The good news is that the IRS won’t impose a tax lien or levy without first exhausting other collection methods. This means a taxpayer will usually have plenty of notice before things get so bad that the IRS will enact a tax lien or.  However, if you are unfortunate enough to be subject to a tax lien or levy, below is some basic information about IRS tax liens and levies that may help figure out what to do next.

What Is an IRS Tax Lien?

A tax lien is a legal claim the IRS places on a taxpayer’s property as a result of an unpaid tax debt. This legal claim will attach to basically all of the taxpayer’s present and future acquired property, including bank accounts, real estate and personal belongings.

This legal claim, also called a security interest, can create problems for the taxpayer. First, it can severely damage the taxpayer’s credit since any credit checks will reveal the tax lien and make it very difficult to obtain credit, such as a mortgage or personal loan.

Second, the tax lien will effectively make the taxpayer’s property the IRS’ property. This means if the taxpayer sells something that has an IRS tax lien on it, the cash proceeds belong to the IRS, not the taxpayer. This situation will exist until the tax delinquency is resolved.


What Is an IRS Tax Levy?

A tax lien is considered to be more “serious” than a lien. This is because the tax levy will result in the IRS taking the property, not just having a legal claim to it. The IRS will take the taxpayer’s property then use it to satisfy the unpaid tax debt.

A tax levy can occur in several ways. First, the IRS can physically possess the property, then sell it and keep the proceeds (assuming the proceeds from the sale are not in excess of the tax debt). Second, the IRS can withdraw money from the taxpayer’s bank account. Third, the IRS can take a percentage of the taxpayer’s income. This is referred to as wage garnishment.


How Can I Avoid a Tax Lien or Levy?

The best thing a taxpayer can do is to pay all the taxes they are legally required to pay. Only when the taxpayer fails to pay his or her legal tax bill, will the potential for a tax lien or levy arise. Assuming a taxpayer gets behind on his or her tax obligations, the IRS will send a series of written notices explaining the taxpayer’s tax debt and how to fix it.

The last thing a taxpayer should do is ignore the tax notices from the IRS. It’s when the IRS isn’t getting anywhere with recovering the outstanding tax bill will they take steps to impose a tax lien or levy against the taxpayer.

So even if the taxpayer cannot quickly settle his or her tax debt, they should respond to the IRS collection notices and arrange a way to pay off the tax debt. The IRS may agree to set up a payment plan or settle the tax debt for an amount lower than the full amount owed. There may also be other options, but it’s strongly recommended the taxpayer consult with a tax legal professional to discuss what they are and to decide which option is best.






tax scams

Tax Scams Following the 2017 Tax Season

The saying “death and taxes” is incomplete. What it really should be is “death, taxes and scams.” For as long as an organized society exists, so will scams. This tax season has been no different, with many victims falling prey to unscrupulous individuals. Even though the vast majority of us have already filed our taxes for the 2016 tax year, that doesn’t mean the potential for tax scams is over until next season. One of the more prevalent tax scams still occurring is the IRS telephone scam.

How the Scam Works

The scammer will call the victim pretending to be an IRS agent or US government official. The call will often appear very legitimate, with the scammer providing a badge number to the victim, the victim’s caller ID showing the call as originating with the IRS and fake background noises played to make the victim think the spammer is calling from a busy call center.

With the stage set, the scammer tries to scare the victim into sending the scammer money because the victim has an existing tax debt with the IRS. Sometimes the scammer requests payment in an odd way, such as gift cards or money orders.

If the victim challenges the scammer’s claim that an unpaid tax bill is owed, the victim is threatened with arrest, a civil lawsuit, driver’s license revocation, deportation or other arbitrary punishments. In the current political climate, the threat of deportation will be especially effective.

Other ways the IRS telephone scam may appear genuine include:

  • A follow-up telephone call from someone claiming to be from law enforcement.
  • The scammer will have some basic information about the victim, such as a date of birth or the last four digits of the victim’s social security number.
  • The victim may also receive a letter that appears to be from the IRS reminding the victim of an outstanding tax debt.


How the IRS Really Works

The IRS does try to collect its outstanding tax debts, but not in a manner used by most scammers. There are several methods the IRS will use when it attempts to collect an unpaid tax bill:

  • The IRS will always provide the taxpayer with an opportunity to dispute the tax amount owed.
  • The IRS will accept various methods of payment for a tax bill, not just one or two methods. Additionally, the IRS never asks for payment to be made over the telephone.
  • The IRS may assign the tax collection duties to a private company, but there are only four private collection agencies authorized to represent the IRS: CBE Group, ConServe, Performant and Pioneer. Even if a taxpayer’s unpaid tax bill is assigned to a private collection agency, before a phone call is ever made, the IRS and the private collection agency will mail written notices to the taxpayer.

Scams Aren’t Just Limited to the Telephone

Variations of the IRS telephone scam can easily exist in other realms, such as e-mail. Many scammers will try “phishing” or pretending to be an official IRS e-mail or website in order to obtain personal information or money. The IRS may use e-mail to communicate with taxpayers, but it will never use e-mail as a method of first contact about an outstanding tax bill.

What You Can Do if You Think You’ve Been Contacted by a Scammer

If you receive an e-mail or telephone call that you believe was made or sent by a scammer, you should report it to the Federal Trade Commission or the Tax Inspector General for Tax Administration.







Details for Tax Filing this Year

Details for Tax Filing this Year

Details for Tax Filing this Year

Tax season is here again with the dreaded April 15 deadline fast approaching. Some of the more proactive taxpayers out there have already filed their 2016 tax returns and maybe already have their tax refund checks, too. But for those who haven’t yet done the deed, here are a few pointers about filing your return this year.

What’s Needed to File?

By now, taxpayers should have all the necessary tax documents to file their taxes, such as any 1099 forms for contract work and W-2 forms for payroll work. These forms are usually sent by employers or clients in late January. If you don’t receive these documents, keep in mind it does not relieve you from the responsibility of declaring your income in your tax return. Also, if you already know what your income is (this can often be readily determined by looking at your invoices and pay stubs), you technically don’t need your W-2 or 1099 forms.

When to File?

The deadline to file your federal tax return is the same every year: April 15. An exception to this rule is when April 15 falls on a holiday or weekend. In that case, the tax filing deadline is actually the next business day. So the deadline for filing your 2016 taxes is Monday, April 17, right? Nope. April 17 is the Washington DC Emancipation Day holiday. Therefore, the actual deadline for filing your taxes this year is April 18.

What If I Need More Time to File?

Luckily, the IRS allows taxpayers to obtain an extension by submitting Form 4868 with their tax payment. However, taxpayers should still pay as much of their 2016 tax bill as they can by April 18. This is due to the fact that even though the IRS may grant an extension to file the return, they do not grant an extension to submit the tax payment.

So even if the IRS grants a tax filing extension, the taxpayer will still have to pay interest and late-payment penalties if their entire tax bill isn’t paid by April 18. The tax extension doesn’t sound so advantageous after all, and is all the more reason to get your taxes prepared and filed on time.

Ways to File?

There are two primary methods of filing your federal tax return. The first is the good ol’ fashioned way of mailing it in. If you do this, don’t forget to sign the return. When filing as a married couple, your spouse will need to sign as well. Keep in mind that when mailing in your return, it will often slow down the speed in which you get a tax refund check. On the other hand, it may theoretically decrease the odds of you getting audited, since the IRS must spend more time and effort to examine a paper return versus an electronic return.

The alternative way to file is electronically. It’s usually more accurate and faster with respect to the time it takes to get your tax refund check. By filing electronically, a taxpayer can expect a tax refund check several weeks sooner than if they filed through the mail with a paper return.


Taxpayers have an extra few days to file their taxes this year with a deadline of April 18. By now, taxpayers should be well on their way to preparing and submitting their 2016 tax returns. And if you need more time to file, you can often get an extension. But understand that the extension only applies to filing your return, not actually paying your taxes.


kienitz tax law self employment tax

Understanding the Self-Employment Tax

Working for yourself is great. You get to be your own boss, decide how much (or how little) work you want to do and control your own professional destiny. But working for yourself has its price, one of the biggest being the self-employment tax.

What Is Self-Employment?

According to the IRS, you are self-employed if you run a business as a sole proprietor, independent contractor or partnership and make $400 or more. Basically, if you’re your own boss, even in a part-time business, you have self-employment earnings as far the IRS is concerned.

What Exactly Is the Self-Employment Tax?

The self-employment tax is a 15.3% tax on your income that is really a combination of two taxes: Social Security (12.4%) and Medicare (2.9%). Even if you aren’t self-employed, you’re likely still paying these two taxes, but in much lower amounts.

For the most part, for every $100 anyone earns, the IRS gets $15.30 in Social Security and Medicare taxes. If you are a W-2 wage earner, such as someone who works as an employee for an employer who takes your taxes out for you, you only have to pay half that, or $7.65. The remaining $7.65 is paid by your employer.

If you are self-employed, you have no “employer” to pay half of the 15.3% Social Security and Medicare tax bill. As a result, you’re stuck with paying the entire 15.3% of the Social Security and Medicare taxes, instead of the 7.65% if you were a W-2 wage earner.
If you make over a certain amount ($118,500 in 2015), what you pay in self-employment taxes drops a large amount. Anything you make over that amount is subject to only Medicare taxes and not Social Security taxes.

Finally, the self-employment tax rules apply no matter how old the taxpayer is or if the taxpayer is already receiving Medicare and/or Social Security payments.

How Do I Pay Self-Employment Taxes?

If you are subject to the self-employment tax and have an expected end-of-year tax liability of $1,000 or more (after taking all withholdings) you generally have to pay your taxes quarterly. Even if you plan on paying your entire tax liability on April 15th, you must make estimated quarterly tax payments or pay a penalty.

One exception to this quarterly estimate tax payment requirement is when other income tax withholdings amount to 90% or more of your total tax bill. For example, if you make $100,000 per year, but $91,000 comes from a W-2 job and $9,000 comes from self-employment work, you won’t need to make estimated quarterly tax payments. This exception applies even if you will have more than $1,000 in expected end-of-year tax liability.

The Self-Employment Tax Deduction

The self-employment tax isn’t all bad news. The 7.65% in extra taxes you have to pay (compared to a W-2 wage earner) can be taken as a tax deduction. This doesn’t alleviate the entire self-employment tax burden, but it helps.

In Closing

The self-employment tax isn’t the most complicated tax requirement ever handed down by the IRS, but things can get a little tricky if you have multiple jobs and are really close to the estimated quarterly tax payment threshold. If you’re not sure whether you’re subject to the self-employment tax, are required to make estimated quarterly tax payments or how much those estimated quarterly tax payments should be, you probably want to speak with a tax professional.



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Which Personal Assets Can the IRS Seize?

The IRS’ official task is to collect taxes as required by the Internal Revenue Code. But because not every taxpayer pays taxes on time or in the correct amount, the IRS effectively becomes a debt collector — and what an effective and powerful debt collector it is.

The IRS has several tools to collect taxes owed. One of its most feared and powerful tools is the tax levy. Tax levies are particularly burdensome because they allow the IRS to take your personal property and assets. Luckily, the IRS can’t go about taking whatever personal assets it wants. It has particular rules about what it can levy and how much it can take.

Tax Levy Basics

A tax levy is the actual taking of property by the IRS in order to pay a tax debt. The two main types of tax levies include wage garnishments and the seizure of personal assets.

A tax levy usually won’t occur unless a tax lien has been placed on the taxpayer’s property first. A tax lien is a security interest taken by the IRS in all of a taxpayer’s property. The purpose of the tax lien is to protect the IRS’ ability to collect the tax debt from a particular taxpayer.


Personal Property Subject to IRS Seizure

The specific types of property the IRS may seize in order to satisfy a tax debt is vast. Examples include paychecks, personal residences (subject to exceptions), vehicles and financial accounts. Basically, almost anything a taxpayer owns can be levied, unless specifically excluded by law. So an easier way to identify which personal assets can be seized by the IRS is to find out what personal assets must be left alone.


Personal Property That Cannot Be Collected by the IRS

Section 6334 of the Internal Revenue Code lists types of property that the IRS may not seize when attempting to recover an unpaid tax debt. These include:

  • Essential clothing
  • Up to about $7,700 worth of personal effects and furniture
  • Up to about $3,800 worth of books or tools necessary for schooling or work
  • 85% of a taxpayer’s public assistance, worker’s compensation and unemployment benefits. The IRS may levy these income sources, but only up to 15% of the amount.
  • Undelivered mail
  • Certain pension and annuity payments
  • Wages necessary to pay child support and provide for basic living expenses

Personal vehicles and residences are subject to IRS seizure, but there are limitations and exceptions to this. Additionally, the IRS understands that there’s no point in taking something that might hinder a taxpayer’s ability to pay its tax debt.

For example, if a taxpayer needs his or her car to get to work, the IRS is probably not going to seize the car. Doing so might result in the taxpayer becoming unemployed and therefore the IRS will have a more difficult time collecting the tax debt.

An overarching theme of the IRS’s seizure powers is that it will take as much as it can to collect its tax debt, but it won’t take so much that the taxpayer is either unable to pay the rest of the tax debt or becomes destitute.


In Closing

The IRS’ public policy considerations and list of exempt property are hardly going to serve as a consolation to anyone facing a tax levy. A taxpayer facing a potential levy is understandably going to be scared and extremely concerned. In order to stop the IRS from taking your personal property, you’ll likely need help from a tax professional.

irs appeals

What You Can Expect from the IRS Appeals Process

Not every decision the IRS makes is absolute. In fact, most of the IRS’ most significant conclusions and findings are subject to potential review by a neutral examiner at the taxpayer’s request. However, not every taxpayer who disagrees with the IRS should appeal the decision. But for those that do, the following is a general overview of the appeals process.

When and Why to File an Appeal

The following is a sample list of typical IRS decisions that can be appealed:

Any dispute that deals with a legitimate tax issue, such as a legal or factual disagreement, can be appealed. What can’t be appealed are religious, constitutional, political and moral disagreements with the IRS. Also, you can’t file an appeal for the sole reason that you can’t pay the tax debt the IRS believes you owe.

Submitting the Appeal

In order to handle the appeals process, the IRS has set up the Office of Appeals, which is a completely separate and independent office from the IRS. The goal of the Office of Appeals is to resolve tax disputes without resorting to the courts, which can be a costly and drawn out process for both sides.

The appeals process begins after an audit or some other tax decision. Following the decision, the IRS will ask the taxpayer to either accept or appeal its decision within a particular time period, which is usually 30 days. The taxpayer has two potential methods of proceeding with an appeal.

The first method is the Small Case Request appeal. This method is only available where the taxes, penalties and interest at issue for a particular tax year add up to $25,000 or less. When making this request, the taxpayer must explain what the taxpayer disagrees with and the basis for that disagreement.

The second method is the Formal Written Protest appeal, which is required for disputes amounting to more than $25,000. In a Formal Written Protest appeal, the taxpayer must provide the following information or take the following actions:

  • The taxpayer’s contact information, such as address and phone number.
  • A copy of the letter containing the IRS’ decision for which the taxpayer is appealing.
  • Identify the tax years at issue.
  • The specific IRS decisions or findings that the taxpayer disagrees with.
  • Facts and specific laws that support the taxpayer’s belief that the IRS made an incorrect determination.
  • Swear to the following statement: “Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and complete.”

Once the appeal is submitted, the taxpayer should hear back from the Office of Appeals within 90 days, when a conference will be scheduled. These conferences are held before a Settlement or Appeals Officer and usually fairly informal. The taxpayer can have a CPA or attorney represent them if they choose. Occasionally, the appeal can be handled over the phone or by mail.

Following the conference, the Appeals Officer will make his or her decision and try to reach a settlement with the taxpayer. These settlements commonly side with the taxpayer at least to some extent, since the Appeals Officer wants to avoid the taxpayer being unhappy with the results of the appeal and taking the case to trial.

If a settlement can’t be reached and the Appeals Officer sides with the IRS, the taxpayer has the option to further challenge the IRS in a court of law.

In Closing

The appeals process is not something a taxpayer should decide to do as a knee-jerk reaction to an IRS decision the taxpayer disagrees with. There are many things to consider before initiating the appeals process. For instance, the Appeals Officer may bring up issues that the IRS auditor missed. Also, during appeals process, any interest will continue to accrue. The decision whether to appeal, as well as the appeals process, can be difficult for the typical taxpayer, so professional tax advice is highly recommended.

End of year tax planning

End of Year Tax Planning

Your tax return may not be due for another few months, but that doesn’t mean you shouldn’t start working on your end-of-year tax plans. With the calendar year ending soon, there are certain steps you should consider to minimize your tax obligation.

Figure out your tax brackets

One of the first things you need to do is figure out what your tax rate will be for this year and next year. This is important; depending on your tax bracket status, it may be more advantageous to defer certain tax deductions or income to next year, or take them this year.

Defer or accelerate income and tax deductions

Once you know which tax bracket you will be in this year and most likely be in next year, you can decide how you want to time when you use certain deductions and receive certain income. For example, if you think you will be in a higher tax bracket next year, you might want wait to use a deduction until next year and do everything you can to receive all the income possible this year. But if you anticipate being in a lower tax bracket next year, you might want to use the tax deduction now and defer the expected income until the next tax year. Note that if you are able to receive a current year’s income in the following year, such as an end-of-year bonus, you’ll need to confirm this is a normal business practice for your employer.

Take full advantage of your flexible spending account

Also known as a flexible spending arrangement or FSAs, these financial accounts allow an employee to put pre-tax dollars into an account throughout the year, which can then be spent on certain health expenses not otherwise covered by the employee’s health plan. One of the biggest drawbacks of an FSA is that funds contributed, but not used, are forfeited at the end of the calendar year. Recent changes have mitigated this “use-it-or-lose-it” rule somewhat by allowing up to $500 to be carried over into the following calendar year. The changes also allow the employer to provide a grace period of up to 2 ½ months to spend the money.

Make an extra mortgage or state tax payment

By paying that January mortgage payment in December, you can effectively take 13 months worth of deductible mortgage interest for the current year. The same principle can be used for state taxes due early the following year. Instead of making that state tax payment in January, make it in December and claim a bit more in your itemized deductions for the current tax year. But be careful if using this tax strategy: if you are subject to the Alternative Minimum Tax, or AMT, you may not be able to take full advantage of these early payments.

Loss harvesting

Selling off losing investments can give you tax losses to offset any capital gains during the current tax year. There are a few things to keep in mind. First, you can only use up to $3,000 in losses to offset any gains. Any additional losses can be carried over to the next tax year, though. Second, be aware of the wash-sale rule, which will effectively undo the tax offset if a “substantially identical” security is bought or sold within 30 days of the tax offset sale. Three, do not let your desire to engage in loss-harvesting override your overall investment goals.

In Closing

These are just a few of the potential end-of-year tax strategies you may want to consider. And not all these tips will be right for everyone. The best thing to do is to consult with your tax professional to see which steps make the most sense and the best way to go about taking full advantage of them.



tax info e1480442369575

Tips To Keep Your Tax Information Safe

Due to the financial nature of taxes, as well as the personal information needed to prepare a return, tax returns are prime targets for identity thieves. To put give an idea of how bad things are, the US Government Accountability Office estimates that during the 2013 tax season, over $5 billion in fraudulent tax refunds were issued by the IRS.

In order to prevent yourself from becoming a victim of identity theft, you should take reasonable steps to keep your tax information safe.


Tip #1: Secure your personal computer and Internet connection

Make sure your computer or mobile device has up-to-date firewall, anti-virus and malware/spyware security software. These can help detect malicious software that can steal information and record keystrokes. Additionally, if using a Wi-Fi Internet connection, make sure it’s protected before doing anything that requires the submission of personal information or typing of passwords, like online banking.


Tip #2: Protect personal information

Don’t provide personal information such as date of birth, social security number, address or other information unless it’s truly necessary. Also, don’t carry your social security card in your wallet or purse.


Tip #3: Avoid scams

Learn to spot suspicious e-mails or telephone calls stating you must confirm the security of a financial account or asking for personal information. If you think an e-mail or telephone call might be real, do not click on the link provided in the e-mail or provide personal information to the person who called you. Instead, contact the financial institution directly through a phone number known to be legitimate, such as on the back of your credit or debit card, to make sure the e-mail or phone call you received is not fraudulent.

Tip #4: Use an Identity Protection PIN (IP PIN) when filing your taxes

The IP PIN is offered by the IRS and consists of a six digit number that taxpayers provide with their returns to help prevent fraudulent federal tax returns. Only certain taxpayers are eligible, and once an IP PIN is used for one year’s returns, it must be used for all subsequent years.


Tip #5: Go paperless

Whether it’s e-filing taxes or receiving tax related documents via a website, it may be wise to have financial documents obtained electronically. If going paperless isn’t an option, having mail with sensitive personal information delivered to a post office box or a locked mailbox is an alternative.


Tip #6: Request a free credit check

Federal law allows you to receive a free credit report every year from the following credit reporting agencies: Equifax, TransUnion or Experian. Checking your credit report can help detect identity theft before you would otherwise notice it.


Tip #7: Use Form 8821

The IRS allows taxpayers to authorize another party to receive correspondence from the IRS. In order to utilize this service, individuals must complete Form 8821, which allows taxpayers to designate someone else, even themselves, to receive communications from the IRS. This can serve as a warning system should an identity thief deal with the IRS without the taxpayer knowing. For example, if an identity thief has submitted a fraudulent return and the IRS contacts the identity thief, the taxpayer can receive the same correspondence the identity thief has received.


Tip #8: Destroy then dispose

Before getting rid of anything that contains personal information, make sure that information has been properly destroyed first. From shredding old pay stubs to wiping computer hard drives to resetting mobile devices, make sure steps are taken to ensure personal information cannot be accessed by anyone else.


In Conclusion

Many of the above tips will be common sense for some taxpayers. For others, it won’t be applicable. Even if all of the above tips are followed, they don’t guarantee that tax information can’t be stolen. However, it makes things much harder for identity thieves, who often focus on the easiest targets.



tax payment plan

How to Set-Up an IRS Tax Payment Plan

It’s a few days before the April 15th tax deadline and you’ve just finished preparing your return for last year’s taxes. Unfortunately, it turns out you owe additional taxes in an amount exceeding your ability to pay off the tax debt in full when your tax return is filed. You know you will be able to pay off the entirety of this tax debt, but you’ll need more time. What can you do? The answer will depend on several factors, such as how much you owe and how much time you need.


Short Term Agreement Request

If you need only a small amount of time, you can ask the IRS for a short term extension. The extension cannot exceed 120 days and the entire tax debt will need to be paid, subject to interest and applicable penalties. The biggest advantage of the short term agreement plan is that there is no user fee. You can request a short term agreement over the telephone or through the IRS’ website by applying for an Online Payment Agreement.


Set Up a Payment Plan

If more than a few months are needed to pay off the tax debt, a taxpayer can set up an installment plan where the taxpayer makes monthly payment to pay off the tax debt over time, up to a few years. However, the taxpayer must qualify before the IRS will agree to a payment plan.


Generally speaking, as long as the taxpayer owes less than $50,000, is up to date with all tax returns and can pay off the entire tax debt in a few years, the IRS will approve the payment plan. When requesting a payment plan, the taxpayer will get to choose the day of the month to make the monthly payment and the monthly payment amount. The monthly amount must be large enough to pay off the debt within a few years, but not too large that the taxpayer risks not making a payment.


Setting up a payment plan is not free. In addition to the interest and penalties the taxpayer will owe due to the delay in paying off the tax debt, there will be user fee. As of the time of this writing, the fee is either $52 for payments made via direct debit, $120 for non-direct debit payments or $43 for qualified low income taxpayers. Direct debit refers to giving permission to the IRS to automatically withdraw the monthly payment amount from the taxpayer’s checking account.


Taxpayers may set up a tax payment plan by either calling the IRS, submitting Form 9465 or using the using the Online Payment Agreement Application. If the payment plan request is being made when the current tax return has not yet been filed, it’s recommended the tax payer submit Form 9465 along with the return. If the return has already been filed when the payment plan request is being made, using the Online Payment Agreement Application is suggested.

Information needed to set up a payment plan will include the taxpayer’s:

  •  Name
  • Social Security number
  • E-mail address
  • Mailing address from most recent processed tax return
  • Filing status
  • Date of birth


In Conclusion

The IRS is fairly agreeable to giving taxpayers more time to pay off their tax debts. However, this extra time is not free, as penalties and interest will almost always accrue during the extension, on top of the fee for setting up a payment plan.