Owing Substantial Amounts of Money to the IRS

The IRS is firm but fair. If you owe a substantial amount of money to the IRS and can’t pay the entire amount at once, consider arranging an Installment Agreement. You will pay a smaller amount per month for a longer period of time.

The most widely used method for paying an old IRS debt is the monthly installment agreement, or IA. If you owe $50,000 or less, you should be able to get an installment payment plan for 72 months just by asking for it. If you owe more than $50,000, you will have to negotiate with the IRS to get one and provide financial information. As part of its Fresh Start program, the IRS recently adopted new rules making it easier to obtain an installment agreement. The threshold for qualifying for an installment agreement without having to provide financial information was increased from $25,000 to the current $50,000 amount and the timeline for paying was increased to 72 months from 60 months.

The Installment Agreement Advantage

If you arrange an installment agreement with IRS, you will avoid being harassed and threatened with Liens against your assets and bank levies or wage garnishments. All IRS collections will cease. In 2015, the IRS approved 2.99 million installment agreements.

The Installment Agreement Disadvantage

Penalties and interest for unpaid taxes will continue to accrue monthly throughout the life of the Installment Agreement on whatever debt remains. Current interest rates are 3% per annum and you also will be charged a late payment penalty of ¼% per month. In addition you must pay an application fee for an installment agreement. In order to comply with the IRS conditions you must pay at least your minimum monthly payment when it’s due. File all required tax returns on time and pay all taxes in-full and on time.  Some Installment Agreements require the tax payer to disclose all your assets, income  and expenses to the IRS.

Guaranteed Installment Agreement

To qualify for a guaranteed installment agreement with the IRS, the taxpayer must meet the following conditions:

• Owe less than $50,000 (not including interest and penalties)
• Must take advantage of the IRS pilot program
• For the previous five years, the taxpayer has filed tax returns, paid taxes owed, and has not entered into an installment agreement
• The taxpayer must be unable to pay the tax liability when due or within 120 days
• The tax liability must be able to be paid off within six years
• The taxpayer must pay at least the minimum monthly payment (tax liability, interest, and penalties divided by 72)

Under this payment plan, the IRS will not file a federal tax lien against the taxpayer and no managerial approval is required.

Streamlined Installment Agreement

In most cases, a taxpayer that qualifies for a guaranteed agreement will also qualify for the streamlined installment agreement. A streamlined installment agreement has the following requirements:

• The tax liability, interest, and penalties do not exceed $50,000
• The balance can be paid off within 72 months
• The proposed payment is equal to or greater than the “minimum acceptable payment” (the minimum acceptable payment is the greater of $25 or the minimum payment amount reached by dividing the tax liability, interest, and penalties by 50)

The taxpayer must pay a fee to set up the installment agreement or a reduced fee for a direct debit installment agreement. To restructure or reinstate a previous installment agreement, the IRS charges a different fee. Like a guaranteed installment agreement, the IRS does not file a federal tax lien.

Partial Payment Installment Agreement

A partial payment agreement allows the IRS to enter into agreements with taxpayers for the partial payment of a tax liability. To qualify for this arrangement, the taxpayer must complete a financial statement using Form 433-F to report income and living expenses. The IRS will review and verify the information. If the taxpayer has assets that can be sold to pay some of the tax debt, the IRS will require the taxpayer to provide additional information.

If approved, the taxpayer will be required to participate in a financial review every two years. This review may result in the increase in installment payments or the termination of the agreement.

Non-Streamlined Installment Agreement

If a taxpayer owes $50,000 or more and can make monthly payments to the IRS, a non-streamlined agreement is an option. The IRS will not automatically approve this agreement; instead, the taxpayer must negotiate with the IRS. The taxpayer must file Form 433-F, Collection Information Statement. This form collects information about income, debts, living expenses, assets, accounts, and allows the taxpayer to propose an installment payment amount.

It will usually take a few months for the IRS to review a proposed payment plan. The IRS may refuse a proposed agreement if it considers some of the taxpayer’s living expenses unnecessary, if untruthful information was provided, or if the taxpayer failed to complete a prior installment arrangement.

If a taxpayer is unable to pay a tax liability through a non-streamlined agreement, consider filing an Offer in Compromise.

Ways to Make Payments to the IRS

Taxpayers can make installment payments using the following methods:

• Payroll deduction
• Direct debit
• Check or money order
• Electronic Federal Tax Payment System (EFTPS)
• Credit card
• Online Payment Agreement (OPA)

When Will the IRS Revoke an Installment Agreement?

The IRS can revoke an installment arrangement under one the following circumstances:

• The taxpayer misses a payment
• The taxpayer does not file a tax return or pay taxes after the agreement is entered into
• The taxpayer provided inaccurate information on Form 433-F
• The taxpayer is paying under a partial payment installment agreement and a review indicates a change in their financial position

Can’t Pay Your Taxes? Don’t Stress, Get Help From an Attorney

Getting hit with a huge tax bill can be stressful and, if you aren’t well-versed in the tax code, oftentimes unexpected. If you are currently on an installment agreement with the IRS, and have questions about the process, including how streamlined and non-streamlined agreements work, now is time to contact us or a tax attorney in your area.