IRS Installment Agreement
Taxpayers with an ability to fully pay a federal tax debt may enter into an IRS payment plan. An IRS payment plan may be the only option for taxpayers to become compliant and eliminate back taxes if they cannot qualify for an offer in compromise or currently not collectible status. As part of the IRS Fresh Start Program, an IRS payment plan may be the best solution to resolve your tax debts.
What are the Benefits of an IRS Installment Agreement?
An IRS payment plan benefits taxpayers with tax debts in a number of ways. An IRS payment plan stops IRS enforcement actions, including levies and wage garnishment, and may reduce the rate of accumulation of IRS tax penalties and interest. The IRS may choose not to file a Notice of Federal Tax Lien upon acceptance of an installment agreement offer.
While not eliminating a portion of a tax debt, coming back into compliance status, possibly reducing penalties and interest, and stopping the threat of liens and levies is an important incentive for taxpayers to get a fresh start. The IRS tends to catch up with taxpayers eventually, and having many years of non-compliance is not looked on favorably. Taxpayers looking for a fresh start should consider filing unfiled returns and get back on track.
Is an IRS Payment Plan or Installment Agreement Flexible?
Taxpayers have the right to draft the terms of the installment agreement within certain boundaries defined by the Internal Revenue Code and regulations, giving taxpayers control and more flexibility over their finances going forward as they repay the tax debt over time. Taxpayers using this method must file financial reports with the IRS and typically pay the debt back over time. Taxpayers may also qualify for specific installment agreement programs that have additional benefits. These programs are discussed below.
Does Hiring a Tax Attorney Provide an Advantage?
Taxpayers will benefit from a tax attorney reviewing their tax history and financial information to determine if the taxpayer qualifies for an offer in compromise or a partial payment installment agreement. Taxpayers also must file all required tax returns prior to entering into an installment agreement, and a tax attorney should help with this. Taxpayers who do not qualify for these alternative tax resolution options still gain from having an experienced attorney draft and advise them on how to meet their objectives.
Are There Any Disadvantages to an IRS Payment Plan or Installment Agreement?
Drawbacks to installment agreements include the requirement to fully repay all past tax balances. Taxpayers must also pay the penalties and interest, including interest and penalties that may continue to be assessed during the period the installment agreement is effective. Taxpayers who do not qualify for alternative tax resolution options like Offer In Compromise or Currently Not Collectible may not have a choice regarding repayment, and so eliminating the stress of IRS enforcement is the best option and outweighs these drawbacks. Taxpayers should carefully evaluate the benefits and drawbacks of all available tax resolution options and be realistic about which options the IRS may actually accept.
What are the Different Types of IRS Payment Plan or Installment Agreements?
Guaranteed Installment Agreements
For taxpayers with total individual income tax liabilities of $10,000 or less (ignoring penalties and interest), the IRS must accept an installment agreement if certain conditions are met. Taxpayers must agree to repay the tax debts within three years as part of a guaranteed agreement. The filing of a tax lien may also be avoided under this type of agreement. The benefit of the guaranteed installment agreement is the certainty that the IRS will accept the payment plan and the taxpayer is not required to file a financial disclosure form with the IRS.
Streamlined Installment Agreements
Taxpayers with tax assessments of $50,000 or less may qualify for the streamlined installment agreement. The total assessment amount includes taxes, interest and penalties assessed. Under this program, taxpayers calculate the minimum payment by dividing the total assessed balance by 72. Taxpayers then must evaluate payment options by taking the collection expiration statute into account. The installment agreement crafted by the taxpayer must pay all balances related to the tax assessment prior to the collection expiration date. Taxpayers who qualify for this program do not need to disclose personal financial information to the IRS to qualify.
Partial Payment Installment Agreements
While the installment agreements described above require the taxpayer to fully repay tax debts, a partial payment installment agreement does not. This type of agreement requires more analysis, including an analysis of whether the taxpayer has equity in assets that may be liquidated to pay the tax debts. Taxpayers must also provide a full financial information statement. Based on this information, a monthly payment is calculated based on the taxpayer's ability to pay. A lien determination is also made based on the total liabilities outstanding. For taxpayers with equity in assets, a determination must be made whether that equity can be used towards paying off the tax debts. Once a partial payment installment agreement is approved, the IRS may review the agreement after two years to determine if there is a change in circumstance that would require extending the collections expiration date. If the taxpayer's circumstances do not change, then the IRS will not extend its collections date past the normal expiration date. The taxpayer would then only be required to pay a portion of the total tax debt.
What are the Alternatives to an IRS Payment Plan?
Under the IRS Fresh Start Program, an alternative to an IRS tax payment plan is an offer in compromise and currently not collectible status. These two programs exist for taxpayers who cannot fully pay an installment agreement or payment plan over the time period designated by the IRS rules. Under the IRS Fresh Start Program, alternatives exist to allow taxpayers who would suffer extreme hardship or be unable to repay tax debts taking living expenses and other debts into account.
An offer in compromise allows a taxpayer to settle the tax debt in full by paying part of the tax debt back. Requirements include paying the debt back over a short period of time and deciding how to pay the debt back prior to the IRS accepting the offer. Taxpayers must also file all required unfiled tax returns before an offer may be accepted and continue with on-time compliance for the period after the offer is accepted. Failure to remain complaint would result in a cancellation of the offer in compromise, resulting in the taxpayer having repaid part or all of the offer in compromise amount, but then having to pay the entire tax debt, penalties and interest too. A very harsh result, so taxpayers must be in a good position to fulfill the terms of their offer in compromise.
Currently not collectible allows a taxpayer to pause repayments during financial hardship. The IRS will not initiate or enforce collection activities during a period when a taxpayer is not currently collectible. This status may allow a tax debt to expire or allow the taxpayer to convert the debt to an offer in compromise to eliminate the tax debt and get a fresh start.
Contact Steiger Tax Law If You Need Help With an IRS Payment Plan
If you need tax resolution help, contact Steiger Tax Law for a free consultation. Michigan Tax Attorney Andrew Steiger can discuss installment agreements and other tax resolution options with you to determine the best way to resolve your tax debts. Contact Steiger Tax Law today for a no risk, no obligation consultation.