Taxpayers with an ability to fully pay a federal tax debt may enter into an installment agreement with the IRS. An installment agreement benefits taxpayers with tax debts in a number of ways. An installment agreement stops IRS enforcement actions, including levies and wage garnishment, and may reduce the rate of accumulation of tax penalties and interest. The IRS may choose not to file a Notice of Federal Tax Lien upon acceptance of an installment agreement offer. Taxpayers have the right to draft the terms of the installment agreement within certain boundaries defined by the Internal Revenue Code statutes 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. 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.
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.
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 it 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.
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.