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IRS Installment Agreement

IRS Installment Agreement

The Internal Revenue Service allows taxpayers to pay their tax debts through an installment agreement. However, since interest and penalties will apply, the IRS encourages taxpayers to pay their taxes immediately. Interest and fines can range from 8% to 10% per year.

If you can't pay all of your tax debts at once, installment payments are an option allowed by the IRS. The IRS has four different types of rate agreements: Guaranteed, Optimized, Down Payment, and Non-Optimized.


Guaranteed Installment Agreement 

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

  • In the past 5 years, the taxpayer has filed the income tax return, paid the taxes owed, and has not paid installments

  • The tax obligation will be paid off within three years

  • The taxpayer cannot pay the tax debt when due or within 120 days

  • The taxpayer must pay the minimum monthly payment (taxes, interest, and penalties divided by 30).

  • You owe less than $10,000 (excluding interest and penalties);

Under this payment plan, Uncle Sam will not enforce federal tax law against the taxpayer.


Simplified Installment Agreement

In several cases, a taxpayer who qualifies for a guaranteed agreement also qualifies for the simplified installment agreement. A simplified payment agreement has the following requirements:

  • Tax interests, liability, and penalties do not exceed $50,000;

  • The balance can be paid within 72 months; 

  • The proposed payment is greater than or equal to the "minimum acceptable payment" (the minimum acceptable payment is greater than $25 or the minimum payment amount obtained by dividing taxes, interest, and penalties by 50)

The taxpayer must pay a fee for establishing the payment agreement or a reduced fee for a debit contract in installments. The IRS charges additional fees to restructure or restore a previous payment agreement. The IRS does not register any federal tax law as a guaranteed payment agreement.


Partial Payment Installment Agreement

A partial payment agreement lets the IRS enter into agreements with taxpayers for the partial payment of tax debt. A taxpayer must complete a financial statement using Form 433-F to report income and expenses out of pocket to benefit from this agreement. The IRS will review and verify the provided information. If the taxpayer has properties that can be sold to pay off part of the tax debt, the IRS will request that the taxpayer provide additional information.

If approved, the taxpayer must participate in a financial assessment every two years. This review may increase installment payments or termination of the contract.


Non-Simplified Installment Agreement

If a taxpayer owes the IRS $50,000 or more and can make monthly payments, one option is a simplified contract. The IRS will not approve this agreement automatically; rather, the taxpayer must negotiate with the IRS. The taxpayer must submit Form 433-F, Collection Information Statement. This form collects information on income, debts, out-of-pocket expenses, assets, accounts and allows the taxpayer to propose the amount of the rate.

The IRS usually takes a few months to review a proposed payment plan. The IRS may reject a proposed settlement if it considers some of the taxpayer's living expenses to be unnecessary, if false information has been provided, or if the taxpayer has not entered into an early payment agreement.

If a taxpayer is unable to pay a tax debt through a non-simplified installment agreement, consider making a filing for an offer in compromise.


Ways to make payments

Taxpayers can make installment payments in the following ways:

  • A check or money order

  • Credit card

  • Direct Debit

  • Electronic Federal Payment System (EFTPS)

  • Online Payment Agreement (OPA)

  • Payroll Deduction


Will the IRS revoke an installment agreement?

Uncle Sam may terminate an installment agreement under the following circumstances:

  • The taxpayer does not declare income tax or pay tax after signing the contract;

  • The taxpayer does not pay;

  • The taxpayer pays on the basis of a partial installment agreement, and analysis indicates a change in his or her financial situation.

  • The taxpayer provided incorrect information in Form 433-F:

 

Can't pay taxes? Don't stress; get help from a lawyer

Being faced with a huge tax bill can be stressful, and if you are unfamiliar with the tax code, oftentimes unexpected. If you have an installment agreement with the IRS and have questions about the procedure, including how simplified and non-simplified agreements work.


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