Installment Agreements / IRS Payment Plans

Did you know that you if you owe money to the IRS and are unable to pay the full amount, you might be able to make installment payments that will help get the money owed cleared up? Naturally, the IRS encourages taxpayers to pay what they owe quickly, but for those individuals or businesses that have no other alternative, an Installment Agreement can be a reasonable option. And while the IRS will allow for a payment arrangement for past due taxes there are some qualifications.

To be eligible for an installment agreement, all returns that are due must first be filed.
The IRS determines allowable monthly expenses for individuals, which will be matched against your actual monthly expenses.
The difference between your monthly income and your allowable monthly expenses will be the amount the IRS require on a monthly basis

Negotiations are determined by the dollar amount owed. And while Installment Agreements allow for the full payment of the tax debt in smaller, more manageable amounts, as a rule, the IRS does not get involved in payment Installment Agreements when the amount owed is less than $25.000. To get the ball rolling, the IRS will request a personal financial statement, plus a business financial statement if you own a business. All tax returns must have been filed and all assets owned must be disclosed. The assets also must include all cash and bank accounts.
The IRS determines allowable monthly expenses for individuals, which will be matched against actual monthly expenses. The difference between monthly income and allowable monthly expenses will be the amount the IRS requires for payment on a monthly basis. Once a monthly payment is started, it continues until outstanding tax liabilities are paid in full. The one big drawback to this type of arrangement is that you may wind up paying what could be considered a large monthly payment. Because the IRS may not make you aware of the additional penalties and interest, use caution before choosing this route as your balance may increase based on additional penalties and interest.

The following qualifications also apply:

You must not have adequate amounts of cash in checking, savings, money market, or brokerage accounts on hand.
You cannot have the capacity to borrow the amount owed from other sources such as a second mortgage on your home.
You must not have ample equity in a retirement account such as an IRS or 401K, which would allow you to borrow the money or liquidate.
You will be charged interest and a late payment tax penalties while making monthly payments.

Frequently Asked Questions (FAQ) Regarding IRS PAYMENT PLANS / INSTALLMENT AGREEMENTS

1. Will the taxpayer be required to sign a waiver to extend the statute?

Answer: Taxpayers that enter an Installment Agreement with the IRS may be required to sign a signed waiver, which extends the time the IRS can collect. And while it is always in the best interest of the IRS to get a signed waiver, it may not be in the taxpayer’s best interest. Therefore, if you are asked to sign a waiver, protect your rights, and seek the advice of a Tax Expert first. In addition, the taxpayer may have to complete a Collection Information Statement to clearly illustrate the taxpayer’s financial situation.

2. What conditions apply to an Installment Agreement?

Answer: Any refund due in a future year will be applied against the amount owed, which means taxpayers may not get all of their refund if they owe past due amounts including federal tax, state tax, student loans or child support. The IRS will apply the refund to the taxes owed. If the refund doesn’t cover the tax debt, the Installment Agreement continues until all terms are met.

3. Does interest cease with an Installment Agreement?

Answer: No. Interest will not stop accruing until the entire obligation is paid. Because interest and penalties continue to be charged on the unpaid portion, an Installment Agreement is more costly than paying the taxes owed straight away.

4. Do fees apply when setting up an Installment Agreement?

Answer: Yes, the IRS charges a user fee of $43.00. It is possible though for an Installment Agreement to be reinstated should the agreement default. Plus the Installment Agreement may be restructured to include additional amounts owed, in one agreement, but restructuring an existing Installment Agreement will cost an additional $24.00 user fee.

5. What does the term Enforced Collections Actions mean?

Answer: An Enforced Collections Action is a levy against personal or real property. Enforced Collections are not generally made while an Installment Agreement request is being considered. They are also not enforced while an agreement is in effect and for 30 days after a request for an agreement has been denied. In essence, they are not enforced for any period while a timely appeal of the rejection or termination is being evaluated.

6. Is it a requirement that payments be made in a timely manner?

Answer: Absolutely. All through the terms of an Installment agreement, payments must be made promptly. If for some reason payments cannot be made because of a change in financial condition, taxpayers must contact the IRS immediately.

7. Can an Installment Agreement be defaulted?

Answer: An Installment Agreement can definitely be defaulted. Failure to make timely payments can cause default. Plus a defaulted Installment Agreement could put the taxpayer’s account into enforced collection action, which would have a negative effect on a taxpayer’s credit.

8. What does the term Annual Statement of Balance Due mean?

Answer: Installment Agreement taxpayers receive an annual statement from the IRS, which provides the amount owed initially, the payments and credits posted to the account and the ending balance. The annual statement is sent out in the month of July.