An Installment Payment Plan Agreement is a payment arrangement whereby the government allows a taxpayer to pay liabilities over time. Once a payment plan is established, the IRS will not take enforced collection action, including the levy of bank accounts or wages, as long as the taxpayer remains current with all filing and payment obligations. However, interest and penalties continue to accrue until the outstanding balance is satisfied. Additionally, a tax lien may be filed as part of the terms of the installment payment agreement, depending on the amount of the total liability.
IRS Installment Payment Plan Requirements
If you owe $10,000 or under, and all your returns are filed, and you have not been in trouble with the IRS before, generally, the IRS guarantees to place you in a payment plan as long as you can fully pay the amortized balance in 36 months. The taxpayer can probably accomplish this on their own without representation.
If you owe between $10,001 and $24,999, and all your returns are filed, the IRS will negotiate what they consider a ‘streamline’ payment plan. They will negotiate this requiring the minimum amount of financial disclosure by the taxpayer by having the taxpayer complete a 433-F (small case Collection Information Statement).
The IRS will demand full financial disclosure by completing a Collection Information Statement called a 433-A. They will most likely ask for supporting documentation like bank statements, pay stubs and cancelled checks to validate or prove your income and expenses.
If you owe over $100,000, your case will be forwarded to the ‘large Dollar Unit’. This is a nationally centralized special unit of the IRS that only deals with payment plans involving liabilities over $100,000. This is the IRS’s most intrusive Collection division. They are brutal here. If you wish to go it alone, without expert representation, you WILL get creamed.
For example, before they will even entertain negotiating a payment plan, they will require you to exhaust all efforts to liquidate your assets including your home. We deal with this unit every day of the week. We know how to navigate the maze, protocols, laws, etc. so you don’t have to lose your home or other assets,but you MUST take the first step and CALL NOW 408-573-1122.
How the Steburg Law Firm, P.C. Can Help
Whether the IRS is demanding full payment up-front or a payment plan that is substantially higher than what you can afford to pay, we can negotiate to set up an arrangement for the lowest possible monthly payment and also provide you with various options for making those payments, including payment through the Electronic Federal Tax Payment System, direct debit, payroll deduction, credit card, and payment by check or money order. Since the government will not agree to an installment agreement until all necessary tax returns are filed, we can also prepare and file any and all returns to bring you into compliance before arranging a payment plan.
If you cannot afford to make monthly payments and do not qualify for another type of tax relief, such as an offer in compromise, we will negotiate to have your account placed in a “currently not collectible” status. By doing so, you will not be required to make any payments and the IRS will not pursue collection action. This option may provide you with an opportunity to wait for the collections statute to run out and the liabilities to expire.
In most cases, the IRS will accept some type of payment arrangement for past due taxes. In order to qualify for a payment plan with the IRS you must meet the following rules and provide the IRS with this information:
You must have filed all tax returns (It’s OK to owe money but you must file).
- You will need to disclose all assets owned including all cash and bank accounts.
- You must not have adequate cash available in a checking, savings, money market, or brokerage account to pay the IRS.
- You must not have the capacity to borrow the amount owed to the IRS from other sources (i.e., a second mortgage on your home).
- You must not have adequate equity in a retirement account from which you can borrow or liquidate; for example, IRA’s or 401K’s.
The total dollar amount you owe usually dictates with whom the negotiations will be handled. Typically, IRS Revenue Officers are not involved in cases where the amounts owed are less than $25,000. The IRS will ask you to complete a personal financial statement and if a business is involved, you will also need a business financial statement.
The IRS has determined 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 that the IRS will require you to pay on a monthly basis. These monthly payments will continue until your outstanding tax liabilities are paid in full. Note: The IRS continues to add penalties and interest while you are making monthly payments.
This may cause you to be paying what you consider a large monthly payment to the IRS and your outstanding balance may in fact be increasing due to additional penalties and interest. The IRS may not explain this to you! Be careful!
Common Questions
What is an installment agreement?
IRS encourages taxpayers to pay what they owe as quickly as possible. For those individuals or businesses not able to resolve a tax debt immediately, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.
What do you have to do to be eligible for an installment agreement?
To be eligible for an installment agreement, all returns that are due must first be filed.
What are the payment terms?
Installment agreements generally require equal monthly payments. The amount of an installment payment will be based on the amount owed and on the taxpayer’s ability to pay that amount within the time legally available for the IRS to collect. By law, the IRS has the authority to collect outstanding federal taxes for ten years from the date of assessment.
Does the Taxpayer have to sign a waiver to extend the statute?
For taxpayers that enter into an installment agreement, the IRS may require a signed waiver to extend the time IRS can collect. Taxpayers who already have an installment agreement from a previous amount owed may still find help. All of the amounts owed could be included in one installment agreement.
Additionally, a Collection Information Statement may have to be completed to further illustrate their financial situation. Warning! 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. If you are asked to sign a waiver, protect your rights, seek the advice of a Tax Expert first.
What are the conditions of an installment agreement?
As a condition of an installment agreement, any refund due in a future year will be applied against the amount owed. Therefore, taxpayers may not get all of their refund if they owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt; then the installment agreement continues until all of the terms are met.
Does interest stop with an installment agreement?
Interest does not stop accruing until the entire obligation is paid. An installment agreement is more costly than paying all the taxes owed now. Penalties and interest continue to be charged on the unpaid portion of the debt throughout the duration of an installment agreement.
Are there fees to Set-up an Installment Agreement?
The IRS charges a user fee of $43 to set up the installment agreement. It is possible for an installment agreement to be reinstated if the agreement defaults. Also, installment agreements may be restructured to include additional amounts owed in one agreement. Reinstating or restructuring an existing installment agreement will cost an additional $24 user fee.
What is an Enforced Collection Actions?
Generally, IRS enforced collection actions (i.e., levy against personal or real property) are not made while an installment agreement request is being considered, or while an agreement is in effect for 30 days after a request for an agreement has been rejected, and For any period while a timely appeal of the rejection or termination is being evaluated by the IRS.
Do payments have to be made timely?
Yes, payments must be made timely throughout the term of an installment agreement. Payments must be made on time. If payments cannot be made due to a change in financial condition, taxpayers should contact the IRS immediately.
Can my installment agreement be defaulted?
Yes. Failure to make timely payments can default the agreement. A defaulted installment agreement could subject a taxpayer’s account to enforced collection action and potentially have a negative effect on a taxpayer’s credit standing.
What is an Annual Statement of Balance Due?
In accordance with the law, installment agreement taxpayers receive an annual statement from the IRS. The statement provides the amount owed at the beginning of the statement period, the payments (credits) posted to account(s), any fees or assessments, and the ending balance. Currently, the annual statement is sent each year in July.
How to Choose the Best Tax Attorney for My Situation
You know you need the IRS to work with you, and one of the best ways to ensure that’s possible is to have the right information presented in the best possible manner. IRS installment plans are not always guaranteed, and there are many times when the IRS will push back against your goals. Having a tax attorney in San Jose, CA, who can help you through this legal process can be essential.
When choosing an attorney to provide this type of support for you, ask a few key questions:
- Has the tax attorney helped others with the amount of back taxes you owe? What were those results?
- What type of experience does the attorney have in negotiating with the IRS?
- Is an IRS installment plan right for you, or what other legal strategies could be available to help you?
- What can you expect from the process of working with this attorney, such as what time they will have available to you and what steps they will take to support you?
- How do you get started? What’s required of you?
Applying for IRS installment payment plan can be a daunting task, and professional help ensures your greatest chance at acceptance of your installment payment plan. Steburg Law Firm’s team of professional tax attorneys can plead your case before the IRS and help you reach the best solution possible. Allow our qualified professionals to help with the IRS and guide you through a process which can otherwise be an overwhelming ordeal. Contact us today to see how we can help resolve your case and learn how feasible financial freedom can be.
