Owing money to the IRS is common for almost every working individual in the US. However, a lot of these affected individuals are not aware of the payment options available to them. The IRS has set up tax payment options that can be applied for people in different financial situations. This is established through a payment plan, which is often an agreement between the IRS and the individual in tax debt to pay the amount of tax owed within a particular lengthened time frame.
Depending on the amount owed and the individual’s ability to pay the sum total to the Internal Revenue Service, one can either opt for either a full payment agreement or an installment agreement. There are rules and regulations that govern and help determine which payment plan an individual should go for. This article elaborates on the types of Internal Revenue Service tax installment agreements that would assist indebted tax payers to pay their taxes more conveniently.
1. Guaranteed Installment Agreement
The guaranteed installment plan is a monthly installment agreement between the IRS and the taxpayer which is granted based on qualification. The qualification is determined after the taxpayer makes the request to the IRS and succeeds. To qualify the taxpayer needs to meet the following requirements;
- The taxpayer must owe less than $10,000 inclusive of interests and penalties accrued on tax payments owed.
- The taxpayer should be able to indicate an inability to pay tax liability when it is due or within a period of 120 days.
- The taxpayer must also show filed tax returns, payment of taxes initially owed within the preceding five years and no current entry into an installment agreement.
- He or she should be able to show that they are not bankrupt.
- The taxpayer should also indicate their ability to pay the tax liability within three years or through the Collection Statute Expiration Date (CSED).
- The taxpayer must also show their capability to make at least monthly payments on the agreed installments which includes tax liability, interest and penalties divided by 30.
Under the approval of the IRS a taxpayer using the guaranteed installment agreement is exempted from a federal tax lien.
The guaranteed installment agreement is relatively easy to apply and acquire since it assured by law once the taxpayer meets the basic requirements. Another benefit of using the guaranteed installment agreement is that one can pay as little as $25 and lower. However, it is advisable to pay as much as one can during the agreed upon time period to avoid increased interest and penalty payments.
2. Streamlined Installment Agreement
The name of this installment agreement is based on its verification requirements. The streamlined installment agreement does not require one to verify their assets, expenses, income and debts. This means that no Collection Information Statement is needed, making it relatively convenient. It is common for taxpayers who are qualified for the guaranteed installment agreement to be eligible to apply for the streamlined installment agreement as well. This installment agreement requires the following for the taxpayer to qualify;
- The taxpayer’s collective tax liability, accumulated interests and penalties should not be beyond $50,000.
- He or she must indicate their ability to pay the balance within a minimum of 72 months and a maximum of 84 months.
- The taxpayer’s proposed payment should be greater than $25 or the least amount got when the taxpayer’s tax liability, interests and penalties accrued are divided by 50.
- The taxpayer should not have entered any previous installment agreements within the prior five years.
- He or she should not be filing for bankruptcy.
- All past file returns must be filed by the time of application for this installment agreement.
- The taxpayer must also show willingness and ability to pay for the streamlined installment agreement fee which are taken as the initial payment.
Just like the guaranteed installment agreement the IRS does not file a federal tax lien on the streamlined installment agreement.
3. Partial Payment Installment Agreement
For taxpayers who do not qualify for the streamlined installment agreement, the partial payment agreement plan is the next option. This installment agreement requires the taxpayer to divulge their financial information to the IRS. This is done through the completion of a financial statement using the Form 433-F which records information on income, debts, assets and living expenses. The IRS, upon receiving the taxpayer’s application, reviews and verifies the information provided. Additional information on assets that can be liquidated to pay part of the taxpayer’s tax liability are required by the IRS in this case as well. For the partial payment installment agreement the following is required;
- The taxpayer’s tax liability, penalties and interest should accumulatively be above $10,000.
- All past tax returns must have been filed prior to application.
- The taxpayer must not have an accepted Offer in Compromise.
- The IRS also expects the taxpayer to have filled Form 433 for the collection information statement and Form 9465 for the installment agreement request.
- The taxpayer should also be able to show that they do not possess any assets or that there is no equity in their assets.
It is relatively harder to acquire this installment agreement compared to the previous two installment agreements.
4. Non-streamlined Installment Agreement
The non-streamlined installment agreement is an option for taxpayers who owe $50,000 or more and are able and willing to pay the tax liability through monthly installments. To acquire approval by the IRS to use this form of installment agreement the taxpayer has to negotiate with the IRS among other things. This negotiation entails an agreement on an installment payment amount based on the submitted information by the taxpayer on their assets, income, living expenses and accounts. The other IRS requirements for this installment agreement option include;
- The taxpayer should file Form 433-F which is a collection information statement to the IRS.
- The taxpayer must have no incomplete prior installment arrangements.
The IRS takes a couple of months to review the proposed payment plan where it may deny prospective non-streamlined installment agreement taxpayers based on dishonesty by the applicant.
5. Offers in Compromise
An Offer in Compromise is a rather unique installment agreement between the taxpayer and the IRS which allows the taxpayer to settle their tax liability at an amount less than what they initially owed. Taxpayers who can afford to pay the above installment agreements are not eligible to apply for offers in compromise. The major basis for an offer in compromise is a determined scenario by the IRS that establishes that the taxpayer’s accrued tax debt is greater than the reasonable collection potential (RCP). The RCP which is valued by the IRS is determined through the examination of the taxpayer’s assets such as bank accounts, property and vehicles just to name a few.
To qualify for offers in compromise the taxpayers needs to show the following to the IRS;
- The taxpayer must file all their tax returns.
- Their estimated tax payments for the present year must be made.
- He or she must also make all federal tax deposits for the current quarter in the event that they own a business with employees.
An offer in compromise is usually considered as an option for indebted taxpayers who are unable to use the streamlined and non-streamlined installment agreement options.
Contact a Tax Attorney
If you are looking to set up an installment agreement or Offer in Compromise with the IRS – or just have tax questions, contact the qualified, and highly-experienced tax attorneys at Ayar Law for free no-obligation tax advice 800.571.7175