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When Does an IRS Guaranteed Installment Agreement Makes Sense for You?

IRS taxes paid offMost wage-earners never have to worry about delinquent taxes. But most people are not just wage earners. In fact, according to one survey, over half of the workers in Michigan will be freelancers by 2017. Self-employment almost inevitably creates tax problems, so it’s important to know how to deal with them. Even though the easiest way is not always the best way, an IRS guaranteed installment agreement is often the exception.

Many new freelancers and business owners fall behind on their taxes because they do not understand all the applicable rules. But ignorance of the law is no excuse, so the IRS still wants its money. Fortunately, it would rather have the money than punish you for not paying on time, and that’s where an installment agreement comes in.

There are several different types of these agreements which we’ll look at in detail. Up first is the IRS guaranteed installment agreement.

Who Qualifies?

Unlike many other parts of the Tax Code, the qualifications for an IRS guaranteed installment agreement are relatively straightforward. These requirements are also set in stone, because the Service never budges on them.

  • You owe less than $10,000 in taxes (penalties and interest do not count),
  • All your returns for the last five years are on file,
  • You are not currently in bankruptcy,
  • You’ve had no other installment agreements in the last five years,
  • There is no history of installment agreement default, and
  • The proposed payment plan pays off your entire debt in three years or before the statute of limitation expires, whichever comes first.

Very few people qualify for IRS guaranteed installment agreements. The under-$10,000 rule catches a lot of people, as does the five years of returns. To remain in the program, you must:

  • File on time, and pay in full on time, for the duration of the pact,
  • Remain current on estimated tax payments and/or W-2 withholding, and
  • Pay on time, no matter what.

What are the Pros and Cons of an IRS Guaranteed Installment Agreement?

These plans are “guaranteed” because the IRS must accept your application and keep you in the program as long as you meet the aforementioned requirements. That assurance means that your stressful financial life is a little less stressful, and peace of mind is very valuable.

Moreover, since acceptance is guaranteed, the IRS does not ask eligibility questions. The Service also does not require you to return forms, like the comprehensive 9465 or the almost-as-lengthy 433-D. If you’d rather not have the IRS sniffing around your finances, or you do not have the time to fill out voluminous forms, a GIA is a good idea.

On the downside, no installment agreement cuts off penalties and interest. They continue to accrue until the balance is paid in full. Furthermore, installment agreement payments are not tax deductible. So, it might make more sense to borrow money and pay off the entire balance straightaway. That’s especially true for home equity loans and others that offer tax-deductible interest.

If you think an IRS guaranteed installment agreement may be right for you, talk to a lawyer.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.