What Are IRS Installment Agreements?
As part of its Fresh Start Initiative in 2011, the IRS unveiled a set of long-term payment plans known as installment agreements. If you’re unable to pay your tax debt in full, the IRS will consider a payment plan that lets you pay off your debt in full — including tax penalties and interest — in small monthly payments over a specified amount of time.
The Fresh Start Initiative was originally designed as a short-term solution to help taxpayers after the Great Recession. However, the program proved so popular that the IRS has kept it in place for a decade, and they do not appear to have any plans to eliminate it. Certainly, during and after the COVID-19 pandemic, there will be a greater need for taxpayers to pay off tax debt in an efficient manner.
Installment agreement monthly payments are scheduled between the 1st and the 28th on a date of your choosing. Payments can be made by check, IRS direct pay, or auto-draft from a bank account. While less convenient for the taxpayer, the IRS also accepts cash at their designated offices.
Example of an IRS Installment Agreement
Marcus owed $27,500 to the IRS, but he was uncomfortable providing sensitive financial information to the government because he was worried about identity theft issues.
He discussed this tax problem with a Boxelder Consulting licensed tax attorney, who looked over Marcus’s case and determined that he qualified for a streamlined installment agreement. This meant that he could pay off the debt over a period of 72 months, a plan that would require him to pay just $382 each month — no questions asked.
$27,500 / 72 months = $382 / month
When combined with refunds, additional voluntary payments, and the removal of penalties, Marcus had paid off his entire debt in less than three years. Marcus is now an accounting client and Boxelder Consulting continues to ensure reliable tax advice, resulting in refunds each year.
How Does An IRS Installment Agreement Work?
1. A taxpayer may qualify for an IRS installment agreement if:
- The individual owes less than $100,000, or the taxpayer’s business owes less than $25,000;
- The taxpayer’s tax filings are up-to-date through the current tax year. The IRS wants to ensure that once the taxpayer is on a payment plan, they will not default. This is also of critical importance to the taxpayer, as they do not want to continue to accrue tax debt year after year and end up on a perpetual payment plan;
- The taxpayer’s estimated tax payments are up to date through the current tax year.
- The taxpayer has not had an offer in compromise accepted.
2. While enrolled in the installment agreement, the taxpayer must stay current with tax filings and refrain from incurring new tax debt. Failure to follow these rules will result in a default on the agreement, and the taxpayer will be forced to renegotiate a new agreement.
3. The installment agreement terms can never extend beyond the Collection Statute Expiration Date (CSED). This is a specific date that the IRS assigns to each period of liability, after which the tax debt expires and the IRS may no longer collect.
4. The IRS has recently increased its payment terms from 72 to 84 months for taxpayers who owe more than $50,000 but less than 100,000.
5. The IRS will charge a nominal set-up fee. That fee will be taken out of the taxpayer’s first monthly payment.
6. As with any time a taxpayer owes money to the IRS, all refunds will go to the IRS to help pay off the debt while the installment agreement is in effect.
Types of Installment Agreements
There are several different types of IRS installment agreements. These include:
- Streamlined Installment Agreement – A streamlined installment agreement does not require verification of your financial condition (Form 433-A). In other words, you do not have to disclose to the government your assets, income, debts, or expenses. These “no-questions-asked” agreements are quick and easy to set up. Streamlined installment agreements also protect the taxpayer from future federal tax liens, which can result in harm to their credit. Because a federal tax lien is a public document, tax resolution firms and additional outside parties can use it to learn about the taxpayer’s debt and harass them with phone calls and marketing materials. (Boxelder Consulting does not have a sales staff and does not engage in this type of marketing.)
- Guaranteed Installment Agreement – A guaranteed installment agreement is a streamlined installment agreement for individuals who owe the IRS less than $10,000.
- Verified Financial Installment Agreement – A verified financial installment agreement requires financial disclosure in order to be approved. This applies This applies to individuals who owe more than $100,000 and businesses that owe more than $25,000. Furthermore, if the taxpayer owes less than 100,000 but cannot afford the monthly payments under the terms of a streamlined plan, they will also be required to disclose their financial information.
- Partial Pay Installment Agreement – Unlike streamlined or guaranteed installment agreements, a partial pay installment agreement is made with the understanding that the monthly payment amounts will not pay the balance in full by the time the debt expires. However, to qualify for a partial pay installment agreement, you must provide a detailed financial disclosure to the IRS.
A taxpayer may qualify for a partial pay installment agreement if:
- Their estimated tax payments are up-to-date through the current year;
- They have some ability to pay the IRS;
- And they have no assets, or cannot access the equity in their assets for one of the following reasons:
- The assets cannot be sold,
- Selling the assets would not cover the tax debt in full,
- The taxpayer was denied a loan against the collateral of the assets,
- Selling the assets would create financial hardship,
- Or the assets are otherwise encumbered.
Our goal at Boxelder Consulting is to find the resolution strategies that provide the best results for you in the shortest amount of time. If you’re considering entering into an IRS payment plan, reach out to our team of licensed tax professionals — we can review your case, file the necessary paperwork, and negotiate directly with the IRS on your behalf.