The Internal Revenue Service (IRS) allows taxpayers to pay off tax debt through an installment agreement. Because interest and penalties will apply, however, the IRS encourages taxpayers to pay taxes immediately. Interest and penalties can equal 8% to 10% per year.
If paying the entire tax debt all at once is not possible, an installment agreement is an alternative allowed by the IRS. The IRS has four different types of installment agreements: guaranteed, streamlined, partial payment, and non-streamlined.
Guaranteed Installment Agreement
To qualify for a guaranteed installment agreement with the IRS, the taxpayer must meet the following conditions:
Under this payment plan, the IRS will not file a federal tax lien against the taxpayer.
Streamlined Installment Agreement
In most cases, a taxpayer that qualifies for a guaranteed agreement will also qualify for the streamlined installment agreement. A streamlined installment agreement has the following requirements:
The taxpayer must pay a fee to set up the installment agreement or a reduced fee for a direct debit installment agreement. To restructure or reinstate a previous installment agreement, the IRS charges a different fee. Like a guaranteed installment agreement, the IRS does not file a federal tax lien.
Partial Payment Installment Agreement
A partial payment agreement allows the IRS to enter into agreements with taxpayers for the partial payment of a tax liability. To qualify for this arrangement, the taxpayer must complete a financial statement using Form 433-F to report income and living expenses. The IRS will review and verify the information. If the taxpayer has assets that can be sold to pay some of the tax debt, the IRS will require the taxpayer to provide additional information.
If approved, the taxpayer will be required to participate in a financial review every two years. This review may result in the increase in installment payments or the termination of the agreement.
Non-Streamlined Installment Agreement
If a taxpayer owes $50,000 or more and can make monthly payments to the IRS, a non-streamlined agreement is an option. The IRS will not automatically approve this agreement; instead, the taxpayer must negotiate with the IRS. The taxpayer must file Form 433-F, Collection Information Statement. This form collects information about income, debts, living expenses, assets, accounts, and allows the taxpayer to propose an installment payment amount.
It will usually take a few months for the IRS to review a proposed payment plan. The IRS may refuse a proposed agreement if it considers some of the taxpayer's living expenses unnecessary, if untruthful information was provided, or if the taxpayer failed to complete a prior installment arrangement.
If a taxpayer is unable to pay a tax liability through a non-streamlined agreement, consider filing an Offer in Compromise.
Ways to Make Payments
Taxpayers can make installment payments using the following methods:
When Will the IRS Revoke an Installment Agreement
The IRS can revoke an installment arrangement under the following circumstances:
Can't Pay Your Taxes? Don't Stress, Get Help From an Attorney
Getting hit with a huge tax bill can be stressful and, if you aren't well-versed in the tax code, oftentimes unexpected. If you are currently on an installment agreement with the IRS, and have questions about the process, including how streamlined and non-streamlined agreements work, now is time to contact a tax attorney in your area.