What is an Installment Agreement?
Simply, an installment agreement is an agreement between you and the IRS in which you pay off your debt over time. Interest will continue to accrue, but the IRS will not take actions against your bank accounts or seize your property as long as you are making the payments. The IRS offers many installment agreements, and with the Fresh Start Initiative, Taxpayers now have more options than ever before. For many taxpayers right now, an installment agreement is likely the best option for them moving forward.
Installment Agreements
If you do not qualify for one of the Offer in Compromise programs, an installment agreement provides a realistic tax solution to many individuals. An installment agreement allows the tax payer to set up a payment plan with the IRS to pay the outstanding debt over a period of time. The interest and penalty fees associated with installment agreements range from an APR of 8% to 10%. Consequently, installment agreements are granted much more frequently than Offers in Compromise. If you believe you will be able to pay your taxes in full within the extended time frame, an installment agreement is a viable option.
Installment agreements allow the taxpayer to avoid accruing additional interest and penalties, avoid offsets of future refunds, and avoid issues obtaining loans. There are several types of installment agreements available, and it is important to talk to a tax expert to determine which option is best suited for your situation
Guaranteed Installment Agreement
If you owe $10,000 or less in unpaid taxes, the IRS will automatically approve your request for an installment agreement. To qualify for a guaranteed installment agreement, you must:
- Have filed and paid your taxes on time for the previous five years;
- Be up-to-date on filing your current taxes;
- Pay off your taxes within 36 months;
- Have had no installment agreement within the previous five years; and
- Agree to file and pay on time in the future.
The benefit of a guaranteed installment agreement is that the IRS will not file a federal tax lien against you for any outstanding taxes that are due.
Streamlined Installment Agreement
In the event that you do not qualify for a guaranteed installment agreement, you may satisfy the criteria for a streamlined installment agreement. A streamlined installment agreement is one where the IRS requires little or no asset, income and expense information. This agreement allows you to take up to 72 months, or six years, to pay the outstanding tax. In order to qualify, you must owe the IRS $50,000 or less as of 2017.
Similar to the guaranteed installment agreement, you are required to file any late tax returns, agree to file your tax returns on time, and pay your taxes in the future in order to qualify for a streamline installment agreement. Furthermore, once the streamlined installment agreement is approved, the IRS will normally not file a federal tax lien in an attempt to collect from you.
Non-Streamlined Installment Agreement
Should you owe more than $50,000 in tax debt, you will need to work with the IRS directly to discuss and negotiate the possibility of an installment agreement. Furthermore, a non-streamlined installment agreement may be appropriate if you suspect you will need more than six years to pay off your tax debt.
This type of installment agreement requires that you provide additional financial information so that the IRS can accurately assess your situation and determine your anticipated monthly payments. It is likely that the IRS will also file a tax lien against you, and request that you sell some of your assets or take out a loan to help pay off the balance.
When requesting an installment agreement, you will want to refer to Form 9465, Installment Agreement Request and Form 433-F, Collection Information Statement which can be found at IRS.gov. Additionally, the IRS may revoke your installment agreement if you miss a payment, provide erroneous information, or you fail to file a tax return.
Should you find yourself with a tax debt that you are unable to pay off in a one time payment, and you do not qualify for an offer in compromise, please visit our website at lpflawaz.com. Please set up a free consultation and we can go over your matter to find out what the best approach for your unique situation will be.
Entries in this Series:
Part 2: The laws and options regarding the Offer in Compromise program
Part 3: The laws and options regarding Installment Agreements
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