If it turns out you owe the IRS but cannot pay your taxes all at once when due, you may request an IRS Installment Agreement (or payment plan) to pay your debt over time.
What Are My Options?
Depending on how much you owe and your financial situation, there are several common types of IRS Installment Agreements:
Guaranteed Installment Agreement
A Guaranteed Installment Agreement is the easiest plan to obtain. If you owe less than $10,000 and can pay it within 3 years, you have the right to set up an agreement without submitting your financial information to the IRS.
Streamlined Installment Agreement
Streamlined Installment Agreement plans are similar to a Guaranteed Installment Agreement but with a higher debt cap and longer term to pay it off. Streamlined Installment Agreements are for individuals who owe up to $50,000 or for business entities that owe up to $25,000. The payment term to pay off the balance can be up to 72 months. Businesses that owe for Trust Fund Taxes (Payroll Liabilities) have 24 months to repay the debt. This payment plan requires no disclosure of your financial records to the IRS.
Non-Streamlined Installment Agreement
Non-Streamlined Installment Agreements offer more flexibility since the balance can stretch up to $250,000 and the payment term can be within the collection statute of 120 months– the time the IRS has to collect the amount you owe. Under this plan, you do not have to disclose your financial records so long as you meet the minimum monthly payment requirement. The downside to the Non-Streamlined Installment Agreement is the IRS will file a lien against your property to secure the debt. This is something to consider if you are purchasing or selling a property.
Financially Verified Installment Agreement
If you are unable to financially meet the minimum monthly payment requirement or owe more than $250,000, you will need a Financially Verified Installment Agreement and will have to disclose your financial information and negotiate with the IRS. By reviewing your banking information, wages, living costs, and assets, the IRS will determine how much you are financially able to pay.
What Are My Next Steps?
Your past six tax returns must be filed. The IRS will not consider any Installment Agreement until all delinquent tax returns are filed.
Once an Installment Agreement has been established, you must file all future tax returns and pay taxes on time. Otherwise, your agreement with the IRS may default and need to be reinstated.
While you are on an Installment Agreement, the IRS will continue to charge applicable penalties and interest until the tax is paid in full. If you want to reduce the number of penalties and interest, you can always make voluntary payments to the IRS in addition to your monthly payment.
The IRS will also keep any tax refunds and apply them to your debt. However, you are protected from serious collections actions such as bank levies, garnishments, and property seizures.
If you are seeking an IRS Installment Agreement and want to avoid dealing with the IRS, ADKF can help you. Our CPAs and EAs in the Tax Controversy Department have the knowledge and expertise to manage IRS related issues.