Installment Agreements

In some situations, a taxpayer may qualify for a payment plan or installment agreement, wherein the taxpayer would make installment payments toward his tax liability over a period of time. If a taxpayer is unable to make a lump payment to pay his tax liability in full, a payment plan or an installment agreement offers a taxpayer the opportunity to make manageable payments toward his liabilities. The total amount paid can be the full amount of what is owed or, if the taxpayer’s situation warrants, it can be a partial amount.

Under section 6159 of the Internal Revenue Code, the IRS is authorized to enter into written agreements with taxpayers under which the taxpayer is permitted to make installment payments toward his tax liability if the IRS determines that an installment agreement will facilitate full or partial collection of the tax liability.

There are five different types of payments plans, or installment agreements:

1. Guaranteed Installment Agreement

   The IRS is required to agree to an installment agreement if the following conditions are met:
   • The taxpayer owes income tax, only, of $10,000 or less (excluding penalties and interest);
   • The taxpayer has not failed to file any income tax returns or to pay any tax shown on such returns during any of the preceding five taxable years;
   • The taxpayer cannot pay the tax immediately;
   • The taxpayer agrees to fully pay the tax liability within 3 years;
   • The taxpayer agrees to file and pay all tax returns during the term of the agreement; and
   • The taxpayer has not entered into an installment agreement during any of the preceding five taxable years.
   A taxpayer is not required to submit a financial statement to the IRS in order to enter into a guaranteed installment agreement.
   Under this payment plan, the IRS will not file a notice of federal tax lien against the taxpayer.

2. Streamlined Installment Agreement

   A streamlined installment agreement has the following requirements:
   • The taxpayer owes $50,000 or less (including penalties and interest)
   • The balance can be paid off in 72 months or less
   • The liability must be paid in full before the expiration of the statute of limitations
   • The minimum monthly payment is equal to or greater than the total balance owed divided by 72 (or, if fewer than 72 months remain before the statute of limitations for collection of the tax debt expires, the number of remaining months on the statute of limitations)
   • The taxpayer agrees to file and pay all taxes on time while the agreement is in effect
   A taxpayer is not required to submit a financial statement to the IRS in order to enter into a streamlined installment agreement.
   Under this payment plan, the IRS will not file a notice of federal tax lien against the taxpayer.

3. In-Business Trust Fund Express Installment Agreement

   Small businesses who currently have employees can qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). These installment agreements generally do not require a financial statement or financial verification as part of the application process.
   An in-business trust fund express installment agreement has the following requirements:
   • The taxpayer owes $25,000 or less
   • The balance must be paid off before the earlier of 24 months or the expiration of the statute of limitations for collection
   • If the amount owed is between $10,000 and $25,000, the taxpayer must enroll in a Direct Debit installment agreement (DDIA)
   • The taxpayer must be compliant with all filing and payment requirements
   A taxpayer is not required to submit a financial statement to the IRS in order to enter into an in-business trust fund express installment agreement.
   Under this payment plan, the IRS is not required to file a notice of federal tax lien against the taxpayer, although it may choose to do so in order to protect its interests.

4. 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. The partial payment installment agreement was made possible with the passage of the American Jobs Creation Act of 2004. The new legislation amended section 6159 of Internal Revenue Code to allow the IRS to enter into installment agreements that result in full or partial payment of the tax liability.
   Prior to amendment of section 6159 of Internal Revenue Code in 2004, taxpayers who could not fully pay their outstanding tax liabilities could only enter into an agreement with the IRS if it resulted in full payment of the liability. This left taxpayers unable to meet this criterion with limited payment options.
   To qualify for a partial payment installment agreement, a taxpayer must complete a financial statement to report assets, liabilities, income, and expenses. The IRS may also request substantiation for the amounts reported on the financial statement. 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. As a result of this review, the amount of the installment payments could increase or the agreement could be terminated, if the taxpayer’s financial condition improves.

5. Non-Streamlined Installment Agreement

   If a taxpayer owes $50,000 or more and can make monthly payments to the IRS, a non-streamlined installment agreement is an option. The IRS will not automatically approve this agreement; instead, the taxpayer must negotiate with the IRS. This type of agreement is often referred to as a “non-streamlined” agreement as it falls outside the IRS’s guidelines for automatic approval of the agreement.
   The taxpayer must complete a financial statement to report assets, liabilities, income, and expenses, but is not required to provide substantiation of reasonable expenses. Using the information provided, as well as information it obtains from other sources, the IRS will analyze the amount that taxpayer can afford to pay each month toward the tax liability.
   It is not uncommon for it to take several 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 expenses unnecessary, if untruthful information was provided, or if the taxpayer failed to fulfill the terms of a prior installment agreement with the IRS.
   In the event that the taxpayer and IRS are able to agree to the amount of each installment payment, the IRS enter into an installment agreement with the taxpayer. While the agreement is in effect, the taxpayer must make all installment payments on time, and in the agreed amount. The taxpayer must also agree to file and pay all taxes on time while the agreement is in effect. The IRS will likely file a notice of federal tax lien against the taxpayer, if it has not done so already.

Installment agreements can go on for years and, because penalties and interest continue to accumulate over the course of the agreement, the total amount a taxpayer pays is generally more than the taxpayer owes when an installment agreement is entered into.

There are different ways to seek an installment agreement, and the IRS is not required to accept a proposed installment agreement and may deny your request or may ask for a modification for approval. It is therefore of the utmost importance that your case is properly presented to the IRS.

If the IRS determines that a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves. In order to obtain such a delay, whether it be a temporary collection hold or a longer hold in which your tax account placed in “currently not collectible” status, requires you to present your financial situation to the IRS.

An attorney at the Politte Law Offices can help you. Our experienced attorneys will evaluate your particular financial situation and the type and amount of tax you owe to determine what type of payment plan will best suit your needs and unique situation.

We will assist you in gathering, assembling, and presenting information to the IRS, and will handle all communication with the IRS. We know what to present to and say to the IRS in order to protect your interests and present your financial situation to the IRS in a manner that maximizes the opportunity for its approval. With our help, you may be able to finally get a hold of your tax debt through a payment plan or installment agreement.