Frequently Asked Questions Concerning Installment Agreements Who can qualify for an Installment Agreement

Frequently Asked Questions Concerning Installment Agreements

Who can qualify for an Installment Agreement?

Generally speaking, IRS will allow anyone to pay their taxes in installment amounts as requested by the taxpayer if they are not able to pay them when due, provided that doing so will completely satisfy the amount owed prior to the expiration of the remaining period of the Statute of Limitations, plus a five year renewal period thereof.

As described below, there are three basic types of Installment Agreements available, depending upon a number of factors.

Which section of IRS do I have to deal with to obtain an Installment Agreement?

If the amount of tax (excluding interest and penalties) is less than $100,000, you will be able to deal with a division other than the Collection Division. If the amount is equal to or greater than $100,000, then you will have to deal with the Collection Division.

Is there a maximum amount of back taxes (or interest and penalties) that can be deferred through an Installment Agreement?

No, there is not a limit to the amount of tax (or interest and penalties) that can be deferred through an Installment Agreement.

What are the different types of Installment Agreements available?

There are three different types of Installment Agreements available as follows:

'Guaranteed Agreement' applies to taxpayers who owe less than $10,000 (excluding interest and penalties), and:
- are not presently able to pay the liability in full; but,
- agree to completely satisfy the liability and keep current with all other taxes due over the three year term of the Installment Agreement; and,
- have not had an Installment Agreement under this provision within the last five years.
No financial statement or documentation is required unless IRS specifically requires it, which would be highly unusual in view of the minimal amount of tax due in this fact situation.
'Streamlined Agreement' applies to taxpayers who owe less than $25,000 (excluding interest and penalties), and:
- are not presently able to pay the liability in full; but,
- agree to completely satisfy the liability and keep all other taxes current over the five year term of the Installment Agreement; and,
- the liability represents either personal income tax or out of business employment tax.
No financial statement or documentation is required unless IRS specifically requires it, which would be highly unusual in view of the minimal amount of tax due in this fact situation.
'High Dollar Agreement' applies to taxpayers who owe more than $25,000 (excluding interest and penalties), and:
- are not presently able to pay the liability in full; but,
- agree to completely satisfy the liability, provided that doing so will be accomplished prior to the expiration of the Statute of Limitations, plus a five year renewal period thereof, and to keep current with all taxes due in the interim; and,
- provide complete financial disclosure.

What about interest and penalties during the period of the Installment Agreement?

That's one of the disadvantages an Installment Agreement has over other options such as the Offer in Compromise. Both interest AND penalties accrue against the unpaid portion of the taxes due, and can really increase the amount you end up paying over its term.

However, there is a twist as to the penalty; if you enter into an Installment Agreement before receiving a Notice 504 from IRS, it is reduced from ½% per month to ¼% per month. Obviously, this is an incentive intended to motivate taxpayers to get the issue of their back taxes resolved quickly.

If IRS accepts my application for an Installment Agreement, will it still file a Notice of Federal Tax Lien against me?

The Collection Division of IRS can file a Notice of Federal Tax Lien before or while your application is considered, depending upon its internal analysis of the facts and the perceived risk to the government. Under normal circumstances, it cannot file one after an Installment Agreement has been approved.

If a decision is made to file a Notice of Federal Tax Lien, IRS must first give the taxpayer advance notice of its intention so he/she has the opportunity to satisfy the liability. The taxpayer is also entitled to a, 'Due Process' hearing in the event a lien has been filed. This situation is only applicable in cases involving either individual income tax, corporate income tax, or out of business sole proprietorship.

What about enforced collection actions by IRS during the time period it is considering my application for an installment Agreement, or the payout term if it is accepted?

All enforced collection actions against a delinquent taxpayer are suspended during the time period IRS is considering an application for an Installment Agreement. If it is ultimately accepted, the suspension will continue as long as the taxpayer remains current with its terms and conditions. If it is rejected, enforced collection action cannot be resumed until thirty days after notification thereof.

If I only need a little time to pay my tax, can I get an extension?

IRS will allow taxpayers extensions of time in which to pay their taxes in full in the following situations:

In business taxpayers owing employment taxes of less than $25,000 can obtain an extension of 30 days without providing a financial statement or subsequent documentation. If the tax due equals or exceeds that amount, they can still get a 30-day extension, but must first provide a financial statement and any subsequent documentation required by IRS.
Income taxpayers, out of business employment taxpayers, and in business trust fund taxpayers owing less than $25,000 can obtain an extension of 120 days without providing a financial statement or subsequent documentation. If the tax due equals or exceeds that amount, they can still get a 120-day extension, but must first provide a financial statement and any subsequent documentation required by IRS.

What if I have an Installment Agreement but can't make the payments it requires?

Contact IRS and explain your reasons for not meeting the payment terms. It can either:

resume the enforced collection process if your argument is unsound; or,
revise the terms of your Installment Agreement by reducing your payments to a level you can afford to make; or,
Reclassify your debt as being currently uncollectible if you are no longer able to make any payments at all.

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