In difficult financial times, many taxpayers who do not qualify for an offer in compromise turn to an IRS payment plan to manage their tax debt. While this may seem like a helpful solution for those unable to pay a lump sum, it actually benefits the IRS the most. Interest continues to accrue on the unpaid balance, increasing the total amount owed. On top of that, IRS penalties can add up quickly—meaning you may pay much more than the original tax debt just for the ability to pay over time.
If paying your full tax balance at once is not an option, there are still ways to manage your tax burden when an offer in compromise isn’t available. The IRS has made it easier in recent years to set up payment plans, but the process can still be challenging. Working with a reputable tax lawyer can help ensure the monthly payment amount is something you can maintain.
Types of Payment Plans
Before moving forward, it’s important to understand the types of payment plans available. The IRS currently offers four main kinds of installment agreements:
- Guaranteed installment agreement – For balances of $10,000 or less. The IRS must approve these agreements if you meet the qualifications.
- Streamlined installment agreement – For balances up to $25,000 paid off within 60 months, or (under the Fresh Start Initiative) up to $50,000 paid off within 72 months.
- Partial payment installment agreement – For situations where you cannot afford the payments required under guaranteed or streamlined agreements. Payments are based on what you can reasonably pay after accounting for necessary living expenses.
- Non-streamlined installment agreement – For balances above $50,000, when you need a longer repayment term, or when you do not meet the criteria for other plans.
Points To Consider When Negotiating An Installment Agreement
To give yourself the best chance of success with any IRS installment agreement, keep these points in mind:
- All required tax returns must be filed before negotiations can even begin.
- All future refunds will be applied to your tax debt.
- If your IRS tax debt exceeds $50,000, a complete financial statement will be needed (Form 433-F, Collection Information Statement).
- The IRS generally will not enforce collection activity, (1) while an installment agreement is being considered, (2) while an agreement is in place, (3) for 30 days after rejection or (4) during the appeals process.
- To avoid default, keep your account in good standing and pay the minimum amount due.
- The agreement may not be enforced if all required tax returns are not timely filed.
- If you are in danger of defaulting on the installment agreement be sure to contact your tax attorney immediately to engage in another solution with the IRS.
A diligent tax attorney can help you navigate your federal tax debt, communicate effectively with the IRS, and work toward keeping your account in good standing. To discuss your situation and learn about available options, call our office to schedule a no-cost consultation.
This blog post is not intended as legal advice and should be considered general information only.
