Installment Agreement to Pay Your Tax Debt

In many cases, when a taxpayer is unable to pay a tax bill in full, the IRS will allow the taxpayer to enter into an installment agreement, to pay the tax liability through monthly scheduled payments. Installment agreements are available in many forms, including:

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Guaranteed Installment Agreement

As the name implies, individual taxpayers are guaranteed to qualify for this type of installment agreement, without having to verify income, expenses, or financial assets, as long as each of the following requirements are met:

  • The taxpayer’s tax liability (excluding penalties and interest) must not exceed $10,000;
  • The installment agreement plan will fully pay the outstanding tax within 3 years;
  • The taxpayer is unable to pay the tax in full when due; and
  • During the previous 5 years, the taxpayer (including the taxpayer’s spouse if filing jointly) must have filed all tax returns on time, paid all taxes owed on time, and have not entered into any other installment agreements.

The minimum monthly payment under a guaranteed installment agreement is generally calculated as the total amount owed (including penalties and interest) divided by 30. The IRS will not place a federal tax lien on taxpayers who have entered into a guaranteed installment agreement.

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Streamlined Installment Agreement

A streamlined installment agreement can be accomplished without having to verify income, expenses, or financial assets, if following conditions are satisfied:

  • The taxpayer owes (including penalties and interest) less than $50,000, if an individual, or less than $25,000 if a business;
  • The taxpayer must have filed tax returns for the previous two years, or get current on filing for the last two years;
  • The taxpayer must be willing and able to pay off the full tax liability within 72 months;
  • The taxpayer (or the taxpayer’s spouse if filing jointly) must not have entered into any other installment agreements in the previous 5 years; and
  • If the tax obligation is more than 5 years old, the IRS may require a shorter repayment period or a voluntary extension of the statute of limitations for collection.

The minimum monthly payment under a streamlined installment agreement is the greater of $25, or the total amount owed (including penalties and interest) divided by 72. The IRS will likely place a federal tax lien on taxpayers who have entered into a streamlined installment agreement. Also, the IRS will keep all tax returns during the term of the installment agreement, and apply the amounts towards the outstanding balance.

Financially Verified Installment Agreement

This type of installment agreement requires the submission of substantial financial disclosures, and supporting documentation, and is not guaranteed. Rather, acceptance of the installment agreement, and the terms of the installment agreement must be negotiated with the IRS. While not impossible to obtain, the IRS takes a closer look at installment agreements under this program, to determine whether the taxpayer has financial assets or personal property that could be used to satisfy the outstanding tax liabilities. To obtain a financially verified installment agreement, the following conditions must be satisfied:

  • The taxpayer must owe more than $50,000, if an individual, or $25,000, if a business;
  • The taxpayer must have a history of payment compliance with the IRS;
  • The taxpayer (or the taxpayer’s spouse if filing jointly) must not have entered into any other installment agreements in the previous 5 years; and
  • The taxpayer does not have adequate funds in checking, savings, investments, or retirement accounts to pay the tax liability, and does not have the ability to borrow the funds necessary to pay off the tax liability.

The terms of these types of installment agreements are strongly negotiated, and we strongly recommend that you have the assistance of competent legal counsel throughout the process. The experienced tax attorneys of the Business Law Group can assist you in negotiating a financially verified installment agreement.

Other Installment Agreements

Other types of installment agreements include the partial payment installment agreement and the direct debit IRS installment agreement.

If you are dealing with substantial tax liabilities, call the Business Law Group today, at (719) 355-8840, and let one of our experienced tax attorneys assist you in negotiating the best installment agreement for your unique situation.