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 regularly scheduled monthly payments. Installment agreements are available in many forms, including:

Paying taxes through an installment agreement

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 all 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 three years
  • The taxpayer is unable to pay the tax in full when due
  • During the previous five 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 over 30 months. The IRS will not place a federal tax lien on taxpayers who have entered into a guaranteed installment agreement.

Pay off your taxes through a streamlined installment agreement

Streamlined Installment Agreement

A streamlined installment agreement can be accomplished without having to verify income, expenses, or financial assets if the 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 become current on their filings 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 five years
  • 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 over 72 months. The IRS will likely place a federal tax lien on taxpayers who have entered into a streamlined installment agreement. The IRS will also keep all tax refunds you would otherwise receive during the term of the installment agreement and apply the amounts toward the outstanding balance.

Financially Verified Installment Agreement

This type of installment agreement requires the submission of substantial financial disclosures and supporting documentation, and the IRS’s acceptance 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 more than $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 five years
  • 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 require complex negotiations 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 with 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. The Colorado tax attorneys at the Business Law Group can help you decide of one of these other types of installment agreements is right for you.

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.