Sometimes a taxpayer lacks sufficient assets and income to pay off a tax debt in full, and in such cases installment agreements with the Internal Revenue Service (IRS) can be of use. Installment agreements are beneficial for a number of reasons, but namely because they typically prevent their IRS from levying on a tax debtors assets as long as the installment agreement is in place and is adhered to. Nevertheless, while installment agreements may prevent the IRS from levying on a tax debtor’s assets, a number of costs associated with these plans such as the payment of a user fee, accrued penalties and interest, and the possible filing of a Notice of Federal Tax Lien (NFTL) mitigate in favor of paying a tax debt off in full where possible.
Where an installment agreement is the best choice for a tax debtor, that person may be able to enter into an installment agreement that envisions payment either in part or in full. Specifically, if full payment of the outstanding tax liability cannot be made prior to the Collection Statute Expiration Date (CSED), the IRS may approve a Partial Payment Installment Agreement. Under an installment agreement, the IRS and the tax debtor will agree to a financially feasible payment schedule based on the tax debtor’s assets and income. It should be noted that interest and any applicable penalties will continue to accrue during the life of the installment plan.
Under the IRC, a tax debtor has a statutory right to an installment agreement if the tax debtor:
- owes income tax only of $10,000 or less (excluding penalties and interest);
- has file all income tax returns or paid all taxes shown on those returns during the preceding five taxable years;
- cannot pay the tax immediately
- agrees to payment in full within 3 years;
- agrees to file returns and pay all taxes during the agreement term and has not been granted an installment agreement during the past five taxable years.
Additionally, taxpayers with income tax liabilities of up to $50,000 will be able to enter into a streamlined agreement with the IRS without having to provide the IRS with a financial statement. Internal Revenue Service.
Payments under an installment agreements can be made in a number of ways, including through the Electronic Federal Tax Payment System (EFTPS), a direct debit installment agreement, a payroll deduction installment agreement, a credit card installment agreement, or simply payment by check or money order. The user fee structure for installment agreements is as follows: $105 for new agreements, $45 for reinstated agreements and $52 for direct debit installment agreements.
While installment agreements are almost always made available to those with lower tax obligations, those with more substantial obligations may need legal representation to effectively advocate on their behalf for an installment plan. Furthermore, even those with lesser tax obligations that have a statutory right to an installment agreement may wish to opt for a partial payment plan, which is another situation in which experienced tax counsel will be useful. Consider these options before pursuing an installment agreement.