Where a taxpayer seeks to enter into an installment agreement because he or she cannot meet federal tax obligations, the taxpayer must satisfy a number of criteria in order to be eligible. The process begins with the filing of the formal request for an installment agreement, which is typically done using Form 433-D. Form 433-D is a financial disclosure to the Internal Revenue Service (IRS) explicating the tax debtor’s financial situation, including detailed information relating to income and asset equity.
Installment agreements are not simply granted because the tax debtor requests it. Rather, the IRS is obligated to review the tax debtor’s file, and to make sincere and substantial attempts to secure full payment. Once the IRS has made these attempts unsuccessfully, there are additional criteria that must be met. For example, the installment agreement assessment must confirm that the original amount owed will be paid back within six years from the date the agreement is entered into. Internal Revenue Service, Internal Revenue Manual 4.20.4 Installment Agreements, available at https://www.irs.gov/irm/part5/irm_05-014-002r. Additionally, the entire tax liability owed including interest and penalties accrued on that tax liability can be paid in full prior to the Collection Statute Expiration Date (CSED).
In order to secure an installment agreement, the tax debtor must also be current in filing all returns currently due, including cross-referenced taxpayer identification numbers. Furthermore, additional liabilities reflected on delinquent returns will be included with the examination deficiency in the installment agreement. For streamlined agreements, the aggregate unpaid balance of assessments must be $25,000 or less, and that includes tax, assessed penalty and interest, and all other assessments. If the tax debtor chooses to include pre-assessed taxes in the installment agreement, then those will be included as well for purposes of calculating the $25,000 ceiling.
Taxpayers may also seek to exercise their statutory right to an installment agreement where the total tax liability is equal to or less than $10,000, excluding penalties and interest, and can be paid to the IRS within 36 months. The guaranteed installment agreement is useful if only because it is guaranteed and there is no financial assessment process to determine whether or not the installment agreement will be entered into. It also has the benefit of the streamlined installment agreement, namely that full disclosure of financial information is not required.
For questions regarding installment agreements and the criteria upon which the IRS determination to grant such an agreement is based, contact an experienced tax attorney.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.