When a taxpayer lacks sufficient assets and income to meet a tax obligation in full, installment agreements with the Internal Revenue Service (IRS) can be useful. Installment agreements prevent the IRS from levying on a tax debtor’s assets for the period of time that the installment agreement remains in place, and provided the tax debtor does not breach its terms. In certain cases, a taxpayer may qualify for a streamlined installment agreement, which is preferable for tax debtor’s namely because it does not require the intrusive disclosure of sensitive financial information typically required for installment agreements by way of Form 433-F.
Under any 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, with any applicable penalties continuing to accrue during the life of the installment plan. Internal Revenue Service, Internal Revenue Manual, 22.214.171.124 (06-01-2010), Installment Agreements, available at https://www.irs.gov/irm/part5/irm_05-014-001r. 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 provided other conditions are met. Internal Revenue Service, “IRS Offers New Penalty Relief and Expanded Installment Agreements to Taxpayers under Expanded Fresh Start Initiative,” IR-2012-31, March 7, 2012, available at https://www.irs.gov/uac/IRS-Offers-New-Penalty-Relief-and-Expanded-Installment-Agreements-to-Taxpayers-under-Expanded-Fresh-Start-Initiative. This is also known as a guaranteed installment agreement. However, even if the tax debtor owes more than $10,000, the tax debtor may still be able to obtain a streamlined installment agreement where the tax debt amounts to $25,000 or less. No collection information statement will have to be filed, and no independent lien determination will have to be made by the IRS prior to the granting of the streamlined installment agreement. Payments under a streamlined installment agreement can be made through the Electronic Federal Tax Payment System (EFTPS), direct debit, payroll deduction, credit card, or simply by check or money order. The IRS charges $105 for new agreements, $45 for reinstated agreements and $52 for direct debit agreements.
While streamlined installment agreements are made available to those with tax obligations that do not exceed $25,000, all too often a tax debtor’s obligations do in fact exceed that threshold. In such cases, installment agreements may still be obtained, but the process is more complicated and more fraught with risk. As a result, those with substantially greater tax obligations would be particularly well served by consulting with an experienced tax attorney that understands the risks and liabilities associated with applying for installment agreements.
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.