An Installment Agreement is nothing more than an agreement with the IRS to pay the tax owed over an extended timeframe. Installment Agreements are an excellent way to stay compliant with the IRS if a taxpayer cannot pay their taxes when they are due. The IRS is not really interested in seizing a taxpayer’s assets. The IRS would much rather work with the taxpayer to pay his or her taxes over time.
The IRS has four types of Installment Agremeents: Guaranteed Installment Agreement, Streamlined Installment Agreement, Financially Verified Installment Agreement, and a Partial Pay Installment Agreement. Which payment plan is best for a taxpayer depends on the facts and circumstances of the taxpayer’s case. There are different rules governing different payment plans. Knowing the rules of each plan can help a taxpayer pick the best plan for them.
Guaranteed Installment Agreement
The first type of payment plan is an “Guaranteed Installment Agreement”. This payment plan is exactly what it sounds like. It is a payment plan that is guaranteed to be accepted by the IRS. A taxpayer will qualify for a Guaranteed Installment Agreement if:
- The tax they owe is less than $10,000.00.
- They are not currently in an Installment Agreement
- They are unable to pay the tax owed in 120 days
- Tax paid in full within three years
Streamlined Installment Agreement
The next type of payment plan is a “Streamlined Installment Agreement”. A Streamlined Installment Agreement is similar to a Guaranteed Installment Agreement but with a bit more scrutiny. A taxpayer will qualify for a Streamlined Installment Agreement if:
- The tax, penalties, and interest owed is less than $250,000.00 (as long as the tax has not been assigned to enforcement).
- The balance is paid within 72 months
- The payment is equal to or greater than the acceptable minimum monthly payment
Financially Verified Installment Agreement (or Regular Installment Agreement)
This installment agreement may be available to a taxpayer if the taxpayer owes more than $250,000.00. The IRS will not automatically approve this type of Installment Agreement. They will review the information submitted and it may require some negotiation to get the agreement approved. To be eligible for a Financially Verified Installment Agreement, one must:
- Owe more than $250,000.00 in tax, penalties, and interest
- Fill out IRS Form 433-F – Collection Information Statement (to provide the IRS with information regarding the taxpayer’s income, expenses, assets, and liabilities).
- A taxpayer will usually have to wait a few months for the IRS to review the agreement
Partial-Pay Installment Agreement
This is the least common type of Installment Agreement but can be very effective. With a Partial-Pay Installment Agreement, a taxpayer enters into a payment plan with the IRS to partially pay the tax liability over the remaining months on the collection statute. The taxpayer makes monthly payments and once the tax reaches the Collection Statute Expiration Date, the remaining tax is written-off by the IRS. To qualify for a Partial-Pay Installment Agreement one must complete IRS form 433-F – Collection Information Statement. The IRS will review the assets owned by the taxpayer to see if there is equity the taxpayer can tap to pay the tax. The IRS will also require a new Collection Information Statement to be filed every two years for their review.
With any Installment Agreement a taxpayer must maintain tax compliance. That means filing all subsequent tax returns on time (including extension deadlines), paying all estimated taxes on time (if one is required to pay estimated taxes), and/or having the correct amount of tax withheld from your pay. The IRS is willing to allow a payment plan, however the IRS does not want to be revolving door of payment plans for years to come.
If a taxpayer does not know which payment plan is the best option, they should talk with a tax resolution specialist. A tax resolution specialist will look at all the facts and circumstances and can recommend a strategy that would be the best path forward for the taxpayer.
If you or anyone you know has a tax issue with the Internal Revenue Service or the Indiana Department of Revenue, please schedule a phone or in-person consultation today. Your tax issues won’t go away on their own, but with the help of an experienced Tax Resolution Specialist, you can put your tax problems behind you once and for all.
Patrick H. Wanzer, CPA, CTRS