What is an Installment Agreement with the IRS?
Installment agreements are monthly payment plans with the IRS, where an agreed upon amount of money is paid toward back taxes. There are several types of installment agreements available to taxpayers, depending on his or her individual situation. Installment agreements are also available for corporations; however, the terms of those installment agreements are different than what is described below.
The various types of installment agreements are:
- The Streamlined Installment Agreement: Streamlined Installment Agreements are the most common type of installment agreements. Under the IRS’ relatively new “Fresh Start Program,” taxpayers with $50,000.00 of tax debt or less can pay back their liabilities over a 72 month period, at a flat monthly rate. During those 72 months, penalties and interest will continue to accrue, but generally, the monthly payment amount should take care of everything by the seventy-second month.
It is important to note, if the tax debt exceeds $25,000.00, the taxpayer will likely have to set up a Direct Debit Installment Agreement, where he or she agrees to allow the IRS to directly debit the monthly installment amount directly from their employer or bank account. As a general rule, Direct Debit Installment Agreements are preferred by the IRS, and often benefit the taxpayer as well. Taking the human element out of the payment arrangement means nothing is late, and all payments are traceable.
- Partial Payment Installment Agreements: If a taxpayer does not have enough disposable income (e.g. gross income, minus reasonable expenses) to pay off his or her debt under a Streamlined Installment Agreement, the IRS will consider a smaller monthly payment. Determining the amount of the smaller monthly payment can become complex, especially where the taxpayer’s finances are not clear cut. Depending on the complexity of your situation, it is usually advantageous to consult with a professional on how to determine your monthly Partial Payment Installment Agreement amount, to ensure you have accounted for everything and have met the requirements set out by the IRS.
At Victory Tax, our attorneys have extensive experience helping taxpayers compile the necessary records, analyze their contents, and work with the IRS to set up the most beneficial payment arrangements.
- Installment Agreement: When a taxpayer is not eligible for the above types of installment agreements, their remaining option is a standard installment agreement. Typically, a taxpayer falls in this category when their tax debt exceeds $50,000.00. Like with a partial payment installment agreement, a complex calculation of what the taxpayer can afford to pay on a monthly basis must be made, and whatever that amount is, the IRS will expect the Taxpayer to make such payments until either the debt is paid in full, the Taxpayer demonstrates that they are no longer able to pay that amount (upon review and within reason), or the IRS period for collection has expired.
Because of the variety of installment agreements available to taxpayers, whether under the Fresh Start Program or through other regulations, it is often advantageous for taxpayers to talk with a tax professional before making their move. If you are interested in an installment agreement, our experienced staff and attorneys are always available to discuss what options might be available to you.
Please feel free to call us at any time. Our toll free number is 877-772-0123.
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