IRS Installment Agreements
By Steven A. Leahy
There are six things you can do if you owe the IRS money. First, you can simply write the IRS a check for the full amount. For many, that is simply not a realistic option. Often, if the tax obligation is not too significant, borrowing money from another source (friends, family, bank loan, credit cards, etc.) may be a less costly alternative than an installment agreement with the IRS. Second, you can enter into an IRS Installment Agreement; pay the IRS over time. Third, you can obtain an Offer-in-Compromise: A lump sum settlement for less than the tax owed. Fourth, you can be declared Currently Not Collectible; pay the IRS nothing for a time. Fifth, you can file for protection under the bankruptcy code; Chapter 7, Chapter 13 or Chapter 11. And the last option – you can do nothing, and let the IRS do what they will to you, your family and your assets.
This article addresses the second option – IRS Installment Agreements – for personal income taxes. IRS Installment Agreements allow taxpayers to pay the IRS in monthly installments rather than paying the IRS in full immediately. There are several different kinds of Installment Agreements: Guaranteed, Streamline, Partial and Full Pay. Each has unique characteristics. In most cases, just proposing an installment agreement will stop other IRS collection efforts (e.g. wage garnishment, levies). If an IRS Installment Agreement is rejected, the IRS may consider a revised proposal, or the taxpayer may appeal the rejection.
The Guaranteed Installment Agreement is designed for taxpayers with a tax obligation of less than $10,000.00 (excluding penalties and interest). If the taxpayer has also timely filed all income tax returns, paid any tax due for the last five years, has not had an installment in the last five years, and agrees to pay the amount due in 3 years, an installment agreement is virtually guaranteed, even if the taxpayer has the ability to pay the tax liability in full immediately.
The Streamlined Installment Agreement (SIA) is designed for individual taxpayers with a tax obligation not greater than $50,000.00. Recently, the IRS instituted the “Fresh Start” initiative. Fresh Start provisions changed the parameters for a SIA in several important ways. First, the IRS raised the threshold from $25,000.00 to $50,000.00 in tax liability. Next, under the new streamlined provisions, taxpayers can stretch repayment of their tax obligation over 72 months, rather than the old maximum of 60 months. Both of these changes have had a great impact for taxpayers.
The best part of a SIA is it is streamlined, meaning taxpayers do not have to provide financial data to the IRS in order to get an installment agreement. This makes the process quick and less intrusive.
A Partial Installment Agreement (PIA) is designed for taxpayers who are unable to pay the full amount they owe to the IRS. Taxpayers must reveal their financial circumstances, in detail, for a PIA. Negotiating a PIA with the IRS can be tricky – not something I would recommend taxpayers do by themselves. IRS standards and procedures are well known to the IRS, but not to taxpayers. The IRS uses this advantage to get the taxpayers to pay more per month than they may be able to afford. If this happens, a default on the PIA is just a matter of time. After a taxpayer defaults, they will find themselves back in collections, and facing levies and garnishments again.
The final kind of Installment Agreement (IA) is an agreement that pays the full amount due over time. If a taxpayer owes more than $50,000.00, the IRS will conduct a complete investigation of the taxpayer’s finances. They look at income, expenses, and assets, with supporting documents. Again, the amount of a taxpayer’s monthly payment will determine the success or failure of the IA. So, it is imperative to get the best IA payment possible, something best left to professionals.
So, if you owe the IRS and are unable to pay the full tax obligation immediately, you should consider an IRS Installment Agreement. Before you do anything, you should give me a call. We can discuss your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.