Picking the right installment agreement to pay off your federal tax debts
A monthly payment plan is generally the easiest way to set up an arrangement to pay off any taxes owed to the Internal Revenue Service. There’s four different types of installment agreements offered by the IRS. The important thing is knowing which installment agreement you qualify for, so that when you or your tax accountant talks to the IRS, you’ll be able to let the IRS know which type of installment agreement you intend to set up.
Guaranteed Installment Agreements
The IRS is required to agree to an installment plan if your balance due is $10,000 or less and you meet all of the following criteria:
- For the previous five years you haven’t filed late or paid late.
- All your tax returns are filed.
- Your monthly installment payments will pay off your balance in 36 months or less.
- You’ve had no installment agreement in the previous five years.
- You agree to file on time and pay on time for future tax years.
The minimum monthly payment the IRS will accept is the grand total of your balance due (including penalties and interest) divided by thiry.
The main benefit of a guaranteed installment agreement is that the IRS will not file a federal tax lien. Tax liens are reported to the credit bureaus and negatively impact your ability to obtain credit. The IRS will also not ask you to fill out a financial statement (Form 433-F) in an effort to analyze your current financial situation. If you don’t meet the criteria for a guaranteed installment agreement, you should consider a streamlined installment agreement.
Streamlined Installment Agreements
The IRS will approve an installment plan if your balance due is $25,000 or less, and you agree to pay off the balance in 60 months or less. If your balance will expire within this five-year period due to the ten-year statute of limitations on collections
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, then the IRS will require full payment within the remaining statute of limitations.
Effective March 7, 2012, taxpayers can qualify for a streamlined installment agreement if the balance owing to the IRS is $50,000 or less, and the taxpayer agrees to pay off the balance in 72 months or less. This expansion of the streamlined installment agreement criteria is part of the IRS’s “Fresh Start Initiative.”
As with guaranteed agreements, all your tax returns must be filed, and you agree to file your tax returns on time and pay your taxes on time in the future.
The main benefit of a streamlined installment agreement is that a federal tax lien is not required. Furthermore, the IRS will not ask you to fill out a financial statement (Form 433-F) in an effort to analyze your current financial situation.
Partial Payment Installment Agreements
If the minimum payments for either the guaranteed or streamlined installment agreements do not fit into your budget, you may be better off considering a partial payment installment agreement. This is a type of payment plan where the monthly payment is based on what you can actually afford after taking into consideration your essential living expenses. Unlike guaranteed or streamlined agreements, a partial payment plan can be set up to cover a longer repayment term, and the IRS may file a federal tax lien to protect its interests in collecting the debts. The IRS will ask you to fill out a financial statement (Form 433-F) to report your average income and living expenses for the past three months, plus provide paystubs and bank statements as supporting documentation. Unlike other types of installment agreements, the IRS routinely re-evaluates the terms of partial installment agreements every two years to see if you might be able to pay more.
“Non-Streamlined” Installment Agreements
You will need to negotiate your own installment agreement with the IRS if your balance due is over $25,000, or you need a repayment term longer than five years, or if you don’t meet any of the criteria for a streamlined or guaranteed installment plan.
Such an agreement will be negotiated directly with an IRS agent, and will then be routed to a manager at the IRS for review and approval. The IRS will likely file a federal tax lien (if they haven’t already). This type of agreement is often referred to as a “non-streamlined” agreement as it falls outside the IRS’s guidelines for automatic approval of the agreement. The IRS will ask that you provide them with a financial statement (Form 433-F) so they can analyze what’s the most you can afford to pay each month towards your balance. The IRS will likely ask that you attempt to sell off any assets or take out a bank loan, or get a home equity loan so you can pay off the IRS without needing to get an installment agreement.
As with any tax problems, taxpayers should seek the advice of a federally authorized tax professional, such as an enrolled agent, certified public accountant or tax attorney. Such tax professionals can talk to the IRS on your behalf, and can help you manage the process so that it’s not so overwhelming. They can also help analyze your current financial situation and tax issues to help you decide which program will best suit your needs.
IRS Resources You May Need
- Payment Plans and Installment Agreements – Overview of installment agreements
- Form 9465 (pdf) – Form used to request an installment agreement. Three pages including instructions.
- Online Payment Agreement – An application for submitting your installment agreement request online directly on the IRS.gov Web site.
- Form 433-F (pdf) – A financial statement, also called a Collection Information Statement, used by the IRS to analyze a taxpayer’s income, living expenses, and value of assets.
Sources: Streamlined, Guaranteed and In-Business Trust Fund Express Installment Agreements chapter in the Internal Revenue Manual section 5.14.5, and Publication 594, the IRS Collection Process.