IRS Installment Agreements

If a taxpayer is unable to pay taxes to the federal government, or the Internal Revenue Service, all at once or as a lump sum, the IRS allows taxpayers to pay their tax debt by using an installment agreement.
 

What is an IRS Installment Agreement?

An IRS installment agreement is an agreement between the taxpayer and the federal government, the IRS, to pay off the tax debt in scheduled payments. Paying a tax debt when due incurs no penalty when paid on time. Using an installment agreement, the taxpayer will be subject to interest penalties ranging anywhere from 8% to 10% per year. This interest penalty will be built in to the recurring payment schedule. There are four types of IRS installment agreements with each agreement having its own criteria that must be met by the taxpayer.

The Four Types of Installment Agreements

Guaranteed Installment Agreement

A Guaranteed Installment Agreement restricts the IRS from filing a federal tax lien once an agreement with the taxpayer is established and guarantees acceptance of this installment plan. The IRS requires the taxpayer to meet the following criteria:
    1. The taxes owed, including interest and penalties, must be less than $10,000.00.
    2. The taxpayer is unable to pay the taxes when required or within 120 days but must be completely paid, including penalties and interest, within three years.
    3. The taxpayer will have filed returns, paid all taxes owed, and has not engaged in an installment agreement with the IRS within the most recent five years.
    4. The taxpayer must meet the minimum monthly payment.

Streamlined Agreement

With a Streamlined Agreement, the taxpayer who qualifies for the Guaranteed Installment Agreement, will qualify for the Streamlined Installment Agreement and the IRS will not require a financial statement. The taxpayer must meet the following criteria:
  1. The taxes owed, including interest and penalties, are less than $50,000.00.
  2. The taxpayer has a maximum of 72 months to pay the tax liability in full.
  3. Minimum monthly payments, including interest and penalties, must meet the minimum payment calculated by dividing total by 72.
Just like the Guaranteed Installment Agreement, the IRS is restricted from filing a tax lien against the taxpayer.

Partial Payment Installment Agreement

The Partial Payment Installment Agreement entered into with the taxpayer allows a partial repayment of the taxes owed. The IRS has 10 years to collect the taxes owed by the taxpayer. If the full amount of the tax liability has not been completely collected, then the remaining balance is forgiven. The Partial Payment Installment Agreement is difficult to obtain. The taxpayer must be current with having filed all tax returns and paid required estimated taxes. The taxpayer is restricted from filing bankruptcy. The value of the taxpayers assets will be reviewed and the IRS may request that the taxpayer borrow against the assets to help pay down or partially relieve the tax liability. A financial form provided by the IRS must be completed by the taxpayer and reviewed by the IRS to determine if the taxpayer will qualify for a partial repayment of their tax liability. Upon qualifying, the taxpayer must agree to a financial review by the IRS, which could result in increasing the monthly payment arrangement or cancelling the Partial Payment Installment Agreement.

Non-Streamlined Installment Agreement

If the taxpayer owes in excess of $50,000.00 and up to $250,000 then a Non-Streamlined Installation Agreement can be entered into if the taxpayer can make monthly payments.  This Agreement is similar to a Streamlined Installment Agreement. The Non-Streamlined Installment Agreement is not automatically approved by the IRS. Instead, the taxpayer must negotiate the terms, the taxpayer must present information on assets, liabilities, income, living expenses and bank and investment accounts and disclose previous IRS installment payment agreements. However, if the taxpayer can pay the amount in full before the collection statute of limitations expires, then financial information, or disclosure, will not be required. The taxpayer can suggest a monthly payment amount but all information provided will be taken under consideration. If some living expenses are deemed unnecessary, the IRS may reject the request of a Non-Streamlined Installment Agreement or leverage the information provided by the taxpayer to negotiate a more IRS favorable payment schedule. Unlike the other Installment Agreements, the IRS will file a federal tax lien on the taxpayer with the execution of a Non-Streamlined Installment Agreement.