The standard length of time a taxpayer will be on an IRS Installment Agreement is 6 years (72 months). Negotiating an affordable payment plan can prove to be difficult for the uninformed taxpayer; however, if you know your rights, an affordable agreement can be obtained.
IRS Installment Agreement Guidelines:
If you cannot full pay a tax balance owed to the IRS, you may be given consideration to pay the balance over a period of time. An individual taxpayer who owes under $25,000 does not have to provide financial information in order to negotiate a payment plan, as long as the agreement pays off the balance due within a period of 72 months. Not only can the taxpayer avoid providing financials, a tax lien can also be avoided as well as long as a direct-debit agreement is initiated. If a tax lien has already been filed, a taxpayer will get consideration for a full release of the lien as long as a direct-debit installment agreement is in place.
When a tax balance is between $25,000 and $50,000, a Fresh Start installment agreement can be initiated with little to no financial information as long as the payment plan pays off the tax balance within a period of 72 months. If this is initiated before a lien is filed, a tax lien can be avoided; however, if a lien has been filed, it will stay in place until the balance is paid in full or the balance is paid below $25,000.
The most recent option that the IRS initiated was an 84-month installment agreement. This is for individual taxpayers that owe between $50,000 and $100,000. Much like the Fresh Start installment agreement highlighted above, this agreement does not require full financial disclosure as long as the balance is paid in full within 7 years. Tax liens will be filed and will remain in place through the life of the payment plan.
The last option is a partial-pay installment agreement. This option is beneficial for taxpayers that are experiencing a financial hardship and cannot pay the tax balance during the life of the collection statutes. This is also a great option for people that may have some equity in assets and do not qualify for an Offer In Compromise. A partial-pay installment agreement proposal requires full financial disclosure and substantiation of a hardship. Example: a taxpayer owes $100,000 to the IRS but through a financial statement it is shown that they can only pay $200 per month. The IRS may grant the payment plan for $200 per month through the collection statute (10 years). Through the life of the statute, the taxpayer will pay a total of $24,000 on the $100,000 owed, and whatever balance is leftover once the statute runs is fully written off by the Internal Revenue Service. It is important to note that tax liens will be filed and will remain in place. Additionally, the IRS has the right to review a taxpayer’s financial condition at any time while the agreement is in place to determine whether or not it needs to be adjusted.
How to Qualify for an Installment Agreement
The number one rule of thumb when negotiating a resolution with the IRS is that a taxpayer must be in full compliance with all federal tax obligations. This means that all tax returns must be filed and all deposits must be remitted timely (when applicable). If a taxpayer is not in compliance, the resolution process may be delayed and enforced collection action may continue/commence. It is crucial that compliance is being shown; however, if this part of the process is difficult, it is important to have proper Power of Attorney representation to ensure you are fully protected from enforced collection action such as bank levies, wage garnishment, and asset seizure.
Contact Timberline Tax Group to determine what Installment Agreement option is best for your situation.