The thought of IRS tax debt can be uncomfortable, to say the least. If you are facing tax debt that you do not think you will be able to pay off in full all at once, know that you have options to explore. The IRS has several alternative payment arrangements that may work for you. One such alternative is an installment agreement.
Overview of an Installment Agreement
There are four different types of installment agreements offered by the IRS, all of which have their own set of requirements for a taxpayer to qualify. One such agreement is the guaranteed installment agreement. Qualifying individuals must owe less than $10,000, which does not include interest and penalties. Additionally, the taxpayer must have filed tax returns in the previous five years as well as paid taxes owed and not entered into an installment agreement. Furthermore, the taxpayer must show an inability to pay the outstanding tax obligation when due or within 120 days and that the tax liability will be paid off within three years. Under this type of installment agreement, the taxpayer has to pay the minimum monthly payment, at least, and the IRS will not file a federal lien against the taxpayer with this type of repayment plan.
In the alternative, there is the streamlined installment agreement which a taxpayer can qualify for if the tax liability does not exceed $50,000 and the balance can be paid in full within 72 months. The proposed payment on the payment plan must be greater than or equal to the minimum acceptable payment, which is $25 or the minimum amount you get by dividing the tax liability, interest, and penalties by 50, whatever is greater.
A taxpayer may also qualify for a partial payment installment agreement which allows the taxpayer to go on an installment plan for partial payment of the tax debt. To qualify, the taxpayer must complete a financial statement with Form 433-F which will require the reporting of income and living expenses. If approved for this installment agreement, the taxpayer is required to undergo financial review every two years. Depending on the results of the review over the course of time, the taxpayer may have the installment payments increased or the agreement terminated.
The last type of installment agreement is the non-streamlined installment agreement which is available to taxpayers who owe $50,000 or more and can make monthly payments to the IRS. The taxpayer must be prepared to negotiate with the IRS after filing Form 433-F, Collection Information Statement. The taxpayer proposes a payment plan and the IRS reviews it.
While these installment agreements can help make an unmanageable tax debt manageable, it is important to note that the IRS continues to encourage taxpayers that the best option, when available, is to pay tax obligations in full, right away. This is because interest and penalties will still apply and can be quite costly. Interest and penalties can be upwards of 10% per year.
Are you struggling with an outstanding tax obligation? It is time to get some help. There are options available that can help you handle the tax burden. Talk to the knowledgeable attorneys at Regal Tax & Law Group, P.C. about your options. Contact us today.