It’s my experience in working with taxpayers who owe the IRS, there are also other problems going on in their lives that created the IRS problem and they get paralyzed, don’t resolve their tax problem, and find it getting worse and worse. When tax debt is not dealt with timely, it can easily escalate to a point where bank accounts get levied, wages get garnished, and liens are placed on assets. Tax debt can double over time with Late Filing and Late Payment Penalties as well as interest.
The Good News is that there are solutions. Many taxpayers who come into our Richardson, TX, tax office, have heard the Offer-In-Compromise advertisements and want to settle their tax debt for “Pennies on the Dollar” as they hear on the advertisements. However, the reality is that most taxpayers don’t qualify for an Offer-In-Compromise. Some do and others can be categorized as Currently Not Collectible. For most taxpayers, setting up a payment plan with the IRS is their best solution. If they qualify for Penalty Abatement, which I’ve covered on other blogs, combining the two is even a better solution.
An Installment agreement is a repayment plan with the IRS over time. However, all Installment Agreements are not alike. There are four different types of Installment Agreements that I’ve outlined below. My goal is that after reading about each of them, you will have a better understanding of which one is the right one for you.
- Guaranteed – For this option, a taxpayer must have $10,000 or less in taxes owed and be able to pay off their balance within 3 years or by the Collection Statute Expiration Date (CSED).
- Streamlined - To qualify, the taxpayer must have Individual Tax Debt under $50,000 and the offer must pay off the debt within 72 months or with the time period the government has to collect the tax. No Form 433 required for this type of agreement.
- Regular Agreement – For those that don’t qualify for the streamlined agreement due to either the dollar amount of debt or number of years to pay it off, however the Taxpayer will repay the debt in full prior to the governments deadline to collect the tax. This agreement requires a Form 433 to quantify the payment amount the IRS will accept. As long as you remain compliant, the IRS will not contact you.
- Partial Pay Agreement – The difference from the regular agreement is that at the rate of payment, the Taxpayer will not be able to pay the debt in full within the statute. Accordingly, it is possible to have a portion of your tax debt forgiven if the payment permitted will not fully pay the tax debt within the CSED.Under this agreement, the IRS will revisit your financial status every 12 to 18 months, while under the agreement, to determine if your payments can be increased.
In addition, there are variations such as the Six-Year Rule and the One-Year-Rule that may permit installment agreement amounts that are less than the normal amounts calculated by IRS Collections.
Which One is Best for You?
As with many things in life it depends. Factors include the amount you owe, your financial situations, the amount of time until your debt expires, and your priorities. However, it is critical to understand all of your options permitted by IRS rules, to finding the best solution for you. All payments plans require you to be in tax compliance (be up on tax filings and withholdings) to qualify, and you should always keep in mind the 10 year collection statute when making any decisions with tax resolution alternatives.
Need Professional Help?
If you need help in Setting up an Installment Agreement with the IRS or getting into tax compliance, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates. If you’d like to learn more about us, please visit our website at https://jablonskyandassociates.com/.