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How to Settle a Tax Debt, Part 2: Installment Agreements

By
Education & Training with Tax Rep LLC

I am a tax attorney in New Haven, Connecticut that helps taxpayers struggling with tax debt all over the country.  Facing a tax debt can be a daunting experience, but the IRS offers options for taxpayers to manage their obligations through installment agreements. However, these agreements come with their own set of rules and considerations that taxpayers and practitioners must understand to navigate effectively.

An installment agreement is essentially a structured payment plan between the IRS and a taxpayer to settle back taxes over a period of time, typically in monthly installments. While it offers relief by spreading out the payments, there are key points to grasp before initiating negotiations.

Firstly, it's crucial to acknowledge the IRS's stance on installment agreements. The IRS aims to collect as much of the debt as possible within a relatively short timeframe. This is because historical data shows that installment agreements tend to default within approximately 48 months. As a result, the IRS prioritizes collecting payments swiftly, often causing frustration for taxpayers seeking longer repayment periods or smaller monthly amounts.

Understanding the various types of installment agreements is essential. There are five main variations:

Automatic Installment Agreement: This option is available for taxpayers who owe less than $10,000 and agree to pay the full amount within three years. No financial disclosures are required, making it a straightforward process for eligible taxpayers.

Streamlined Installment Agreement: Similar to the automatic agreement, this option applies to taxpayers that meet certain criteria.  If the taxpayer is assigned to a Revenue Officer and owe less than $50,000, they can set this agreement up with no financial information being disclosed, but it must be paid within 72 months or the time remaining on the collection statute, whichever is less.  If the taxpayer is assigned to the IRS campuses, then they can enter this agreement if they owe less than $250,000 and can full-pay within the time remaining on the collection statute. Again, no detailed financial information is necessary, simplifying the application process.

Short-Term Installment Agreement: Taxpayers are given 180 days to pay off their liability without needing to disclose financial details or facing a federal tax lien.

Regular Installment Agreement: For taxpayers who do not meet the criteria for a streamlined installment agreement, or are unable to pay the amount necessary to for those types of agreements, a regular installment agreement is necessary. Financial disclosures are required through IRS Form 433, which evaluates the taxpayer's ability to pay based on income and expenses.

Partial Pay Installment Agreement: This option is exactly the same as a Regular Agreement, except here the taxpayer will not be able to full-pay within the time on the collection statute.  The difference is that the IRS will revisit the taxpayer’s ability to pay every 12-18 months in an effort to see if the taxpayer can increase their payment to full-pay the liability. 

When negotiating installment agreements with the IRS, taxpayers and practitioners must be prepared to provide accurate financial information. The IRS typically evaluates the taxpayer's gross monthly income, deducting allowable expenses to determine the available cash for repayment. If the proposed monthly payment plan aligns with the IRS's goal of repayment within the 10-year collection statute of limitations, the agreement is likely to be approved.

It's important to note that while installment agreements provide relief, they are not without consequences. Interest and penalties continue to accrue on the outstanding balance until it's fully repaid. Additionally, failure to adhere to the terms of the agreement can result in default, leading to further collection actions by the IRS.

If you or someone you know needs help resolving an IRS tax debt, please contact me at (203) 285-8545 or by email at egreen@gs-lawfirm.com.

Eric L. Green, Esq.

Green & Sklarz LLC

1 Audubon Street, 3rd Floor

New Haven, CT 06511

Ph. (203) 285-8545

egreen@gs-lawfirm.com

https://gs-lawfirm.com

 

Eric Green is one of the managing partners of Green & Sklarz LLC where he focuses his practice on civil and criminal taxpayer representationEric is a nationally renowned tax expert and author/commentator of IRS civil and criminal tax matters.  Having lectured to more than 70,000 practitioners on civil and criminal tax topics, he is one of the nation’s best known lecturers in continuing professional tax education.  Eric is the host of the weekly Tax Rep Network podcast, founder of Tax Rep Network and the author of the Insider’s Guides to IRS Representation, including Resolving Tax Debts.

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Comments (3)

Sham Reddy CRS
Howard Hanna RE Services, Dayton, OH - Dayton, OH
CRS

Thanks Eric for sharing great information on tax debt repayment plans.

 The IRS aims to collect as much of the debt as possible within a relatively short timeframe. This is because historical data shows that installment agreements tend to default within approximately 48 months. As a result, the IRS prioritizes collecting payments swiftly, often causing frustration for taxpayers seeking longer repayment periods or smaller monthly amounts.

 

Feb 29, 2024 03:48 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Very helpful an great information. Thanks for sharing and enjoy your Leap Day!

Bill Salvatore, Realtor- Arizona Elite Properties

Feb 29, 2024 04:16 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Welcome to the Rain. Enjoyed your blog page, and I added you as a follower. I would love the follow back. Also, then we both get 50 points. Bill

Bill Salvatore, Realtor- Arizona Elite Properties

Mar 01, 2024 06:18 AM