So you owe the IRS more than you can afford...

Installment plans can help

So, you find yourself owing the

IRS and not being able to pay? Sometimes, due to unforeseen circumstances a taxpayer is unable to pay their entire balance due to the IRS. Rather than failing to file and hoping that the IRS does not catch up to you, there is a better way to handle this. The IRS has set up a provision whereby a taxpayer can arrange to have an installment payment plan established to help pay off the taxes owed.

You can reduce or eliminate the payment of penalties and interest and avoid additional fees if you can make monthly payments through an installment agreement. It is important to note that you must first file all required income tax returns prior to being able to apply for an installment agreement. You may be able to file for an installment agreement with the IRS online if the individual balance due is $50,000 or less. You may also want to complete IRS Form 9465 Installment Agreement Request with your return.

One type of installment agreement available is a Guaranteed Installment Agreement. The IRS is required to accept an installment plan if your balance due is $10,000 or less and you meet all of the following requirements:

• For all of the following five years you have not filed late or paid late.

• All your income tax returns are filed. • Your monthly installment payments will pay off your balance in 36 months or less.

• You have had no other installment agreements in the previous five years.

• You agree to file on time and pay

• You agree to file on time and pay on time for future tax years.

The minimum monthly payment the IRS will accept is the grand total of your balance due divided by 30. The main benefit of a guaranteed installment agreement is that the IRS will not file a federal tax lien. Tax liens are reported to the credit bureaus and negatively impact your ability to obtain credit.

If you don’t meet the criteria for a guaranteed installment agreement, you should consider a streamlined installment agreement.

Taxpayers can qualify for a streamlined installment agreement if the balance owed to the IRS is $50,000 or less and the taxpayer agrees to pay off the balance in 72 months or less. As with all other installment agreements, the IRS requires you to file all your tax returns (if any are late), and you agree to file your tax returns on time and pay your taxes on time in the future. The main benefit of a streamlined installment agreement is that the IRS will not file a federal tax lien.

If you don’t meet any of the criteria for a streamlined or guaranteed installment plan you will need to negotiate your own installment agreement with the IRS if your balance due is over $50,000, or you need a repayment term longer than five years. This type of an agreement will be negotiated directly with an IRS agent, and will then go to a manager at the IRS for review and approval. The IRS will probably file a federal tax lien.

This type of agreement is often referred to as a “non-streamlined” agreement as it falls outside the IRS’s guidelines for automatic approval of the agreement. The IRS will ask that you provide them with a financial statement so they can analyze what’s the most you can afford to pay each month toward your balance. The IRS may ask that you attempt to sell off any assets or take out a bank loan, or get a home equity loan so you can pay the IRS without needing to get an installment agreement.

Rather than trying to avoid or delay an issue that will only compound, an installment agreement will allow a taxpayer to effectively deal with a debt to the IRS and avoid more problematic collection efforts by them. The problem will not go away simply by ignoring or avoiding it. The installment plan is the most cost-effective way for many taxpayers to deal with an IRS obligation greater than they can currently pay.