Second In a Series
If you’re saddled with a tax bill that you can’t pay in full, the IRS offers an Installment Agreement program. Similar to the Offer In Compromise, this program allows qualified taxpayers to make monthly payments toward their tax debt, offering some relief from a sizable tax bill. We’ll take a closer look at this program and offer a general overview of its requirements and features. As with any individual tax scenario, it’s best to check with a tax pro regarding your specific case.
BACKGROUND: As part of the IRS Fresh Start initiative in 2008, the IRS made adjustments to the terms of the program, making it easier to obtain an Installment Agreement. Taxpayers owing $50,000 or less in taxes can request an Installment Agreement by filing form 433-A (Collection Information Statement) online, and have up to 72 months (6 years) to pay off their tax debt.
Taxpayers who owe $50,00 or more must provide supporting documentation along with their written request, and must negotiate their payment plan with the IRS.
REQUIREMENTS: Taxpayers will need to meet the following requirements in order to move forward with their Installment Agreement request:
- You must be current on your tax returns and have no pending tax returns from prior years. If you are self-employed, you must be current on your quarterly taxes; if you own a business, you must be current on all of your payroll tax deposits and form 941 filings.
HOW IT WORKS: As with any tax matter, it’s best to have a tax pro in your corner. If you owe over $50,000 and can’t pay off the tax debt in six years or less, you will need to file form 433-A and propose a payment plan at that time. A qualified tax pro who has reviewed your tax scenario and other finances can help you in determining a payment amount you can live with.
You will need to make that first payment at the time you file your 433-A. Keep making those payments as you and your tax pro wait to hear from the IRS. It shows good faith that you are willing to chip away at your tax debt, and that the payment is one you can live with and make each month. It can take up to several months for the IRS to reach a decision and notify you by mail.
You can make those initial payments to the local IRS service center by using the payment coupons and bar code envelopes provided to you. You have the option of using either a personal check or a bank/cashier’s check.
Once your Installment Agreement has been approved, you have two more payment options available. You can either pay via payroll deduction (your employer will need to complete form 2159), or by direct debit from your bank account.
Whatever you do, make sure you make your payments on time and for the full amount. Missing a payment or having a late payment could result in the IRS revoking the Installment Agreement.
Likewise, your IA could be revoked altogether if you provide false or misleading information on your Collection Information Statement (form 433-A), if your financial situation changes drastically, if you miss a payment, or if you fail to file your tax returns on time.
Lying to your tax pro or the IRS about your financial circumstances (failing to disclose assets, for example) can land you in serious trouble with the IRS and your tax pro. Be truthful and accurate in dealing with your tax pro and the IRS.
WHAT HAPPENS IF THE IRS REJECTS AN INSTALLMENT AGREEMENT REQUEST
If your Installment Agreement request is rejected by the IRS, this is where a tax pro can be of benefit to you. They can negotiate with the IRS on your behalf, and keep your request moving through the IRS channels, along with keeping you updated as the request works its way through the IRS maze.
A tax pro is also more familiar with the IRS chain of command, and can lessen the burden of endless phone calls, emails and letters to the IRS. At the very least, a tax pro will be able to explain the process to you free of IRS jargon, in terms that you can understand.
That alone is worth it.
If you are facing a sizable tax debt and have questions, be sure to find a qualified tax pro who can address your concerns, explain your payment options, and negotiate with the IRS on your behalf.