The IRS has the ability to grant the taxpayer the option to pay its tax liability over time if it will facilitate collection of their debt. If you are unable to pay the full amount of your debt then an installment agreement may be right for you.
The IRS is driven by the ability to collect outstanding tax debt as quickly as possible. When the IRS determines that you do not have assets that can be liquidated to cover your tax liability they will begin to look for other options. One of these options is to set up a payment plan that you can afford to pay on a monthly basis. To qualify, you must have some form of disposable income that can be applied to your tax liability monthly. This income is any income left over from all your monthly expenditures.
If the IRS grants you an installment agreement, you should remember to write down the information regarding the IRS employee that accepts your application. This can come in handy if you don’t begin to receive monthly installment statements in the mail. You will need their information to verify your installment agreement was accepted in a situation where they are claiming otherwise.
Fees Associated With An Installment Agreement
To instate an installment agreement you will be asked to pay a fee of $105 or $52 depending on whether you apply for a non-direct or direct debit agreement. If your income is below what is considered by the government to be poverty, you qualify for a reduced fee of $43. If you believe you qualify for this reduced fee, simply apply using Form 13844. If you default on your installment agreement and then try to reinstate it, you will be charged $45.
How To Apply For An Installment Agreement
If you owe less than $50,000 in total amount of back taxes, then there are a number of ways to apply for an installment agreement. Keep in mind that your account must not be in the collection process for you to apply.
If you owe less than $25,000 in total back taxes, you can apply for an installment agreement by filing Form 9465 and including it on the front of your tax return. If your total tax liability is between $25,000 and $50,000 you must use Form 9465-FS and include it on the front of your tax return. The difference between the two forms is the need for the taxpayer to show their ability to pay the monthly payment on Form 9465-FS.
Automated Payment Agreement
If you would like to apply and receive immediate approval of your installment application you can go to http://www.irs.gov and apply through the Online Payment Agreement application. To qualify for this instant application you must owe less than $50,000, have all of your tax returns filed and be current with your tax payments.
IRS Must Issue An Installment Agreement In Some Situations
The IRS is actually required to give you an installment agreement if you fall under the following criteria:
1. If you owe less than $10,000 in back taxes, excluding your penalties and interest that have accrued.
2. You must have been current with paying and filing your tax returns in the previous five years. You must not have entered into an installment agreement within the last five years as well.
3. When you apply for the installment agreement, you must agree to pay your liability in full within three years.
4.You must agree to comply with tax laws and the installment agreement up to the three year time frame that you are expected to pay the liability in full.
5.You must submit financial records to the IRS if requested. This is to verify that you are unable to pay your tax liability in full without an installment agreement.
Determining Your Monthly Payment & Date Of Payment
The IRS will ask you the maximum amount that you can afford to pay each month toward your outstanding tax liability. The IRS will determine whether your maximum amount is above their required minimum. If the maximum amount you can afford to pay per month is below the minimum amount the IRS want you to pay, they will require you to fill out a Collection Information Statement.
The Collection Information Statement is another process that the IRS will ask you to complete to verify that you have no other income to pay their minimum required payment. Form 433-A or Form 433-B will be required depending on whether you are an individual or a business. These Forms will ask the taxpayer to list their assets, liabilities, income and expenses to verify they are unable to meet the required minimum monthly payment.
The IRS wants to verify without a doubt that you cannot meet their minimum monthly payment. If it is determined that you cannot through the assets and income that you provide, the IRS will usually grant you the requested maximum payment that you applied for.
Cannot Collect During Pending Installment Agreement
The IRS is not allowed to collect on your tax liability through a tax levy if you have a pending installment agreement. The IRS can also not collect through a levy 30 days after you have been rejected for an installment agreement. If you file for an appeal for the rejection of your installment agreement, the amount of time your appeal is active the IRS will not be able to collect your tax liability through a levy of assets.
Termination Of An Installment Agreement
There are three instances that the IRS lists as authority to terminate an installment agreement. These include:
1. If the IRS finds out that the information that you had given them before entering into an installment agreement is false or inaccurate.
2. If the IRS believes that your financial position has drastically changed and you are able to pay off the remaining balance.
3. If you fail to timely pay your monthly payment or you do not provide the IRS with an updated financial statement showing why you cannot pay on time.
If the IRS decides to change or terminate your installment agreement, they are required to inform you 30 days prior to the date it becomes effective. You are able to appeal the decision to terminate your installment agreement 30 days before it becomes effective and 30 days after it becomes effective.