Installment Agreements

An Installment Agreement may be your new best friend (that you didn't know about)

These days, everyone seems to want an offer in compromise (and they're being marketed a LOT – “Pennies on the dollar”, “Fresh Start", “I owed $1 million dollars and only had to pay $1), Okay, one buck for a $1 million tax bill is an exaggeration, but so are the radio commercials.

What they don’t tell you is how hard it is to qualify for an Offer in Compromise.

Sometimes an offer in compromise is the clear path forward – but here's a fact, only 3 out of 10 taxpayers qualify for an OIC. And when taxpayers try an OIC on their own – it's ZERO! Sometimes it makes sense to get set up with an installment agreement first, which lays the groundwork for what might be an effective transition into an offer in compromise later on.

It's all about the moves and it takes planning – and finesse – which is why you must have a tax resolution specialist like Tax Problem Solver to give yourself a good chance at achieving a solution.

Through an installment agreement, the IRS permits taxpayers to satisfy tax, interest, and penalty obligations over time by making agreed-upon monthly payments. There is a caveat, however, that you need to be aware of: like a credit card, Interest on the outstanding amount keeps adding up

The good news is, once an installment agreement is established, the IRS is required by law to stop enforced collection activities such as levying wages and bank accounts and placing liens on property. As long as the taxpayer remains current with the payment obligations, and required return filings, the IRS cannot re-institute enforced collection activities.

The IRS exists to squeeze as much out of a taxpayer as possible (usually to fund government spending), and they could care less about your situation.

The U.S. has a HUGE debt crisis which means the IRS is coming after taxpayers harder and looking to collect more from you.

They just care about getting whatever they feel you owe them, and if you try to work with them directly, they’ll steer you into whatever arrangement works best for them (not you).

What you need to understand is that there are installment agreement arrangements other than the ones the IRS wants to push you into.

We cover all this and more, in-depth, with our guide to "Everything you want to know about IRS installment agreements," which you can download FREE.

Here are a few IRS Installment Agreement basics

1. Installment agreements pause collection activities.

While the IRS is considering a bona fide installment agreement request – i.e., when an installment agreement request is pending – as well as during the duration of the installment agreement assuming it is accepted and the taxpayer does not default on it, the IRS pauses collection activity.

So you won’t have your wages garnished or your bank account levied during this time period.

But be warned, the IRS has an entire section of the Internal Revenue Manual devoted to “installment agreement requests made to delay collection action” because they don’t want people to just make requests for installment agreements not in good faith, meaning that the taxpayer has no intention to make payments under an installment agreement and the only reason they are requesting an installment agreement is to pause collection activity.

If an installment agreement request is flagged as being made to delay collection action, that request will not delay the collection action.

If you’re doing your best to play by the rules and are truly requesting a reasonable installment agreement that you intend to pay if the agreement is accepted, the IRS will probably put your installment agreement request in “pending” status.

This means that collection activity is paused while the IRS is considering your installment agreement as well as throughout the duration of the installment agreement itself, assuming it is accepted and you do not default.

Keep in mind that an Installment agreement has to be carefully structured.

2. A notice of federal tax lien may still be filed on a taxpayer while they are in an installment agreement.

A notice of federal tax lien is a public filing by the IRS in state or county records that inform the public that the taxpayer owes the United States money and if they were to, say, sell their house, the United States would get its share first.

If you have such an arrangement and owe such a balance, you can typically file Form 12277 to get the IRS to withdraw your notice of federal tax lien after you’ve made three consecutive direct debit payments.

And by the way, if you owe less than $10,000, the IRS won’t file a notice of federal tax lien on you.

3. You generally need to have filed all required tax returns with the IRS to be considered for an installment agreement.

According to the IRS’s 2006 Policy Statement 5-133, filing the last six years’ worth of tax returns is generally sufficient to be considered in compliance for most tax resolution purposes.

That said, you may not actually need to file all six years, particularly if the IRS has prepared a substitute.

There are strategies to employ when determining which historical tax returns should be prepared and which ones shouldn’t.

Our team of CPAs and EAs would review the situation and make that determination.

4. You also need to pay your current tax liabilities.

This means making sure that employees’ tax withholdings are adequate and that independent contractors are making their required estimated tax payments timely for at least the duration of the installment agreement.

5. Your federal tax refunds will be offset.

Don’t expect to receive any federal tax refund on a tax return you file while in an installment agreement with the IRS to actually hit your bank account since the IRS will more than likely apply it to your balance with them.

6. Penalties and interest continue to accrue on a tax liability being paid off through an installment agreement.

While an installment agreement staves off IRS collection activity, it does not prevent penalties and interest from accruing on a taxpayer’s account.

That's why it's important to solve your tax matter sooner than later because the penalties and interest tend to snowball very quickly.

7. An installment agreement is not guaranteed for everybody.

While most taxpayers qualify for at least some kind of installment agreement with the IRS, not all taxpayers are guaranteed one.

The IRS does, from time to time, reject installment agreements.

That said, if you owe $10,000 or less in taxes alone to the IRS – not including penalties and interest – you may be guaranteed an installment agreement if you request one.

If you owe $50,000 or less in taxes and assessed penalties and interest to the IRS, you may qualify for a streamlined installment agreement.

Again, a tax professional like a member of the Tax Problem Solver Team would need to review your specific situation and present you with your best options for solving your tax debt.

8. If your installment agreement is rejected, you can appeal.

If the IRS for whatever reason does not accept your installment agreement, you do have the right to appeal their decision.

As long as you file your appeal within 30 days of the rejection, the IRS still cannot take your stuff.

Generally, you would use Form 9423, Collection Appeal Request, to appeal an IRS installment agreement request rejection.

9. The IRS will have more time to collect what you owe in taxes.

In general, the Internal Revenue Service (IRS) has 10 years to collect unpaid tax liability. After that, the debt is wiped clean from its books and the IRS writes it off.

This is called the 10-Year Statute of Limitations. It is not in the financial interest of the IRS to make this statute widely known.

This last date the IRS has to collect a tax liability is called the collection statute expiration date (CSED).

However, there are certain events called "tolling events" that can extend this statute of limitations beyond 10 years, and an installment agreement is the basis for some of these events.

Here is how requesting an installment agreement tolls the statute of limitations:

Proceed with caution

As a taxpayer, you have the right to request an installment agreement. Here's the caution: if you do not know what you are doing, you can make your current financial situation worse.

What you say can be used against you.

When the IRS applies its endless pressure on a taxpayer, for a moment of emotional and stress relief, the taxpayer will surrender themselves to a proposed installment agreement by the IRS.

This is a problem for most taxpayers. The IRS will propose an installment agreement that's in their best interest. Keep in mind; they are collection people. They could care less about your situation. But most taxpayers, at that moment in time, want instant emotional relief and take the IRS's offer.

Don't Do It!

Hire a professional like us to get a deal that works for you. We speak their language – you don't.

In order for an installment agreement request to be considered processable, the taxpayer’s request must:

In addition, as mentioned before, the taxpayer must be in compliance with all filing requirements. For these purposes, the IRS generally considers a taxpayer in compliance if they have filed the last six years of tax returns.

If a taxpayer does not meet these requirements and/or does not include all the required information in their installment agreement request, then the IRS will contact the taxpayer to tell them what they can do to perfect their installment agreement request.

Hiring Tax Problem Solver Team, we’ll advise you whether or not an installment agreement is your best path forward. Allowing us to do it for you will ensure that all requirements will be met, and is the closest thing to a guarantee of acceptance by the IRS.

Once your Installment Agreement is accepted

After your IRS installment agreement is accepted, the IRS will send you and us Letter 2273C confirming the acceptance of your installment agreement and laying out the terms of your agreement.

And every year while your installment agreement is in effect, the IRS will send you a CP89, Annual Installment Agreement Statement, indicating:

At Tax Problem Solver, we negotiate what is best for you

Some of us have worked for the IRS earlier in our careers, which helps us define and present payment plans that are likely to be palatable to the IRS.

With clients ranging from individual taxpayers to large corporations, you can rely on us to successfully manage your IRS collection issues in a winning manner.

After talking to us, you’re going to sleep better tonight!

We help taxpayers everywhere in the United States.