Installment Plans to Pay IRS Debt Text Size:

At some point, you may find yourself owing taxes to the IRS around tax time. If you can't pay the full amount due on your federal income taxes, you may be able to work out an arrangement with the IRS to pay in installments.

In order for the IRS to consider making an agreement for an installment plan:

• You must have filed returns and paid your taxes for the five years immediately prior to incurring the tax debt you cannot pay now all at once
• If you're self-employed, you must be up to date on your quarterly estimated tax payments
• You must promise to file tax returns and pay all tax due while the installment agreement is in effect
• You must not have had an installment plan agreement with the IRS within the past five years

There are different types of installment plans depending on the amount you owe. If you owe $10,000 or less (not including penalties and interest), you may be eligible for a guaranteed installment plan agreement if you are or will be able to pay the entire amount you owe within three years.

If you owe $25,000 or less, you may qualify for what the IRS refers to as a streamlined installment agreement, if you are or will be able to pay the entire amount you owe within five years.

If you owe more than $25,000, you will have to provide extensive financial information to the IRS in order to be able to negotiate an installment plan.

Advantages and Disadvantages

The positive side of getting the IRS to agree to installment payments is that you won't have to worry about the IRS taking what's in your bank account or seizing your property to pay your back taxes.

However, the disadvantage of paying your tax debt over time is that penalties and interest will still continue to add up while you're paying. So you'll end up paying more than if you paid the debt right away.

Negotiating an Installment Agreement With the IRS

You can start the installment plan negotiation process by sending in what's called a Form 9465.

If you're unsure about the amount of monthly payment you can afford to make, the IRS can help you figure it out. Basically, the IRS will figure out what discretionary income you may have left over after you pay your "necessary living expenses" each month. This is the money you can apply toward your tax debt.

If the IRS decides not to accept your offer to make installment payments, you'll receive a formal rejection letter. The IRS will reject your installment plan offer if:

• IRS personnel thinks the living expenses you've detailed aren't all "necessary"
• You've provided untruthful or incomplete information on your application form

It's possible that a simple phone call to the IRS agent responsible for the rejection may shed some light on the reason for the rejection, and allow you to tweak your offer enough to make it acceptable to the IRS.

If you decide to appeal the rejection of your installment plan proposal, you must file a written appeal within 30 days of the date of the IRS's rejection letter.

Once your installment plan is approved, it's important to carefully honor your agreement. The IRS will terminate your agreement (and demand immediate payment of all taxes, penalties and interest due) if you:

• Don't make your installment plan payments when they're due
• Don't pay your other taxes (such as those currently due) as they come due
• Have provided inaccurate or incomplete information on your installment plan offer and the IRS finds out about it
• Have had significantly improved financial circumstances and the IRS finds out about it without you having first told them

The IRS may require you to provide updates on your current financial status every couple of years, even if you're making your installment plan payments on time.

Question For Your Attorney

• What are my chances of negotiating an installment plan with the IRS?
• I had an installment plan agreement with the IRS 3 years ago and I won't be able to pay my taxes now. What can I do? Will I be able to work something out with IRS?
• Given my situation, is it better for me to try to negotiate an installment plan or should I try to pay my taxes all at once?

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