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Installment Agreement Options

Over the last few posts, we’ve discussed offers-in-compromise (Fresh Start and Cash Flow , Fresh Start and Net Equity, and Doesn’t Everyone Deserve a Fresh Start?).  Here’s one more fact about offers-in-compromise: about 50% of them are approved. So, for those left wondering what to do when an offer won’t work, here are some installment agreement options that you can use with the IRS.

First of all, the IRS normally wants to figure out how they can get the taxpayer to full pay as soon as possible. However, with a little persistence and, most likely, handing over your financial information by way of a Form 433, the IRS will eventually give in and accept payment in installments. Here is a summary of installment plans that are available:

  1. Guaranteed: Basically, the IRS is required to accept an installment arrangement from a taxpayer with tax debt (excluding penalties and interest) of $10,000 or less, who can pay the debt in 3 years, who has not entered into a recent installment agreement, has filed prior year returns and agrees to stay current going forward. No Form 433 is needed.    
  2. Streamlined: 
    • $25K or less – Available to taxpayers with a balance due (taxes, penalties and interest) of $25,000 or less who can pay the balance within the earlier of the expiration of collection statute expiration date or 72 months. No 433 is required.
    • $25K to $50K – Similar to the $25K or less arrangement, except that some financial information may be needed and the taxpayer must agree to paying installment with a direct debit to a bank account.
     
  3. Partial Payment: If the taxpayer can demonstrate, through a Form 433, that they can pay make some installment payments but not enough to cover the debt owed by the collection statute expiration date, the IRS does have the authority to enter into a partial payment installment agreement. This is sometimes known as the poor man’s offer-in-compromise as it can be done at a relatively low cost. However, the downside is the IRS will be checking in every 2 years and will want you to refresh the Form 433 to determine if your financial status has changed.
  4. Negotiated:  If none of the above works, you’re left with doing it the old-fashioned way. The taxpayer will be required to provide a Form 433 and will need to haggle with the IRS about the terms of the installment agreement.

Again, the agent dealing with your case will normally start up the discussion wanting to know when they can expect to received full payment for the amounts due to the IRS. If an installment plan is needed, the taxpayer or practitioner will have to persist and the agent should back down. If not, never shy away from this question: “Who’s your boss, and can I speak with him or her, please?”

Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.

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