The IRS Installment Agreement

Suppose you receive a notice of unpaid federal income taxes and can't pay the total amount you owe. The Internal Revenue Service (IRS) will let you pay off your tax debt using an installment plan. Paying off your tax debt immediately can save you from paying a late payment penalty or interest. But a payment plan can reduce the financial distress a lump-sum payment can cause.

An installment agreement also stops the IRS from filing a notice of federal tax lien against you. A tax lien is the next step in the IRS collection process when you have not paid your tax bill. The IRS charges a reduced interest rate when you have a payment plan.

The IRS offers four types of installment agreements. They are guaranteed, streamlined, partial payment, and nonstreamlined.

Guaranteed Installment Agreement

To qualify for a guaranteed installment agreement with the IRS, the taxpayer must:

• Owe less than $10,000 (not including interest and penalties)
• Have filed tax returns, paid taxes owed, and not entered into another installment agreement in the previous five years
• Be unable to pay the tax liability when due or within 120 days
• Be able to pay off the tax liability within three years
• Pay at least the minimum monthly payment (tax liability, interest, and penalties divided by 30)

Streamlined Installment Agreement

A taxpayer who qualifies for a guaranteed agreement likely will be eligible for the streamlined installment agreement. This payment plan has the following requirements:

• The tax liability, interest, and penalties do not exceed $50,000
• The balance due can be paid off within 72 months
• The proposed payment is equal to or greater than the minimum acceptable payment

The minimum acceptable payment is the greater of $25 or the amount reached by dividing the tax liability, interest, and penalties by 50.

The taxpayer must pay a fee to set up the installment agreement. The IRS offers a reduced fee for a direct debit installment agreement. The IRS charges a different fee to restructure or reinstate a previous installment agreement.

Partial Payment Installment Agreement

A partial payment agreement allows the taxpayer to pay part of a tax liability. The taxpayer must complete a financial statement using Form 433-F, Collection Information Statement. Taxpayers use this form to report income and living expenses.

The IRS will review and verify the information. If the taxpayer can sell assets to pay some of the tax debt, the IRS will require the taxpayer to provide additional information.

The taxpayer must participate in a financial review every two years if approved. This may result in increased installment payments or the termination of the agreement.

Nonstreamlined Installment Agreement

A nonstreamlined agreement is an option if a taxpayer owes $50,000 or more and can make monthly installment payments to the IRS. The IRS will not automatically approve this agreement. The taxpayer must negotiate with the IRS.

The taxpayer must file Form 433-F and provide information about income, debts, living expenses, assets, and bank accounts. The form also allows the taxpayer to propose an installment payment amount.

The IRS usually takes a few months to review a proposed payment plan. The IRS may refuse a proposed agreement if:

• It considers some of the taxpayer's claimed living expenses unnecessary
• The taxpayer reported false information
• The taxpayer failed to complete a prior installment arrangement

If a taxpayer can't pay a tax liability through a nonstreamlined agreement, consider filing an offer in compromise.

Applying for an Installment Agreement

You can request an installment agreement using the Online Payment Agreement on IRS.gov or by filing a complete Form 9465, Installment Agreement Request. You can also contact the IRS at its 1-800-829-0922 phone number to discuss your payment options.

You must provide your tax identification number and detailed financial information. Your tax identification number is usually your Social Security number. There is also an application fee, which is reduced for low-income taxpayers.

Payment Methods

Taxpayers making installment payments have the following IRS payment options:

• Payroll deduction
• Direct debit from a savings or checking account using the IRS's Direct Pay service
• Check or money order
• Electronic Federal Tax Payment System (EFTPS)
• Credit card or debit card

Short-Term Options

The IRS provides short-term payment plans if you can pay off your tax debt in 180 days or less. Short-term plans resolve your tax debt quickly and don't include set-up fees.

Can the IRS Revoke an Installment Agreement?

The IRS can revoke an installment agreement if a taxpayer does any of the following:

• Fails to make a payment by the due date
• Does not file a tax return or pay taxes after entering into the agreement
• Provides inaccurate information on Form 433-F
• Is paying under a partial payment installment agreement, and a review indicates a change in their financial position

More Questions? An Attorney Can Help

Getting hit with a huge tax bill can be stressful and, if you aren't well-versed in the tax code, often unexpected. If you have questions about the process or which installment plan is right for you, contact a tax attorney in your area.