When a taxpayer cannot pay their IRS debt in full and have no assets to sell or a mortgage—they may qualify for an installment agreement.
An installment agreement is a compromise between the taxpayer and the IRS to pay off the tax debt. Both the IRS and taxpayer agree on how to divide the payments over a period of several months and how large or small those payments will be. Even though penalties and interest will continue to accrue on the debt as the installment agreement is in place, this options is often the most effective for taxpayers with large debts. Usually, they are the most effective when the statue of limitations for collecting tax debt runs out before the tax debt is fully paid.
Types of Installment Agreements
There are many types of installment agreements available to taxpayers. We’ve listed some of the most common types of installment agreements below:
- Guaranteed Installment Agreement
- Streamlined Installment Agreements for $25,000 or Less
- Streamlined Installment Agreements for $25,001 to $50,000
- In-business Trust Fund Express Installment Agreements
- Partial Pay Installment Agreements.
A tax professional can evaluate your situation and guide you into applying for the best installment agreement. It’s possible too that after evaluating your tax situation, another payment option like an Offer in Compromise may be a better alternative. Keep in mind that the IRS may not assist you into finding the best payment plan for your situation. It is in their best interests that you pay them back quickly and in full. We understand that this is not typically the best option for a taxpayer with an expensive tax debt.
Installment Agreement Penalties, Interest, and Fess
For every month that the installment agreement is in effect, the IRS adds 0.25% to the debt balance. This is half of what is usually added each month to a debt with no installment agreement in place. Thus, it actually saves you money to act with a n installment agreement rather than let the debt accrue itself at a rate of 0.50%.
If you qualify for a short-term payment plan, you will not need to pay a user fee. Other IRS installment agreements will have fees that vary based on your income. These user fees that typically range from $43 to $120 depending on your financial situation and how you deposit or send your money to the IRS. Also, be aware that other fees like reinstating defaulted agreements cost an additional $50.
Applying and Qualifying for an Installment Agreement
You can begin to apply for an installment agreement through the IRS website on your own, but it can be a difficult process to navigate alone. Representation from a CPA can help your case significantly. They will know the processes within the IRS and have experience applying for installment agreements.
To qualify for an installment agreement, you must file all previous tax returns and prove to the IRS that you do not have the funds to pay off the tax debt immediately. The IRS will check your income, expenditures, and assets.
Find Tax Representation Today
The IRS does not accept all appeals or applications for installment agreements. Even if you are in desperate need of tax relief, the IRS can sometimes overlook specific cases due to a lack of representation. A little help can definitely go a long way with the IRS. For a more streamlined process with experienced hands, call us at Private Tax Solutions today.