How to Apply for an IRS Installment Agreement to Pay Your IRS Tax Debt

How to Apply for an Installment Agreement to Pay Your IRS Tax Debt

In many occasions when you owe money to the IRS for unpaid tax, you may be unable to settle your debt at once. Having in mind that the total sums sometimes can exceed tens of thousands of dollars it’s understandable that most people won’t have that kind of extra cash to pay the owed amount in one go. In fact, statistics show that only 5% – 10% of tax debt cases are paid in full. What happens with the remaining? The most common scenario sees taxpayers applying for Installment Agreements.
 
The IRS offers payment alternatives if you can’t pay in full. A short-term payment plan may be an option. You can ask for a short-term payment plan for up to 120 days. A user fee doesn’t apply to short-term payment plans.
 

Why Should you Apply for an Installment Agreement?

Many people who can’t afford to pay their tax debt try to get an Offer in Compromise (OIC). However, as we’ve written before, this process is complex and you must cover specific requirements to be granted an OIC. In reality the figure shows the number of cases resolved through an Offer in Compromise is very low only 0.37%. In some other cases (15%) the tax debtors will be deemed Currently Non-Collectible (CNC) for any particular case. CNC is only awarded to taxpayers who are broke, living under the poverty line. After 10 years, their tax debt is extinguished.
 
You can also ask for a longer term monthly payment plan or installment agreement. A $149 user fee applies to monthly payment plans or installment agreements that can be reduced to $31 if payments are made by direct debit.
 

How to Apply for an Installment Agreement (IA)?

  • First, you need to know exactly how much you owe in total. That figure is formed by your due tax, in addition to any penalties and interest charges. You can find out the total amount by calling IRS number 1800-829-3903 and requesting copies of your tax returns. Make sure you are current and compliant.
  • Your next step would be to file Form 9465.
  • You can also use the online payment agreement application, which can be found on the IRS website (link here please). Another option would be to request an IA over the phone by calling 800-829-1040 or the number shown on your tax bill.
  • Indicate the type of Installment Agreement you want to apply for and prepare all the necessary documentation for all included periods and tax types.
  • Set up a payment plan by choosing how, when and how much you want to pay every month. Keep in mind that if you decide to set up a direct debit you will be charged an one-off fee of $31 and if you opt for a payment plan without a direct debit it will cost you $149. You must also remember to make the payment on the same date as indicated in your application every month. You are required to pay the minimum amount as agreed on your plan, but you can top it up at any point.   There are various methods of payments, such as money order, automated withdrawals from your account, credit card, check and federal online payment system EFTPS.gov.
You may also be able to qualify for online payments if:
  • You are an individual who owes $50,000 or less in total and are current on all your returns.
  • You are a business that owes $25,000 or less in payroll taxes and are current on all returns.

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Types of Installment Agreements

There are four types of Installment Agreements (IA), which you may be able to qualify based on specific Internal Revenue Manual guidelines:

1. Guaranteed Installment Agreement 

For you to qualify for this type of IA, you need to be owing money on your income tax only and the amount must not exceed $10,000, excluding penalties and interest (P&I). You are not required to file any liens or asset disposition and you will have a period of 36 months to settle your debt by regular payments or direct debit.

How to apply for Guaranteed Installment Agreement

  • You (and your spouse if you’re married) haven’t filed a late return or paid late in the previous five years. This does not include extensions of time to file. It means missing a tax deadline without taking any action. 
  • You agree to file on time and to pay on time in future tax years.
  • You agree to pay the amount you owe within three years.
  • You don’t have an open bankruptcy proceeding.

Benefits of guaranteed Installment agreement

  • IRS will not file a federal tax lien or levy against you for outstanding taxes due. 
  • Tax liens, like mortgage liens, give the IRS the right to certain assets if you don’t pay.
  • A tax levy gives the IRS the right to seize certain assets.
  • Both liens and levies can be reported to the credit bureaus and negatively impact your credit score.

2. Partial Payment Installment Agreement (PPIA)

This is the type of IA that is suitable for any kind of debt of any amount. However, it will require you to give full disclosure of your financials, asset disposition in all cases, file liens and undergo investigation and 2-year reviews. The payment period is in collection statute expiration date (CSED) + 5 years + 1 year.

How to Qualify for Partial Payment Installment Agreement 

  • You must owe the IRS at least $10,000, including interest and penalties.
  • You can’t be in bankruptcy nor can you have ever had an offer in compromise accepted by the IRS.
  • Any assets you own will play a pivotal role in whether you’re approved. You must be unable to liquidate them for some reason, or perhaps their equity isn’t sufficient to cover your IRS debt if you were to liquidate them. Nor is the equity sufficient for you to borrow money using them as collateral.
  • Finally, selling your assets would create a financial hardship or your spouse jointly owns these assets and is unwilling to liquidate them. She can’t also be liable for the tax debt in question.

Requirements for a Partial Payment Installment Statement

  • You have some ability to pay the IRS, but you cannot pay in full by the CSED.
  • Owe over $10,000 in tax debt, penalties, and interest.
  • Completed Form 433 (Collection Information Statement).
  • Completed Form 9465 (Installment Agreement Request) or applied for Installment Agreement online.
  • Filed all past tax returns.
  • Are not in bankruptcy.
  • Have not had an Offer in Compromise accepted.
  • Have no assets or can’t access equity in assets because:
    • Assets are not sellable.
    • Selling assets would not cover tax debt.
    • Assets are not sufficient collateral to obtain a loan.
    • Off limits, because your non-liable spouse does not want their part of the assets sold.
    • Selling the assets would create financial hardship.

Benefits of Partial Payment Installment Statement (PPIA)

  • With a partial pay installment agreement, you don’t have to pay your entire tax debt. That is the big win. Unfortunately, you first need to prove to the IRS that you are unable to pay the full amount before the statute of limitations ends. Other installment agreements, particularly those for less than $50,000, don’t require much in the way of financial documentation.
  •  Unlike other installment agreements, partial pay installment agreements come with a 2-year review of your financial situation. If you now own assets you could sell or your income has grown significantly, the IRS may reconsider the terms of your PPIA.
  • Partial pay installment agreements also take longer to process than other installment agreements. You can process a streamlined installment agreement online with a few clicks, but a PPIA may take up to a month to complete.

3. Streamlined Installment Agreement (SIA)

The Streamlined Installment Agreement is available to taxpayers who owe less than $25,000 in tax debt. This includes the total amount of owed tax, penalty charges and interest. The IRS is currently conducting a test, which allows individuals to take advantage of the SIA if they owe between $50,000 and $100,000. You can read more about the test and why the Agency has decided to expand the bracket on the IRS website

Benefits of the Streamlined Installment Agreement

The SIA is very beneficial to most individual taxpayers who find themselves owing the IRS.

  • Individuals can have tax liens withdrawn if they owe less than $25,000 and have set up a direct debit SIA or payroll deduction SIA.
  • During the IRS test (ending September 2018), taxpayers with debt between $50,000 and $100,000 can pay what they owe within 84 months if they pay before the CSEDs and they used a direct debit or payroll deduction as a payment method.
  • Businesses with tax debt under $25,000 can pay the amount within 36 months through a Streamlined Installment Agreement.

Requirements to Qualify for SIA

Individual taxpayers must:

  • Owe less than $100,000 including interest and penalties for the lifetime of the agreement.
  • Agree to make payments over 84 months if they owe less than $50,000.
  • Have filed all past tax returns.
  • Ensure that If filing jointly with a spouse, neither one of them have entered any installment agreement for the past 5 years.
  • Not be filing for bankruptcy.
  • Be willing to pay a fee to set up for a Streamlined Installment Agreement. The fee for setting up a direct debit is $31 and if you set up an agreement with OPA but prefer to pay by check or money order, the fee is $149. Other fees may apply as well.

How to Apply for a SIA

The application process for a Streamlined Installment Agreement is not too complicated. You should:

  • Get in touch with the IRS to find out if you are up to date with your tax return filing. It is important to be fully compliant before you apply for SIA.
  • If you are an individual taxpayer who owes under $50,000 or a business who owes $25,000 or less, you can use the IRS Online Payment Agreement (OPA), call the IRS, or mail in Form 9465. If your balance exceeds the above numbers you can only apply through Form 9465.
  • Choose a payment date. It must be between the 1st and the 28th, but you can pick any date that suits you best within that bracket. Make sure you don’t miss the payment date because paying late can terminate the agreement.
  • Choose your payment method. It could be a direct debit or a payroll deduction, but depending on the balance you owe tax liens may be applied.
  • It is always a good idea to use the services of a licensed tax accountant to help you with the forms and the process and ensure the best outcomes for your situation.

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4. Verified Financial Installment Agreement (VFIA)

There are other types of financial agreements that can help individuals and businesses with larger debts than those discussed above. If you are an individual taxpayer owing more than $100,000 or a business with a tax debt of over $25,000 you can take advantage of the Verified Financial Installment Agreement. The main difference between SIA and VFIA is that with the latter you have to disclose your full financial information by submitting a Collection Information Statement. In that statement you will have to give details about your:

  • Assets
  • Debt
  • Income
  • Expenses

Requirements for Verified Financial Installment Agreement (VFIA)

To enter a VFIA you must:

  • A business that owes over $25,000 or an individual who owes over $50,000 and does not want to pay via direct debit or payroll deduction, or owes more than $100,000.
  • Complete Form 9465 (Installment Agreement Request).
  • Complete of Form 433 (Collection Information Statement). This document has different versions. Talk to a professional tax accountant to find out which version you need to complete in your unique situation.
  • Not be in bankruptcy.
  • Not have had an Offer In Compromise accepted.
  • Be fully compliant (tax returns and past payments up to date).
  • Not have had an IRS Installment Agreement in the last five years.

How To Apply for a VFIA

The first part of the application process is easy. You should:

  • Submit Form 9465 (Installment Agreement Request) by regular mail.
  • Submit IRS Form 433 (Collection Information Statement) by post. In most situations, 433-B is for businesses and 433-F is for individuals but we recommend consulting with a tax accountant to avoid mistakes.
  • Send your tax return with the forms unless you file electronically.
  • Check the correct IRS address to send your forms to. It depends on where you live.

There are special requirements when filling Section 433-F for individuals. Because the Collection Information Statement goes in much detail, we advise that you look for a professional who can help you fill out all the information correctly. Failure to do so would most definitely result in denial of your VFIA.

5. Installment Agreements for Business

In Business Trust Funds (IBTF) in the classification used for business IA. Express IA for up to $25,000 tax debts for payroll taxes for example. Business financial statements disclosure is not required but an automatic debit IA is required. The payment period is 24 months. For any debt over $25,000, full business financials disclosure is required, the IRS will file a lien and collection period may extend up to 10 years.
 
Individual taxpayers who owe more than $50,000 and businesses that owe more than $25,000 must submit a financial statement with their request for a payment plan.

Some Helpful Tax Tips

There are a few things you need to know that may come in handy when dealing with the IRS and trying to get an Installment Agreement for settling your debt.

  1. File all your tax returns – your application will be rejected if you have not filed your back taxes before you apply for an Installment Agreement.
  2. If you are paying by check or money order you need to allow 7-10 days for the IRS to receive your payment, so make sure you send it well in advance before the due date. Failure to do so may result in penalty charges or even cancellation of the agreed payment plan.
  3. If you owe more than $50,000 as an individual you won’t be able to use the online payment options, so in addition to the paper Form 9465-FS, you need to file also Form 433F, Collection Information Statement. If your application is approveyou will have to pay additional admin fee between $43 and $105 depending on your income.
  4. Try to maximize cost and minimize income and handle all tax accounts at the same time. In some cases getting 3 bank loan denials (intended to pay your debt) prior to your IA application can make its acceptance more likely.
  5. Contact an experienced CPA, Attorney or Enrolled Agent (as they are the only ones authorized before the IRS) who will be able to help you with crafting the best payment plan according to your personal circumstances and will stand a firmer ground on your behalf in the negotiations with the IRS. Also, you would certainly need the assistance of a professional if you don’t meet the IRS criteria for automatic acceptance of an installment agreement.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

If you are currently dealing with IRS debt, be sure to contact us and discuss which debt resolution option would be most beneficial for your present situation and future goals and opportunities.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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