The IRS has the ability to give the taxpayer the option to pay their tax liability over time if it makes it easier to collect their debt. If you can’t pay the full amount of your debt, then an installment agreement may be right for you.
The IRS is driven by the ability to collect outstanding tax debt as quickly as possible. When the IRS determines that you have no assets that can be liquidated to cover your tax liability, it will start looking at other options. One of these options is to set up a payment plan that you can pay monthly. To qualify, you must have some type of disposable income that can be applied to your monthly tax liability. This income is any income left over from all your monthly expenses.
If the IRS grants you an installment agreement, you must remember to enter information about the IRS employee who accepts your request. This can be helpful if you don’t start receiving monthly statements in the mail. You will need your information to verify that your agreement was accepted in a situation where they claim otherwise.
Fees associated with an installment agreement
To set up an installment agreement, you will be required to pay a fee of $105 or $52 depending on whether you request a direct or non-direct debit agreement. If your income is below what the government considers poverty, you qualify for a reduced rate of $43. If you think you qualify for this reduced rate, simply apply using Form 13844. If you break your agreement and then try to reinstate it, you will be charged $45.
How to request an installment agreement
If you owe less than $50,000 in the full amount of back taxes, then there are several ways to request an installment agreement. Please note that your account must not be in the collection process for you to apply.
If you owe less than $25,000 in total back taxes, you can request an installment agreement by filing Form 9465 and including it on the front of your tax return. If your total tax liability is between $25,000 and $50,000, you must use Form 9465-FS and include it on the front of your tax return. The difference between the two forms is the need for the taxpayer to demonstrate their ability to pay the monthly payment on Form 9465-FS.
Automated Payment Agreement
If you would like to apply and receive immediate approval of your installment application, you can go to http://www.irs.gov and apply through the online Payment Agreement application. To qualify for this instant application, you must owe less than $50,000, have all your tax returns filed, and be current on your tax payments.
The IRS must issue an installment agreement in some situations
The IRS is actually obligated to give you an installment agreement if it falls within the following criteria:
one. If you owe less than $10,000 in back taxes, excluding your penalties and accrued interest.
two. You must have been current with the payment and filing of your tax returns for the last five years. You also must not have entered into an installment agreement in the last five years.
3. When you apply for the settlement, you must agree to pay your liability in full within three years.
Four.You must agree to comply with tax laws and the installment agreement up to the three-year period in which you are expected to pay the obligation in full.
5.You must submit financial records to the IRS if requested. This is to verify that you cannot pay your tax liability in full without an installment agreement.
Determination of your monthly payment and payment date
The IRS will ask you the maximum amount you can pay each month for your outstanding tax liability. The IRS will determine if your maximum amount is above the minimum required. If the maximum amount you can pay each month is less than the minimum amount the IRS wants you to pay, they will ask you to complete a Collection Information Statement.
The Collection Information Statement is another process the IRS will ask you to complete to verify that you have no other income to pay the required minimum payment. Either Form 433-A or Form 433-B will be required depending on whether you are an individual or a business. These forms will ask the taxpayer to list his assets, liabilities, income and expenses to verify that he cannot meet the required minimum monthly payment.
The IRS wants to verify beyond a shadow of a doubt that you can’t meet their minimum monthly payment. If it is determined that you cannot through the assets and income you provide, the IRS will generally give you the requested maximum payment that you requested.
Cannot collect during pending installment agreement
The IRS cannot collect your tax liability through a tax lien if you have an outstanding installment agreement. The IRS also cannot collect through a lien 30 days after it has been disallowed for an installment agreement. If you file an appeal of your installment agreement denial, the amount of time your appeal is active, the IRS will not be able to collect your tax liability through an asset lien.
Termination of an installment agreement
There are three instances that the IRS lists as authority to terminate an installment agreement. These include:
1. If the IRS finds that the information you provided to them prior to entering into an installment agreement is false or inaccurate.
2. If the IRS believes that your financial position has changed drastically and you can pay the remaining balance.
3. If you don’t pay your monthly payment on time or don’t provide the IRS with an up-to-date financial statement showing why you can’t pay on time.
If the IRS decides to change or terminate your installment agreement, it must notify you 30 days before the effective date. You can appeal the decision to terminate your installment agreement 30 days before it goes into effect and 30 days after it goes into effect.