What is an Installment Agreement?
An Installment Agreement (IA) may be a form of tax relief for many, but it is not the best form of tax help a taxpayer owing tax debt to the IRS may have, especially if the taxpayer can qualify for an offer in compromise or the currently not collectible status as a means to solve their tax problem.
Even though it is not the best form of tax relief an installment agreement is still not a walk in the park to obtain from the IRS. It will require much of what the offer in compromise needs and the monthly payment can be negotiated with the IRS based on how the installment agreement is presented to them. A tax professional can provide value to taxpayers that qualify for this program by minimizing the monthly payment amount the IRS will accept.
Is it a Viable Tax Relief Solution?
Basically in an Installment Agreement you must pay all the tax debt including penalties and interest. The period of payments in the installment agreement will vary depending on the tax debt and on the financial ability of the taxpayer. It will range from 60 months to the 10 year statute of limitation.
If your CPA or tax attorney negotiates an IRS tax settlement, they will do so knowing that an IRS tax lien will be filed against the taxpayer. This applies to any tax resolution such as an installment agreement, offer in compromise or currently not collectible status. The possible exception is in the case of cash offer in compromise. If you pay your tax debt in 6 months, the tax lien will be released shortly after that.
Not All is Quiet on the Western Front
Is the installment agreement a slam dunk with the IRS? Not quite. The IRS will grant you an installment agreement to solve your tax problem at its own discretion. It will do so if it deems it to be in the best interest of the IRS to enter into such an agreement as a method of a settlement. It must see that the installment agreement as a way to enhance IRS collections.
The exception to that is when you owe less than $10,000 including penalties and interest. The IRS is required to give you an installment agreement. They will do that if you do not have any unfiled tax returns and that you specifically filed all your returns in the past 5 years and paid taxes on those returns.
You Can Appeal
If the IRS rejects an installment agreement, your CPA or tax attorney can provide tax help by appealing that decision. There is tax relief from IRS collections during the collection appeal. The IRS cannot take any collection actions against you such as an IRS levy as long as your case is in appeals or even 30 days after the appeal decision.
Since we are talking about appeals, as soon as you negotiate a tax debt settlement such as an installment agreement, the IRS will cease all tax collection actions against you as long as the agreement is in place.
The same can be said about an offer in compromise and currently not collectible status. You must remember that if you violate the terms of the agreement an IRS levy may be in the works.
Few things you must remember about the installment agreement as a tax resolution option to your tax problem. You must bear in mind that in addition to filing a tax lien, the interest and penalties continue to accrue. The IRS will keep any tax refund in the future you may be entitled to. Finally know that there is a fee they will charge you for the agreement.
Is it a Permanent Fix For A Tax Problem?
The IRS can alter or terminate the agreement. Most likely this will not happen unless two events are perceived by the IRS. One of the events is when the IRS thinks that your financial situation has changed substantially to afford you to pay more to settle your tax debt, or if the IRS determines that collection of your back taxes is in jeopardy.
To negotiate an installment agreement for you, we must decide first that an installment agreement is your last resort and that you don’t qualify for either an offer in compromise or currently not collectible status. We do that by collecting financial information about your assets and liabilities and income and expenses.
Unless, and until we do that, we cannot determine with absolute certainty which tax help alternative you may qualify for. We may have an idea about the nature of such tax help in our initial conversation which may be a good indicator, but the final verdict will not be rendered until we have your documentation in our hands. Then we will decide the best tax resolution settlement available to suit your case and solve your IRS problem.
Big Players Can Also Have Tax Relief
A doctor has an income of $15,000 per month and owes $150,000 tax debt to the IRS. He cannot pay the full amount immediately but knows he can maybe pay $5,000 each month to the IRS but it will be a struggle. He’s married with 4 kids and owns the house they live in. He has retirement accounts that are worth more than the tax debt.
The doctor has too many assets to qualify for an offer in compromise so he decides to call the IRS himself and thinking there is no need to use a tax professional. The IRS determined the minimum payment they would accept would be $9,000 each month because of the information he provided on the phone call and also what the IRS representative identified on their system.
After the call, the taxpayer called a tax resolution firm to discuss what his case and relay what the IRS said to him. By using the same information he provided the IRS the tax resolution firm representative determined his payment each month could be even less than the $5,000 he was originally desiring.
Factors that were used include income, expenses, and assets of course but the focus with an IA may be on the unique factors such as family size and household details.