If you cannot fully pay your tax debt and do not qualify for an offer in compromise, you may want to consider requesting an IRS installment agreement or IRS payment plan. (You can also request a payment plan from the Virginia Department of Taxation.) An installment agreement allows you to pay your tax debt over time in equal monthly payments. However, requesting a payment plan is not in every individual’s best interests. An experienced tax attorney can help you understand all your options.
Am I Eligible for an IRS Payment Plan?
In 2012, the federal government liberalized its installment plan processing as part of the Fresh Start Program. In order to be eligible for an installment agreement, you must be up-to-date on your tax return filings. Other eligibility requirements may apply if you are self-employed or have employees. However, if you owe less than $50,000, have filed and paid your taxes for the past five years, and meet other criteria, you may have guaranteed eligibility for a payment plan. And, if you owe the IRS $50,000 or less (including taxes, interest, and penalties), you may able to use a streamlined application. This simplified process can be completed online.
In September, 2016, the IRS instituted a year-long pilot program to test expanded criteria for streamlined installment agreement processing. Under this new program, some taxpayers with balances between $50,001 and $100,000 may be able to obtain an installment agreement of up to 84 months without providing detailed financial information.
If you cannot use the streamlined application, you must submit detailed financial information and a series of forms (including a Collection Information Statement). This is a more complicated and time intensive process. Once you file your paperwork, the IRS will assess your ability to pay your tax debt. They will then either approve or deny your request.
However, many people opt not to request an IRS payment plan because:
- Interest and penalties continue to accrue during repayment,
- The interest rates may be higher than bank rates, and
- You also must pay a user fee.
Instead, they use bank loans, mortgages, and home equity loans to pay off their tax debt. A tax lawyer can evaluate your claim, educate you about your options, and formulate a personalized solution that meets your needs.
Requesting an IRS Installment Agreement
If you have a large tax debt, the IRS payment plan process involves a detailed financial and legal analysis. You must convince the government that your financial statements are accurate, your living expenses are reasonable, and that your proposal meets IRS standards. It may be in your best interest to consult with an experienced tax lawyer before you file a proposed payment plan. A lawyer can help you understand your legal rights and responsibilities and formulate a realistic plan. And, if the IRS rejects your installment agreement, a lawyer can help you with an appeal.
Paying Off an IRS Installment Agreement
If your IRS installment agreement is approved, you must meet certain duties. This includes paying each monthly installment on time, filing future tax returns, and promptly paying future taxes. While you are paying off your IRS payment plan, your tax refunds will be applied to your debt.
If you default on an IRS installment agreement, there are serious ramifications. The IRS can revoke your plan, initiate collections actions, and assess additional fees and penalties. If your payment plan is revoked, you may have the right to appeal. An experienced tax lawyer can help you understand your claim, file the appropriate forms, and negotiate on your behalf.
Unfortunately, if you owe the IRS over $50,000, an installment plan will not prevent it from filing a tax lien against you (potentially damaging your credit). However, the IRS may be unable to levy your property under certain circumstances.
Do You Need Help Negotiating an IRS Payment Plan or IRS Installment Agreement?
We provide personalized attention and advice that will help you create a manageable payment plan with the IRS. Since nonpayment can result in severe consequences, we will work with you and the IRS to build the best solution possible. Contact the Sodowsky Law Firm today for help.