Owing additional tax to the IRS can be extremely stressful. Life comes with enough expenses as it is – so getting hit with a tax bill you were not counting on can feel like a punch in the gut. Fortunately, the IRS understands that taxpayers cannot always pay the full amount owed all at once. For this reason, they have implemented a tool called an installment agreement that taxpayers can use to pay off their debt over time.
About IRS Installment Agreements
First, the process of entering into an installment agreement may differ depending on a couple of factors – one of which is how much debt you owe the IRS.
If you owe the IRS anywhere between $1 and $10,000, there is a guaranteed installment agreement plan. With this plan, the IRS will accept an installment agreement if it pays off the balance in three years or by the Collection Statute Expiration Date (CSED), whichever is less. (The CSED represents the time the IRS has to collect any unpaid tax. There will be more about the CSED later in the blog.)
If you owe $50,000 or under and can pay the balance off in six years or less, you can apply for the IRS streamlined installment agreement.
In both cases, most taxpayers can go online and set up an installment agreement by themselves with little effort. The IRS has an Online Payment Agreement webpage that taxpayers may use to set up and even revise a current installment agreement plan. Further information about the Online Payment Agreement can be found on the IRS’s
Apply online for a payment plan webpage. For more information on IRS guaranteed and streamlined installment agreements, please review
IRS Topic no. 202, Tax payment options.
However, if you owe the IRS over $50,000, the process is a little more in-depth.
In this case, we always advise hiring a qualified tax professional to assist you with your case. The first reason is that when you owe this amount of tax debt, the IRS is not obligated to accept your installment agreement. The second reason is that there might be a more viable tax debt relief option depending on your situation, such as an Offer in Compromise (OIC) or entering into Currently Not Collectible (CNC) status. In the case of an OIC, you may be able to settle with the IRS for less than the full amount you currently owe. If you qualify for a CNC, you may be able to have your debt put on hold until you are financially able to pay. More information about Offers in Compromise can be found
here and about CNCs
here.
If you do owe the IRS over $50,000 and still want to apply for an installment agreement, the IRS will require you to:
- Fill out a collection information statement showing all your income and expenses.
- Submit statements from your bank, investment accounts, and retirement accounts.
The reason you have to submit this documentation is because, in addition to your monthly income and expenses, the IRS wants to see what real estate property you own, as well as any equity that you may have in other assets (such as traditional investments, collectibles, and digital assets) to determine how much they believe you can reasonably pay within the shortest period of time.
If the IRS approves your installment agreement, they will often try to set you up with the highest possible monthly amount because they want to ensure they get paid within the collection statute expiration date, which is generally ten years from the date the IRS assesses the tax due. The assessment date is usually not the date the return is e-filed or mailed. To obtain the assessment date, you will need to request either a tax account transcript or a record of account transcript for the tax year in question. For more information on how you can obtain these transcripts, please review the IRS webpage titled
Transcript types and ways to order them. Additionally, a qualified tax professional can also get this information on your behalf. There are several reasons why the collection statute expiration date can be extended. For instance, requesting an installment agreement, submitting an Offer in Compromise, or requesting a Collection Due Process hearing can suspend or push out the ten-year collection period.
If the IRS does not accept your installment agreement request, you do have the ability to appeal their decision. An example of this could be the IRS believes you are able to pay them $5,000 a month, but you believe you can only pay them $1,000 a month. Since the IRS believes you can pay more than you are claiming, they will try to take collection action against you, such as filing a tax lien against you or levying your accounts. (Keep in mind, they are usually required to send you a Notice of Federal Tax Lien or a Final Notice of Intent to Levy before they can take action against you.) Once you receive one of these notices, you can file a
Request for a Collection Due Process Hearing. In the Collection Due Process (CDP) hearing, you're basically disputing the IRS collection action, and proposing an alternative solution for your case. Your case will then be assigned to Appeals, where you can make your case. If Appeals denies your request, you are then able to take your issue to Tax Court, provided you timely requested your CDP hearing.
You can probably now see why we recommend hiring a tax professional whenever you owe the IRS $50,000 or more. It is very important to take the correct procedural steps when dealing with the IRS, as this can help protect you when faced with their enforcement actions.
That is why our Tax Debt Relief team is here! Whether you owe $1 or $100,000 to the IRS, we are here to provide support if you are unsure where to start. Depending on your particular situation, we also may be able to face the IRS on your behalf. If you’re not quite sure if you’d like to use our services, we get it! That’s why we encourage all potential customers to take advantage of our free, no-obligation consultation. This will help us understand the status of your case with the IRS and how we can assist you with your unique tax issue before you pay us anything!
For more information or to get started today,
click here! We’re standing by and ready to help.
