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  • Robert Nath

Installment Agreements

Updated: Mar 14, 2022



What is an installment agreement?

An installment agreement is a contract between you and the IRS to pay your back taxes in installments. You can find an excellent reference, with links to instructions and paperwork, at http://www.irs.gov/businesses/small/article/0,,id=108347,00.html.

The law does not require the IRS to allow you to pay in installments (except in a small number of cases), but the IRS does have this authority and uses it millions of times a year. During the installment agreement process, you may also hear the phrase, “voluntary payment.” A voluntary payment is not an installment agreement. It is a payment you make outside of a formal installment agreement (and not under IRs levy or bankruptcy). Sometimes “voluntary payments” amount to an informal installment agreement .

How does the IRS determine how much I can pay?

You begin the process by filling out one of three types of “collection information statements: Form 433-F (individuals), Form 433-A (also individuals, but with more detail) or Form 433-B (businesses). You then send this to the IRS, or tell them the numbers over the phone, and negotiate for a payment plan.

This should be an interactive process between you and the IRS. Don’t hesitate to negotiate for a deal you can live with. For individuals, normally the IRS will use its Collection Financial Standards (http://www.irs.gov/individuals/article/0,,id=96543,00.html) to determine your “allowable” deductions from income for installment purposes. The IRS will also first see if you can pay in full, or some part by a lump sum down payment.

The bottom line is this: You and the IRS will try to work out a monthly plan that you can afford to pay your taxes over time.

What if we can’t come to agreement?

Then you can ask for an “independent review” of your installment agreement request, and an appeal to the Independent Office of Appeals if necessary. You can also go to court, though it’s rare to see a court case involving installment agreements.

How long to installment agreements last?

Usually, at least two years. Then IRS can review them. IRS can review these even sooner if it wants, or if you notify the agency that, say, your income has declined, or your expenses have increased.

What is a “partial pay installment agreement?”

This is an installment agreement that will not fully pay your entire tax liability within the statute of limitations. The IRS aims for “full payment,” but sometimes your income and expense numbers don’t justify that result.

Will IRS file a notice of lien if we agree on an installment amount?

In most cases, yes. If you owe over $10,000, lien filing is normal unless you convince the IRS that filing a notice of lien will damage your ability to pay. In the real world, that is hard to do.

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