When faced with a significant tax debt that you can pay in a lump sum, the IRS provides a resolution option through installment agreements. These agreements allow you to repay your tax balance over time in manageable monthly installments, offering financial relief and a path to resolving your tax liability. In this expanded discussion, we will explore what IRS installment agreements entail, who can qualify for them, the steps to secure an installment agreement, and the role of professional representation from a tax attorney or enrolled agent in this process.
Understanding IRS Installment Agreements:
An IRS installment agreement is a formal arrangement that allows taxpayers to pay their outstanding tax debt over an extended period. Instead of a daunting lump sum payment, taxpayers can make manageable monthly payments until the debt is fully satisfied. This option is particularly beneficial when the IRS deems that you have the “ability to pay” the balance over time, but paying it all at once would create a financial hardship. The IRS also allows for installment agreements that only partially pay the tax balance due. To qualify for these options, the IRS will typically request supporting documentation to prove what your current ability to pay the back tax balance is.
Who Can Qualify for IRS Installment Agreements:
Qualifying for an installment agreement depends on your financial situation and the total amount owed. Here are some common types of installment agreements and their criteria:
- Fresh Start Initiative: This initiative is available to taxpayers who owe under $50,000. Under this program, you can pay the tax debt over 72 months (6 years). Since this agreement typically includes paying the full tax balance, including penalties and interest, our team of Tax Professionals may also attempt to secure Penalty Abatements to reduce the overall balance due.
- Partial Pay Installment Agreement: If you face a tax debt that seems insurmountable and cannot be paid in full, a partial pay installment agreement offers hope. This is a financials-based resolution where you must prove to the IRS that you are unable to pay the entire tax balance due to financial constraints. The monthly payment amount is determined based on your monthly disposable income or the funds available at the end of each month after covering IRS allowable expenses. Submitting form 433A along with supporting documentation is typically requested by the IRS to substantiate the claim that you are unable to pay the full balance due.
Securing an IRS Installment Agreement:
Securing an IRS installment agreement involves several key steps:
- Assessment of Financial Situation: Our team of Tax Professionals will review your financial situation thoroughly as the IRS will typically request to see this information as well – especially in partial pay installment agreement resolutions. This includes analyzing your income, expenses, assets, and liabilities to determine the most suitable installment agreement option.
- Application Submission: Prior to submission, our team will review the options we believe can be secured based upon your unique financial situation. Once we review this with you, we will move forward with a request for an installment agreement with the IRS. This application includes details about your financial circumstances and proposed monthly payment amounts.
- Payment Negotiation: Our professionals will work to negotiate a monthly payment that is manageable for you based on your current financial situation and the IRS’s criteria for installment agreements.
- Collection Statute Expiration Date: Think you might pay the IRS forever? Actually, the IRS has limited time to collect the balance due. The Collection Statute Expiration Date (CSED will often play a role in determining the length of time over which you will make installment payments. This date marks when the IRS’s ability to collect the debt expires, typically within 10 years from when the balance is initially recorded. Our team can also help navigate factors that may extend these dates.
- Regular Payments: Once the installment agreement is approved, you must make regular monthly payments to the IRS based on the type of installment agreement that was secured.
- Refund Seizure: Terms of installment agreements often indicate that any future refunds will be seized and applied to the back tax balance. Our team of tax professionals can help guide you on proper withholdings or estimated tax payments that should be made to help maximize your overall savings.
- Tax Lien: Depending on the overall balance and type of installment agreement, the IRS may file a tax lien to protect their interests. This tax lien does not imply immediate property seizure. However, the tax lien can impact the sale of the property or the inheritance of the property
The Role of Professional Representation:
Professional representation, such as a tax attorney or enrolled agent, is invaluable when pursuing an IRS installment agreement:
- Negotiation and Advocacy: Tax professionals are skilled negotiators who can advocate for your best interests when working with the IRS to secure an installment agreement. They can help ensure that the agreed-upon payment terms align with your financial capabilities.
- Financial Analysis: Tax professionals assist in preparing a comprehensive financial analysis that substantiates your need for an installment agreement. This analysis is crucial for demonstrating your inability to pay the full tax debt in one lump sum.
- Communication: Professional representation handles all communication with the IRS on your behalf, streamlining interactions and ensuring that your rights are protected throughout the process.
- Compliance Management: Tax professionals help you remain in compliance with the terms of the installment agreement, ensuring that payments are made on time and preventing any potential disruptions or defaults of the installment agreement.
In conclusion, IRS installment agreements provide an option to taxpayers facing overwhelming tax debt. These agreements provide a structured way to gradually repay or partially pay the IRS over time. However, navigating the installment agreement process can be complex, requiring a deep understanding of tax law and effective negotiation skills. Seeking professional representation from a tax attorney or enrolled agent ensures that your interests are protected, and the most favorable terms are secured. With our expertise, you can find relief from the burden of tax debt and work toward financial stability.
Ready to get your installment agreement set up? Contact our team today for your free initial consultation to get started.