Many think of the Internal Revenue Service as the government’s inflexible tax collections unit. However, excepting those who engage in criminal fraud, the IRS is generally reasonably open to finding different strategies for taxpayers to meet their obligations. It understands that miscalculations, non-payment or omissions can lead to large sums that can’t get paid off in one lump sum.
Four ways to pay in installments
One solution to paying large bills is for taxpayers to use an installment agreement. There are four different types designed for different situations:
- Guaranteed Installment Agreement: This is designed for those who owe less than $10,000 (not including penalties or interest) and cannot pay the full amount within 120 days. The taxpayer pays monthly installments, and the debt is paid within three years. It does not involve a federal tax lien.
- Streamlined Installment Agreement: This is for taxpayers who owe less than $50,000 and cannot pay the balance within 72 months. The taxpayer pays a fee to set this up, which is smaller when using direct deposit to pay. There are different fees for reinstating or restructuring a previous installment agreement. It does not require a federal tax lien.
- Partial Payment Installment Agreement: If the debt is insurmountably large, the taxpayer can file a Form 433-F financial statement to report their income and living expenses. The bureau reviews the form and may agree to collect a smaller achievable sum. The taxpayer may have to liquidate some assets to pay the debt. It also requires biannual financial reviews to determine if increases in the installment amounts paid are warranted.
- Non-Streamlined Installment Agreement: Designed for those who owe $50,000 or more, this involves monthly payments. Approval is not a given, and the taxpayer negotiates with the IRS to determine the payment amount. As above, the taxpayer must file a Form 433-F and provide financial information. If the information is inaccurate, or the taxpayer failed to meet past arrangements, the IRS may refuse the taxpayer’s proposal.
They can revoke the agreement
The IRS could revoke the agreement under the following circumstances:
- Missed payments
- Not filing a tax return as previously agreed
- Inaccurate information on the F-433
- They are paying partial installments, and there is a change in the taxpayer’s finances
Guidance may be necessary
Receiving a large tax bill can be stressful, particularly if the taxpayer did not anticipate it. Tax law attorneys can provide legal guidance to address the debt, negotiate terms for payment of Non-Streamlined and Streamlined agreements, and generally help guarantee the accuracy of all the paperwork.