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We work with clients in Winchester, VA that owe back taxes and need to make monthly payments to the IRS. An “installment agreement” is an agreement between the IRS and a taxpayer to allow the taxpayer to pay their back-tax debt in monthly payments. There are various forms of installment agreement, each of which has special rules.
Taxpayers need to understand how the IRS views installment agreements when setting out to negotiate with the IRS. The IRS knows that installment agreements historically will default within 48 months, and therefore the IRS is told to collect as much as it can as fast as it can. This is an issue when taxpayers try to negotiate smaller payments for longer periods of time. The IRS marching orders to its Collection Division personnel is to collect as much as possible as quickly as possible.
There are four types of installment agreements:
1. An automatic installment agreement is an agreement where the taxpayer owes less than $10,000 in tax and:
During the past 5 tax years the taxpayer has not owed any tax or had an installment agreement and
The taxpayer agrees to pay the full amount owed within 3 years.
2. A streamlined installment agreement is very similar to the automatic installment agreement. The taxpayer must meet the following criteria:
• The taxpayer owes less than $50,000 (If the account has not been assigned to a field collections officer, this amount is increased to $250,000). The change to $250,000 is only for accounts that are with Automated Collection Service (ACS). This increase to $250,000 was a recent change just implemented in Mar 2020.
• The taxpayer has not had a back-tax debt or an installment agreement in the last 5 years
• The taxpayer agrees to full-pay the liability within 72 months or before the Collection Statute Expiration Date (“CSED”), whichever occurs first.
Just like an automatic agreement, with a streamlined agreement the taxpayer does not have to provide any financial information.
3. Regular Installment Agreement
When a taxpayer cannot meet the requirements of a streamlined installment agreement either because they owe more than $50,000 or because they are unable to repay the amount back at the rate required by a streamlined installment agreement (i.e. within 72 months), then the taxpayer will be required to complete a Collection Information Statement (IRS Form 433). The IRS will review the taxpayer’s gross monthly household income and reduce it by the allowable expenses (based on IRS Financial Guidelines). The IRS will set-upset up an installment agreement for the monthly available cash remaining after the allowable expenses are deducted. If this monthly amount will result in the IRS debt being repaid within the time remaining on the 10-year collection statute, then the agreement will be a “regular installment agreement.”
4. Partial-Pay Installment Agreement
Similar to a Regular Installment Agreement, a Partial-Pay Installment Agreement (“PPIA”) is reached when a taxpayer provides financial information to the IRS and the information shows that the taxpayer can make payments but they will not result in full payment of the tax liability within the time remaining on the collection statute. When a taxpayer’s financial analysis indicates that they can make payments, but those payments will not be enough to full-pay the liability within the time remaining on the Collection Statute, the IRS will still agree to the payment plan. These agreements, called “partial pay” installment agreements, will be just like a regular agreement except that the IRS will revisit the taxpayer every 18 months or so to see if the taxpayer’s ability to pay has improved.
As you can see, there are a number of options depending on your particular situation. A tax professional with experience and knowledge of tax debt resolution can help you.
At Tax Debt Resolution Services of Winchester VA, our mission is to help you eliminate your IRS issues and the stress the IRS has created in your life and help you get back to doing what you do best! We help our clients in Winchester VA, Strasburg VA, Martinsburg WV, and Charles Town WV to resolve their tax debts!. If you need assistance please feel free to contact me at 540-662-4432 or brianbarto@libertytax.com.
Brian Barto
24 Weems Lane
Winchester, VA 22601
540-662-4432