Failing to find a payment solution for past due taxes with the Internal Revenue Service (IRS) can lead to devastating consequences. Perhaps the most common payment arrangement people make with the IRS is an installment payment agreement. While setting up an IRS installment agreement seems straight forward, not knowing your options in making the arrangement can make the payments terms much more difficult than they need to be.
It is important to remember that when a taxpayer makes a payment arrangement, the IRS will generally attempt to collect as much of the taxes as it can, over the shortest time possible. While there is benefit to paying taxes sooner rather than later, many taxpayers are not able to pay their balances under the terms proposed by IRS representatives.
So what are your term options for an IRS installment agreement?
Under the new IRS fresh start initiative, installment agreements are generally broken down into three separate categories: agreements for balances less than $25,000, agreements for balances between $25,001 and $50,000, and agreements for balances greater than $50,000.
If the balance is less than $25,000, the IRS will generally accept an installment agreement over a period of 72 months and will usually not require the taxpayer to disclose his or her financial information. As long as the taxpayer abides by the terms of the agreement, the IRS will refrain from collection attempts via garnishments and levies. A key to maintaining the agreement is that the taxpayer cannot incur additional balances in future tax years, or the agreement will default. The taxpayer also has the option of having payments either directly debited from a bank account or paycheck.
Currently, if the balance is between $25,001 and $50,000, the IRS will usually still accept an installment agreement under the same terms and conditions as those with balances less than $25,000. The key difference is the IRS will generally require payment to be directly debited from a bank account.
One key feature that is often forgotten with installment agreements is that the taxpayer has the option to set a tiered payment plan. For example, if a taxpayer owed 21,600 in debt and wanted to pay it off over the course of 72 months during the first 12 months the taxpayer could make payments of $200 per month on the arrangement, and then increase the payment to approximately $340 per month for the remaining 60 months in order to pay the balance in full. This feature is important to remember when a taxpayer is seeking relief from an IRS garnishment, but does not necessarily have the funds available to make the payments required on a standard plan.
When balances are greater than $50,000, establishing an installment agreement can be difficult. As noted, the IRS tries to collect as much as it can over the shortest time possible. For these agreements, the IRS will require the taxpayer to disclose his or her financial information, which can be very invasive. While the taxpayer can still make payments over a period of 72 months, without the assistance of trained counsel, the result could be a payment plan with unsustainable terms. If your balance is over $50,000, we recommend you speak with a trained tax attorney as soon as possible, because there may be other solutions to the tax problem.
As always, ignoring the tax problem is not a solution. If you are having difficulty with the IRS, do not hesitate to contact Huntsman | Lofgran, PLLC for a free, thorough and confidential evaluation of your tax problem.