Does the IRS Allow for Payment Options?
Yes, the IRS allows taxpayers who cannot afford to full-pay their back tax liability the option to pay their back taxes through monthly payments.
This is called an “Installment Agreement”. The IRS has certain guidelines to determine the payment amount and time for the agreement. And, the taxpayer must have all returns filed before it will agree to an amount. The “Installment Agreement” may pay all or part of the back tax liability depending on the circumstances and the amount of time that the IRS has left to collect the tax debt.
It’s important to remember there are competing interests at work during the negotiation of an IRS “Installment Agreement”. On one hand, the IRS wants what it considers its money, in-full, ASAP! On the other hand, the taxpayer wants a payment that is manageable and affordable, over time!
This unfortunately causes many taxpayers to agree to monthly payments which are greater than they can reasonably afford, only to result in more financial hardship. This often means that the taxpayer defaults on the “Installment Agreement” causing the IRS to begin its collection actions all over again. The lesson being – it is important to have an affordable, realistic “Installment Agreement” properly in place the first time!
What Happens Next?
After an “Installment Agreement” has been established, the IRS suspends its collection efforts and stops issuing wage garnishments, bank levies, notices and making harassing phone calls. In return, the taxpayer customarily agrees that penalties and interest continue to accrue on the unpaid portion of back tax liability for the duration of an “Installment Agreement”. Additionally, depending on the circumstances, the IRS may file a Notice of Federal Tax Lien in local court records to protect its interest until the liability is paid in full. Finally, the taxpayer must continue to be compliant with future tax filings and payments.
In a nutshell, for taxpayers who cannot afford to full pay their back taxes immediately and do not qualify for an Offer in Compromise or Currently Not Collectible status, an “Installment Agreement” may be the best alternative!
To find out whether you qualify for an “Installment Agreement” use our confidential contact form to schedule a free initial consultation.
