Paying the IRS with an Installment Agreement

If you owe money to the IRS, you may already be facing financial hardship.  This may be the reason you were unable to pay your taxes in the first place.  Now you need to pay the taxes you owe along with the IRS penalties and interest accrued on your debt. Many people simply do not have the money to pay such a large lump sum to the government. Fortunately, the IRS offers several ways to make this debt more manageable, one of which is an Installment Agreement.

Weigh the Pros and Cons of an Installment Agreement

When you obtain an Installment Agreement, you make smaller monthly payments to the IRS at a rate agreed upon by both parties. Installment Agreements are easier to obtain since the IRS adopted the Fresh Start program in 2012. Typically, the IRS will grant an Installment Agreement to anyone who requests one, provided that you have a previous history of paying your taxes and all your current taxes are filed and up-to-date.

The biggest advantage of an Installment Agreement is that the government cannot file a tax lien against you while you are making your payments, if one has not already been filed. However, there are some drawbacks, including the interest that continues to accrue.  Combined with IRS penalties, interest can reach 8% to 10% a year.

If you are considering entering into an Installment Agreement with the IRS, Koontz & Associates, PL can help you examine your options and choose the best way to manage your debt with the IRS. If you decide that an Installment Agreement is the right solution for you, we will help you through every step of the process from filing an application to making your final payment and obtaining the release.

Different Types of Installment Agreements Benefit Different Taxpayer Circumstances

There are three types of Installment Agreements available and Koontz & Associates, PL can help you decide which type you qualify for and which would most beneficial. They include:

• Streamlined Installment Agreement – This is type of agreement is given to those who can pay their debt within 60 months or less. It is the most common type of Installment Agreement, especially since the adoption of the Fresh Start program; prior to the adoption of this program, only those who owed $25,000 or less could qualify, but now those who owe $50,000 or less may obtain a streamlined Installment Agreement. When you apply for this type of agreement, you will not need to fill out a financial statement, and no federal tax lien is required.

• Basic Installment Agreement – If your debt exceeds $50,000 or if you cannot pay within 60 months, you will need a basic Installment Agreement with the IRS. In order to do so, you fill out a financial statement, which will be reviewed by the IRS in order to determine the rate of repayment. Generally, that rate is calculated by subtracting your allowable expenses from your monthly income. Not all expenses are allowable so you will need to consult with a tax attorney or CPA to craft a careful budget prior to filing an application for an Installment Agreement.  In addition, there are some categories and amounts of expenses which you may be entitled to, but they must be requested.  The IRS will not automatically give them to you.  These may allow the monthly payment to be reduced.  Often, when the IRS requires a payback amount that the taxpayer deems unreasonable, he or she can appeal to the IRS and come to a compromise. Koontz & Associates, PL will help you apply, negotiate and represent you for your appeal.

• Partial Pay Installment Agreement – If you cannot pay back what you owe within 60 months, you may also want to consider a Partial Pay Installment Agreement, which allows you to pay back an amount deemed reasonable, considering your essential living expenses.  Because your taxes will not be paid in full before the statute of limitation expires, the IRS may still file a tax lien against you, and they will conduct periodic reviews of your financial situation. If it changes in any way, your Installment Agreement may be altered.

Because there are advantages and disadvantages to all three types of Installment Agreements, it is essential that you carefully investigate which one will benefit you the most. Koontz & Associates, PL will examine your financial situation and help you determine which type of agreement is best. Once that is determined, an agreement is made with the IRS.