- 1 Installment Payments 9/28/16
- 1.1 IRS on-line payment agreement application (OPA) 2/3/09
- 1.1.1 IRS to increase installment payment agreement fees and offer reduced fee online options 8/22/16
- 1.1.2 The IRS announced the first increase in user fees for installment agreements since the fees were implemented in 1995 (including those made using the Online Payment Agreement application on the IRS web site). IR-2006-176, Nov. 13, 2006.
- 1.2 Default 6/6/09
- 2 Qualifying for the IRS direct debit installment agreement: Calculating assessed balances
- 3 IRS revises streamlined installment agreement program
Installment Payments 9/28/16
Internal Revenue Code §6159 authorizes IRS to enter into written installment agreements if theIRS determines it will facilitate the full or partial collection of the tax.
The IRS must enter into a requested installment agreement if the aggregate tax liability (without interest, penalties, additions to tax, and additional amounts) is $10,000 or less, and the taxpayer satisfies certain other conditions set out in Code §6159(c)(2), including full payment within 3 years, and compliance with all Code provisions while the installment agreement is in effect.
The IRS generally may accept "streamlined9quot; installment agreements without requiring financial statements or managerial approval if the taxpayer owes no more than $50,000 in back taxes (IRM 22.214.171.124). The maximum term for a streamlined installment agreement is 72 months.
An installment agreement generally requires taxpayer to pay the entire tax over the term of the agreement (ending with the expiration of the statute of limitations on collection at the latest). If this is not possible, the IRS will enter into a "partial pay agreement" with taxpayer making payments until the statute of limitations expires, and the balance is never collected. The amount of the monthly payment is determined by review of taxpayer's financial information and applying the IRS collection standards, which the IRS typically requires taxpayer to update for IRS review and adjustment as appropriate every 2 years.
After Jan. 1, 2014 the fee is $120 for entering into a regular installment agreement (prior fee since 2007 was $105); $52 for a direct debit installment agreements (same as prior fee since 2007); $43 for installment agreements by low-income taxpayers (same as prior fee since 2007) (Reg. §300.1); and $50 for restructuring or reinstating an installment agreement that is in default (prior fee since 2007 was $45) (Reg. §300.2). TD 9647. 12/3/13
The IRS Fresh Start program made changes to the installment agreement and lien filing and withdrawal procedures, and expanded and streamlined the offer in compromise program. Individual taxpayers who owe up to $50,000 can pay through monthly direct debit payments for up to 72 months (six years). While the IRS generally will not need a financial statement, they may need some financial information from the taxpayer. The easiest way to apply for a payment plan is to use the Online Payment Agreement tool at IRS.gov. If you don't have Web access you may file Form 9465, Installment Agreement, to apply. Taxpayers who need an installment agreements for tax debts over $50,000 or longer than 6 years must provide a financial statement to the IRS. The IRS may ask for 1 of 2 forms: either Collection Information Statement, Form 433-A or Form 433-F. 4/17/13
In Matthews, TC Memo 2012-225, the Court held that IRS did not abuse its discretion when it considered Matthews's VA disability income in determining its installment agreement offer. 12/8/15
The TAS YouTube channel is available at www.youtube.com/TASNTA 4/15/11
IRS on-line payment agreement application (OPA) 2/3/09
For balances under $50,000 (combined tax, penalties and interest) available M-F 6AM-12:30PM EST, Sat 6AM-10PM EST and Sun 4PM-12midnight EST IRS OPA. You need:
- social security number (SSN) or taxpayer identification number (TIN)
- personal Identification Number (PIN) (you need an IRS notice with your Caller Identification Number (Caller ID) to get a PIN if you do not have one)
- you may need information about your income and expenses to determine the monthly installment amount (rent or mortgage statements, pay stubs, utility bills, etc.).
If you recently filed your income tax return and owe, but have NOT yet received an IRS bill, you need:
- balance due shown on the return
- taxpayer identification number
- spouse’s taxpayer identification number (if applicable)
- date of birth
- Adjusted Gross Income from last year’s income tax return
- total tax from last year’s income tax return
The IRS requires you to provide them with financial information in order for it to determine your ability to pay your tax. If cash flow exceeds "necessary and reasonable living expenses" (as determined by the IRS), the IRS requires the excess to be paid monthly. "Cash flow" is the actual cash available to support the household, including e.g., child support and gifts. See IRS collection standards regarding calculation of living expenses. Payments continue until the tax is paid in full or the limitations period expires, and penalties and interest continue to accrue. The IRS has extensive collection standards to determine necessary and reasonable living expenses.
The IRS will enter into an installment agreement even if the installment payments will not pay the tax, penalties, and interest in full before the limitations period ends. Previously, the taxpayer was required to extend the limitations period, and still does in certain cases. The IRS will continue to review the taxpayer's financial situation to see if increasing the payment amount is appropriate during the period.
The Internal Revenue Manual 126.96.36.199.3 (09-26-2008) provides:
"1. Do not secure Collection Statute Expiration Date (CSED) waivers on non-PPIA agreements . Generally, do not secure waivers on PPIAs; however, consider securing waivers with PPIAs in the following situations :
A. There is an asset that will come into the possession of a taxpayer after the CSED and liquidation of that asset offers the best case resolution (in lieu of liquidating existing assets to partially pay the liability).
B. A waiver is no longer required to be secured when the taxpayer's only ability to satisfy the tax liability after the CSED expiration is through a continuation of the installment agreement and there is no significant change in ability to pay as identified through the two year financial review process.
2. The waiver can only be secured at the inception of the PPIA and not during the two year review process, unless a new PPIA is executed at that time. The length of the extension must be based on the time that it will take to make payments and cannot exceed five years plus one year to provide for other administrative actions . 3/2/10
The IRS may schedule increases in the monthly payments, e.g., when your car loan is paid in full you presumably will have more money available to make increased payments to the IRS. By that time you may need to trade cars and incur a new monthly car payment and would have to file updated financial information and pay a $24 fee to have the installment agreement revised.
You can also request a change in the installment amount (generally a decrease as you can pay more without permission or requesting a change, and then drop back to the agreed amount if necessary, again without permission). There is a user fee for this change, see below.
You can request to skip a monthly payment for a VERY good reason, e.g., your car had a major repair which you can not pay for if you make the IRS installment payment, and you can not get to work unless the car is repaired. If that occurs you should contact the IRS as soon as possible, but should do so rarely and only if there is no other alternative. Do NOT skip a payment without talking to the IRS or you will "default9quot; your installment agreement and the IRS will use enforced collection (e.g., a levy on your bank account or wage garnishment).
IRS to increase installment payment agreement fees and offer reduced fee online options 8/22/16
The IRS currently charges 3 rates for installment agreements:
- $120 for an installment agreement;
- $52 for a direct debit installment agreement (taxpayer authorizes monthly electronic funds transfer from taxpayer's bank account; and
- $43 notwithstanding the method of payment if the taxpayer is a low-income taxpayer (at or below 250% of the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the U.S. Department of Health and Human Services. (Reg. §300.1).
- $50 for restructuring or reinstating an installment agreement that is in default. (Reg. §300.2).
As of Jan. 1, 2017, under the new proposed regs, the following fees would be charged for installment agreements:
- Regular Installment Agreements $225 - sets up in person, by phone, or by mail to make manual payments by mailing a check or electronically through the Electronic Federal Tax Payment System (EFTPS). (Prop Reg §300.1(b))
- Direct Debit Installment Agreements $107 - sets up by phone or mail to make automatic payments through a direct debit from a bank account. (Prop Reg §300.1(b)(1))
- Online Payment Agreements $149 - sets up by Online Payment Agreement application on http://www.irs.gov to make manual payments by mailing a check or electronically through the EFTPS. (Prop Reg §300.1(b)(2))
- Direct Debit Online Payment Agreements $31 - sets up by Online Payment Agreement application onhttp://www.irs.gov to make automatic payments through a direct debit from a bank account. (Prop Reg §300.1(b)(2))
- Restructured/Reinstated Installment Agreements $89 - modifies a previously established installment agreement or reinstates a previously established installment agreement on which the taxpayer has defaulted. (Prop Reg §300.2(b))
- Low-Income Rate remains at $43 - any type of installment agreement, other than a direct debit online payment agreement ($31), and when a low-income taxpayer restructures or reinstates any installment agreement. (Prop Reg §300.1(b)(3))
The IRS announced the first increase in user fees for installment agreements since the fees were implemented in 1995 (including those made using the Online Payment Agreement application on the IRS web site). IR-2006-176, Nov. 13, 2006.
Effective January 1, 2007, the following fees will increase:
- for new direct debit installment agreements, where payments are deducted directly from a taxpayer’s bank account, from $43 to $52.
- for other new installment agreements from $43 to $105 (the fee is only $43 for taxpayers with income at or below certain U.S. Department of Health and Human Services poverty guidelines).
- to restructure an existing or reinstate a defaulted installment agreement from $24 to $45.
All taxpayers entering into an installment agreement will automatically be considered for the reduced user fee using information the IRS already has on hand from the taxpayer’s current tax return. Those who qualify will be charged the reduced $43 fee for all installment agreements established through any method. These include the Online Payment Agreement application on the IRS Website at IRS.gov, telephone, face-to-face or mail. (IR-2008-33, March 4, 2008) 3/10/08
Failure to make an installment payment, or file or pay the tax on a return will default your installment agreement, and the IRS may use enforced collection.
Once you default on an installment agreement, it is substantially more difficult to get the IRS to agree to another installment agreement.
IRS Commissioner Doug Shulman announced 5 specific steps to offer leniency to taxpayers owing taxes, including allowing taxpayers to miss an installment agreement payment without automatically having their agreement suspended (no guidance was provided if more than 1 payment could be skipped). 1/8/09
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Qualifying for the IRS direct debit installment agreement: Calculating assessed balances
It is possible to get an IRS installment agreement to repay your taxes without ever disclosing where you work, what car you drive, what your house is worth, or even what you can actually pay.
No IRS Form 433A, Form 433B or 433F. No application of the IRS Collection Financial Standards that can put a cap on your living expenses.
The IRS calls these payment plans direct debit installment agreements. Sometimes, they are also referred to as streamlined installment agreements.
No managerial approval is required with direct debit installment agreements, and the IRS probably will not even file a tax lien against you and damage your credit if you qualify.
But qualifying for a simple IRS plan of resolution with the direct debit installment agreement is not always so simple.
The IRS bases qualifications for the direct debit installment agreement on a technical term called your “assessed balance.”
An assessed balance is what you originally owed the IRS when you filed your return.
Your assessed balanced has to be under $50,000 to qualify for the direct debit installment agreement . That begs the question: What is my assessed balance?
Here’s how the IRS calculates your assessed balance :
When you filed your return, the IRS made a bookkeeping entry on its books for the amount of tax you owed. This entry is called an assessment.
At the same time, the IRS probably charged you penalties. These penalties could be for not paying your tax on time when you filed the return, for filing the return late, or not making estimated tax deposits.
When you file your return, the IRS will add a bookkeeping entry calculating the amount of penalties you owe at that time. This is also an assessment.
The IRS will also make a calculation of any interest you owe on the unpaid balance when your return is filed, and place that amount on its books as an assessment .
Most penalties are charged over time. For example, the late fling penalty is calculated at 5% for every month the return is filed late, maxing out at 25%. The late payment penalty is 1/2 of 1% per month, maxing out at 25%. Interest also continues to accrue over time after the initial assessment.
Both the penalties and interest will continue to grow in an amount that is more than what was assessed when you filed your return . After assessment, the IRS will continue to charge you for the penalties and interest. The continued compounding of penalties and interest after the initial assessments are made are called accruals .
With our definitions (assessment and accruals) out of the way, let’s pull this all together .
The key point in qualifying for a direct debit installment agreement is that the IRS does not consider the accruals of penalties and interest after assessment in determining whether to grant you the payment plan . So you can actually owe the IRS, say, a total of $60,000, and still qualify for the payment agreement provided the original assessed balances are under $50,000. If your assessed balance is under $50,000, the IRS will permit you to pay the $60,000 back over a term of 72 months by a monthly debit out of your bank account without the financial disclosures, negotiations, tax liens and managerial approval.
So, we need to accurately determining your assessed balances to determine your qualifications. Here’s an example of how that works :
Example : You owe the IRS back taxes from 2009, 2010 and 2011. Your IRS collection notices state the total amount owed is $63,723. You want to pay the IRS back, but prefer to avoid a detailed, in depth disclosure and negotiation with them. We need to calculate your assessed balances to determine if you can get into the IRS direct debit installment agreement program.
To calculate the assessed balances, we need to obtain and analyze IRS transcripts of your account. Analysis of those transcripts reveal the following:
Assessed Accrued interest Accrued penalty Total
2009 $15,235.00 $1,340.00 $2,755.00 $19,330.00
2010 $17,762.00 $2,552.00 $3,250.00 $23,564.00
2011 $16,114.00 $1,933.00 $2,782.00 $20,829.00
Total $49,111.00 $5,825.00 $8,787.00 $63,723.00
Result : Even though you owe the IRS $63,723, your assessed balance is $49,111. As the assessed balance is under $50,000, the IRS will not require any financial disclosures to determine the amount of your payment plan, and should not file a tax lien against you. Your monthly payment will be $885/month, calculated by dividing the total amount owed, $63,723, by the 72 month payment term the IRS will give you. We will have to provide the IRS with a bank account so they can withdraw the monthly payment from your account.
Strategically, if your assessed balance was over $50,000, the IRS would permit you to reduce it to under $50,000 with a lump sum payment to qualify for the direct debit installment agreement. It is also important to note that when sending in a check to reduce an assessed balance to under $50,000, to tell the IRS to specifically apply the payment to the assessed balance. This is called a designated payment. Without the designated payment, the IRS may apply the payment to accruals of interest and penalties, defeating the plan to get your assessed balance under $50,000.
The IRS’s authority to enter into direct debit installment agreement can be found in Internal Revenue Manual 188.8.131.52.
If you think you could benefit from an under the radar solution to your IRS problem, consider the benefits of a direct debit installment agreement (streamlined).
IRS revises streamlined installment agreement program
There are five general methods of resolving an assessed federal tax liability: (1) full payment, (2) payment through installments under a written agreement, (3) placing an account into currently uncollectible status, (4) an offer in compromise, and (5) bankruptcy. Installment agreements are contractual arrangements by which the Internal Revenue Service allows taxpayers to pay the tax due (including any applicable penalties and interest) over a period of time. An installment agreement thus allows a taxpayer the alternative to full payment of the liability in a lump sum, and gives the taxpayer financial flexibility to make smaller, incremental payments over time.
The IRS may not levy against a taxpayer’s bank account or other financial accounts (1) while an installment agreement request is pending; (2) while an installment agreement is in effect; (3) for 30 days after an installment agreement request is rejected; (4) for 30 days after an installment agreement request is terminated; and (5) while an appeal of a default, termination or rejection is pending or unresolved. Lastly, for certain taxpayers who enter into installment agreements on timely filed returns, Section 6651(h) of the Code requires the Service to reduce the failure to pay penalty from a half (0.50%) to a quarter (0.25%) percent per month for any month in which an installment agreement is in effect. In order to qualify for this penalty reduction, the following conditions must be satisfied:
- The installment agreement must be entered into after January 1, 2000;
- The tax liability must be due from an individual;
- The tax returns must have been timely filed, including the time period for extension; and
- The taxpayer has not received any correspondence from the Service indicating the IRS has increased the failure to pay penalty from one-half (0.5) to one (1) percent on the liability.
To be eligible for an installment agreement, taxpayers must file all required tax returns, and business taxpayers must also be current with federal tax deposits. For all installment agreements, the amount of a taxpayer’s installment payment will be based on the amount owed, and the taxpayer’s ability to pay the tax debt within the time period remaining for the IRS to collect the debt. The IRS has four installment agreement plans: (1) guaranteed, (2) streamlined, (3) partial payment, and (4) non-guaranteed installment agreements.
Guaranteed Installment Agreement. Internal Revenue Code Section 6159(c) requires the IRS to accept proposals of installment agreements under certain circumstances. The IRS is required to agree to an installment plan if the tax liability due is $10,000 or less, and the taxpayer meets all of the following criteria:
- For the previous five years, the taxpayer has not failed to file any income tax returns, to pay any tax shown on such returns, or entered into a prior installment agreement;
- The taxpayer is unable to pay the liability in full;
- The installment agreement will fully pay the liability within thirty-six (36) months or less;
- The taxpayer agrees to file all future income tax returns and full pay the tax liability on time in future tax years.
The minimum monthly payment the IRS will accept is the grand total of the balance due (including penalties and interest) divided by 36. Unlike the criteria for streamlined agreements, the dollar limit for guaranteed agreements of $10,000 only applies to tax. The taxpayer may owe additional amounts in penalty and interest (both assessed and accrued) and qualify for a guaranteed agreement, so long as the tax liability alone is not greater than $10,000. The taxpayer will not be required to provide the IRS with documentation showing the taxpayer’s current financial situation. More importantly, the IRS is not required to file a notice of federal tax lien against the taxpayer involving these types of agreements.
Streamlined Installment Agreement. Prior to 2012, the IRS accepted an installment agreement plan if (1) the aggregate unpaid balance of assessments was $25,000 or less, and (2) the taxpayer agreed to pay the balance in sixty (60) months or less or within the remaining collections statute of limitations. The minimum payment the IRS would accept was the total of the assessed liability including penalties and interest divided by 60.
Now, in 2012, the IRS revised the rules for a streamlined installment agreement. The IRS will accept a streamlined installment agreement plan if (1) the unpaid tax balance is $50,000 or less, and the taxpayer agrees to pay the balance in seventy-two (72) months or less. The minimum payment the IRS will accept is the total of your assessed liability including penalties and interest divided by 72. If a taxpayer’s tax liability is greater than $25,000 but less than $50,000, the IRS will require the taxpayer to allow it to withdraw the monthly installment payments directly from the taxpayer’s bank account. As with guaranteed agreements, the taxpayer must have filed all tax returns and agree to file all future tax returns on time and pay your taxes on time.
Partial Payment Installment Agreement. With the passage of the American Jobs Creation Act of 2004, the IRS began offering the partial payment option for taxpayers who have outstanding federal tax liabilities. All taxpayers are expected to immediately pay delinquent tax liabilities. When a taxpayer is unable to full pay the liability, however, he or she may be allowed to pay their liabilities over a prescribed period of time. When full payment will not be achieved by the Collection Statute Expiration Date (CSED), but taxpayers have some ability to pay, the Service will enter into Partial Payment Installment Agreement. The Service will require the taxpayer to provide it with IRS Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals or IRS Form 433-B, Collection Information Statement for Businesses. The IRS will require the taxpayer to provide approximately three (3) months of financial documentation supporting all income and expenses.
The Service will calculate a monthly payment amount based upon the available equity in the taxpayer’s assets as well as disposable income (the Reasonable Collection Potential) over the remaining statutory period of collection in order to satisfy the tax liability. In calculating the taxpayer’s monthly payment amount, the IRS will allow taxpayers credit only for necessary expenses. In addition, taxpayers granted a partial payment installment agreement will be subject to a subsequent financial review every two years. As a result of this review, the amount of the installment payments could increase or the agreement could be terminated, if the taxpayer’s financial condition improves. Finally, the Service will file a Notice of Federal Tax Lien against the taxpayer’s assets to protect the government’s interests.
Non-Guaranteed Installment Agreement. Taxpayers whose liability is over $50,000 or will need more than 72 months to pay the tax liability must negotiate an installment agreement directly with an IRS Revenue Officer. All non-guaranteed installment agreements must be sent for review and approval by an IRS Collections Manager.
The IRS will require taxpayers to provide the Service with IRS Form 433-F, Collection Information Statement in order to determine what a taxpayer can reasonably afford to pay each month in order to satisfy the tax liability. Typically, the IRS will require the taxpayer to attempt to sell assets, take out a bank loan, or apply for a home equity loan to pay the tax liability without the need for entering into an installment agreement. Once a monthly payment is agreed upon, the IRS will file a Notice of Federal Tax Lien to protect the government’s interests.
The installment agreement program is an option for taxpayers who wish to make monthly payments because they are not financially able to pay the tax liability in full. During an installment agreement plan, the taxpayer will accrue penalties and interest on the unpaid tax liability. Also, the Service will charge taxpayers a user fee of $105 for new installment agreements and a fee of $52 for agreements in which the taxpayer allows the Service to direct debit the monthly payment from the taxpayer’s bank account. When a taxpayer enters into an installment agreement and abides by its terms, the IRS will refrain from any further collection efforts related to the tax, and the rate of penalty accrual may be reduced in certain instances.
An installment agreement is a viable alternative for taxpayers who are unable to have their accounts declared currently uncollectible by the IRS, who are unable to enter into an offer in compromise with the IRS, or who cannot or do not wish to file for bankruptcy.