IRS and State Monthly Installment Agreements
Do you owe taxes but can't immediately pay?
Attorneys at Morrison + Murff can help you find a solution to your tax problems. With a monthly installment agreement, the IRS or State will forgo any collection activity so long as you make your agreed to monthly payments. This means no IRS liens, levies, wage garnishments, or even collection notices during the term of your installment agreement. If you owe $50,000 or less, you likely qualify for an installment agreement. The IRS and State will usually agree to a payment plan for as long as 72 months. If you owe more than $50,000, you may still qualify, but will need to contact the IRS to negotiate this and provide financial information.
The IRS adopted new rules making it easier to obtain an installment agreement as part of its 'Fresh Start' Program. The threshold for qualifying for an installment agreement without having to provide financial information was increased from $25,000 to the current $50,000 amount and the timeline for paying was increased to 72 months from 60 months.
Another qualification is that you must be current on this year's tax returns. If the IRS does not have record that you have filed all of your past due tax returns, you will not be eligible for an installment agreement. If you own your own business or are an independent contract, it is also important that you start making your quarterly estimated tax payments for the current year. Lastly, if you have employees, you need to be current on payroll tax deposits and Form 941 filings in order to qualify.
Negotiating a payment plan
Strategies for negotiating an installment plan include:
- Proposing a payment plan you can live with.
- Offer to pay at least the amount of disposable income you have, which is your left over income after subtracting your necessary living expenses. This is the cash you have left over every month after paying for the necessities of life. Don't, however, promise to pay more than you can afford just to get your plan approved. Promising the IRS more than you can deliver is a serious mistake; once an IA is approved, the IRS makes it difficult for you to renegotiate it.
- Make a payment when you propose the agreement -- and keep making your proposed payments even if the IRS hasn't yet approved your installment agreement. Making payments demonstrates your good faith and creates a track record.
If the IRS grants an installment plan, it may take several months to notify you in writing. To learn more, contact the tax attorneys at Morrison + Murff and schedule a free consultation at 801-392-9324.
Is an Installment Agreement your best option?
While a payment plan suits some taxpayers, it may not be your best options. There are several drawbacks, including:
Interest and penalties continue to accrue while you still owe. Combined with penalties, the interest rate is often 8% to 10% per year. This is why you may have heard horror stories about people paying for years without putting a dent in their back taxes.
Another hurdle is if you have no leftover money after living expenses, it's unlikely you're in a position to negotiate a payment plan.
How to negotiate a installment plan:
Strategies for negotiating an installment plan:
- Propose a payment plan you can live with. Do this when you hand the completed Form 433-A to the collector.
- Offer to pay at least the amount of your income minus your necessary living expenses. This is the cash you have left over every month after paying for the necessities of life. Don't, however, promise to pay more than you can afford just to get your plan approved. Promising the IRS more than you can deliver is a serious mistake; once an IA is approved, the IRS makes it difficult for you to renegotiate it.
- Give a first payment when you propose the agreement -- and keep making monthly payments even if the IRS hasn't yet approved your IA. Making voluntary payments demonstrates your good faith and creates a track record. For example, if you pay $200 a month for three months before your IA is approved, the collector may be inclined to believe that this is an appropriate amount.
If the IRS grants an installment plan, it may take several months to notify you in writing.
When the IRS Can Revoke an Installment Agreement
Once you receive approval of your IA, you and the IRS are bound by the terms of the agreement, unless any of the following are true:
- You fail to file your tax returns or pay taxes that arose after the IA was entered into.Although IRS computers do not continue to review your finances, they do monitor you for filing future returns and making promised payments.
- You miss a payment. Under the terms of all IAs, payments not made in full, and on time, can cause the IA to be revoked immediately. In practice, the IRS usually waits 30 to 60 days before revocation -- at least on the first missed payment. You are entitled to a warning or a chance to reinstate the agreement.
- Your financial condition changes significantly -- either for the better or worse. The IRS usually won't find out about this unless you tell. The IRS may review your situation every year or two, however, and require you to submit a new Form 433-A in order to continue your IA.
- The IRS discovers that you provided inaccurate or incomplete information as part of the negotiation. For example, you may have omitted to mention certain valuable assets.