If you are unable to pay your back taxes, an installment agreement may be an option for you. The installment agreement allows taxpayers to pay their tax debt over time by making manageable payments. The installment agreement can put you back in control of your financial future. There are many different types of installment agreements and they all vary in terms of complexity and difficulty level to negotiate and establish with the IRS. This article will focus on the simplest of all types, the guaranteed installment agreement.
Guaranteed Installment Agreements
IRC Sec. 6159(c) requires the IRS to accept proposed installment agreements from an individual who owes income tax of $10,000 or less. Per the Internal Revenue Manual, the following conditions must be met:
· Owe income tax only of $10,000 or less,
· Have not failed to file any income tax returns or to pay any tax shown on such returns during any of the preceding five taxable years,
· Cannot pay the tax immediately (as a matter of policy, the Service grants guaranteed agreements even if taxpayers are able to fully pay their accounts),
· Agree to fully pay the tax liability within three years,
· Agree to file and pay all tax returns during the term of the agreement, and
· Have not entered into an installment agreement during any of the preceding five taxable years.
It’s important to note that unlike streamlined agreements, the $10,000 dollar limit applies to tax only. Penalties or interest (assessed or accrued) do not count. Per the IRM, 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.
A taxpayer who can pay the full amount owed within 120 days does not need a guaranteed installment agreement. Instead, a payment agreement can be set up online or by calling the IRS.
Online Payment Agreement
The IRS’s online payment agreement (OPA) system allows taxpayers who owe $50,000 or less and have filed all required tax returns to set up an installment payment agreement and arrange payment options (direct debit, payroll deductions, etc.). Taxpayers can self-qualify, apply for, and receive immediate notification of approval.
The OPA application is available to taxpayers who meet the following conditions
· Owe $50,000 or less, including tax, assessed penalties, and interest,
· Have filed all required tax returns,
· Are current with their tax payments, and
· Can pay the tax plus all penalties and interest within 72 months.
The online request is available Monday through Friday from 6 A.M. to 12:30 A.M. ET, Saturday from 6 A.M. to 10 P.M. ET, and Sunday from 6 P.M. to midnight ET.
If the full amount owed is paid within 120 days, the fees for setting up an installment agreement do not apply. The IRS charges $120 for nondirect debit installment agreements and $52 for direct debit agreements, although a reduced $43 fee applies to taxpayers with income at or below certain government poverty guidelines. There is a $50 fee, regardless of income, for reinstating defaulted agreements or restructuring existing agreements.
The online application is available at http://www.irs.gov/Individuals/Online-Payment-Agreement-Application
Rohit Kalra is a tax resolution expert and the owner of Kalra CPA & Associates, PC, a Certified Public Accounting firm based in Fairfax, Virginia. Rohit dedicates his practice exclusively to representing taxpayers before the Internal Revenue Service and solving complex tax problems. Rohit is a licensed CPA and holds a Master of Science in Taxation from the University of Virginia. While obtaining his M.S. in Taxation at UVA, Rohit also taught undergraduate accounting at the McIntire School of Commerce at the University Of Virginia. Before entering private practice nearly ten years ago, Rohit's prior experience included serving private companies, private equity firms, and ultra-high-net worth individuals in the tax practice at PricewaterhouseCoopers. Rohit is a frequent author and speaker who genuinely enjoys educating businesses and individuals on financial topics.