The Covid-19 pandemic has drastically altered many taxpayers’ finances. As much as possible, many taxpayers want to minimize their expenses. Others have assets, yet do not want to liquidate them to pay their tax liabilities. Whatever their reasons are, tax debt is not easily avoided without interest, penalties, and collection. The good news is that taxpayers have options for repaying their tax liability.
Suppose you received a notice for federal tax lien (NFTL) or notice to levy, and you plan to request a CDP hearing for reconsideration on your tax liabilities; consider raising an “installment agreement” as a resolution.
Advantage of Installment Agreements
Many taxpayers find installment agreements advantageous to them. The good thing about installment agreements is that they are generally favored by the IRS because they result in full payment of the tax liability. In contrast, offers in compromise can be difficult to secure and generally require a greater upfront cost. That being the case, most taxpayers can obtain an installment agreement without the need for a CDP hearing.
However, as a caveat, if you wish to obtain an installment agreement, you must meet the “full compliance rule.” Also, you must demonstrate that you will comply with the withholding obligations during the installment agreement period and not use the under-withholding to fund the installment agreement, merely exchanging one liability for another. The taxpayer must be consistently tax compliant for the entire term of the installment agreement or it will default.
The Internal Revenue Manual (IRM) 22.214.171.124.1 provides the qualifications a taxpayer must meet to qualify for an installment agreement. If you are one of the following taxpayers, you may be eligible for an installment agreement:
- Individual taxpayers, which includes sole proprietorships, with no delinquent employment taxes
- Out-of-business BMF entities
- Corporations and other BMF entities,
In addition to being one of the taxpayers listed, to be eligible for an IRS installment agreement the following criteria must apply:
- Your tax returns, including employment and excise tax, must be current. All your necessary period deposits (FTDs and/or estimated payments) must also be current.
- Your Installment agreements must include the total amount you owed, including civil penalties.
- You must be able to pay the minimum acceptable payment. However, you may also pay the maximum amount you can pay at the examination closing and each month after that. If you pay to reduce the balance to within the installment agreement criteria, it will be processed as an advance payment of the deficiency.
Types of Installment Agreements
The type of installment agreement you may secure depends on the taxpayer’s income tax deficiencies. Authorized installment agreements are the guaranteed installment agreements and the streamlined installment agreements.
Under a guaranteed installment agreement, an individual taxpayer with income tax deficiencies of $10,000 or less (excluding penalties and interest) can pay within 36 months. On the other hand, taxpayers with tax deficiencies of $50,000 or less (including tax, penalties, and interest) can pay within 72 months under the streamlined installment agreement.
To learn more about your ability to obtain an installment agreement, contact Sacramento Law Group LLP tax attorney Jin Kim at (916) 299-9913 to schedule a free consultation. Through an installment agreement, you may be able to stop IRS collections, tax liens, and IRS levies.