Resolving IRS tax debt starting with installment agreements

By | December 6, 2015

Now, let’s look at some ways to resolve tax debt starting with installment agreements. If the taxpayer cannot full pay but can make payments, several types of installment agreements are available. The amount owed and the amount that can be paid monthly determine the type of installment agreement.


Getting an IRS Streamlined Installment Agreement

Some are easy to get into, and some require working with the IRS as well as providing some financial information to start the installment agreement. Let’s begin by looking at the Streamlined Installment Agreement.


IRS Streamlined Installment Agreements

In Fiscal Year 2014, 95 percent of all installment agreements met streamlined criteria. If you meet streamlined criteria, no financial statement is required. You don’t need other payment alternatives, manager approval is generally not required, and the agreement is normally granted. Individual streamline criteria is: unpaid balance of assessments under $25,000; the ability to pay in equal installments over six years or less; and full payment should be done within the collection statute of limitations, which is generally 10 years. If the unpaid balance of assessments is between $25,000 and $50,000, it may be granted, but we will also need a direct debit.

Paying IRS Streamlined Installment Agreement

A direct debit is when the IRS automatically withdraw from a checking account. It can also be set up as a payroll deduction where the taxpayer’s employer deducts and sends the monthly payment.


Default on IRS Installment Agreement

If a taxpayer has defaulted an installment agreement in the prior 12 months, the ability to pay may need to be verified by a Collection Information Statement before a streamline installment agreement can be granted. Streamline installment agreements for businesses are available if the taxpayer is out of business or if they owe income tax only. Operating businesses owing employment or excise taxes have an installment agreement called the “InBusiness Trust Fund Express” Installment Agreement.


Requirements for Installment Agreement

The criteria for this installment agreement is $25,000 or less; the balances are for the current and prior year only; and the taxpayer can pay in full within 24 months or less. Balances between $10,000 and $25,000 require direct debit, and the InBusiness Trust Fund Express installment agreement requires managerial approval. If the balance is between $25,000 and $50,000, streamlined installment agreements can be extended to out-of-business sole proprietors. If the payoff of the unpaid balance of assessments is within 72 months or less and the full payment will be within the collection statute of limitations, it must also be setup as a direct debit or as a payroll deduction.


Verifying IRS Installment Agreement for Tax Debt

If an installment agreement has been defaulted in the last 12 months, financial verification may be required to make sure that the payment can be met. So, you’ve heard me mention direct debit several times. We encourage this for several reasons. It’s faster, easier, cheaper, and eliminates most missed payments.


Advantages to Streamlined Installment Agreements

In looking at ways to pay, there are advantages to Streamlined Installment Agreements. No Collection Information Statement is required, and no financial verification is required. Except in the case of the In-Business Trust Fund Express, no managerial approval is necessary, so you don’t waste time on that and you know your payment amount right away. Generally, no Notice of Federal Tax Lien is filed, and as long as the terms are met, no levies are issued. Simply, if you can meet the criteria of the Streamlined Installment Agreement, the processing is relatively easy, and you can avoid some late-payment consequences. If you don’t qualify because you owe too much, here’s a tip: pay down the balance and then apply for a Streamlined Installment Agreement.


Benefits of Streamlined Installment Agreement Processing

The key to taking advantage of the benefits of Streamlined Installment Agreement processing is to set up the installment agreement early. If the taxpayer has a balance due with the return, they should: file on time to avoid the failure-to-pay penalty; pay as much as possible with the return to keep the failure-to-pay penalty and interest as low as possible; and bring the balance down as low as they can for streamlined criteria. Then, pay as high as they can to keep the penalties and interest at a minimum.


Requesting Streamlined Installment Agreements

There’s no separate processing for Streamlined Installment Agreements. Simply request the installment agreement and if the streamlined criteria is met, it will automatically be applied. The Online Payment Agreement application is available online at Taxpayers and representatives can set up installment agreements online. No contact with the IRS is necessary; there is no wait time; and the confirmation is immediate. This is the preferred way to set up an installment agreement, and 95 percent of taxpayers can use the Online Payment Agreement.


Using the IRS Online Payment Agreement

When using the Online Payment Agreement, it’s helpful to have your recent billing statement from the IRS (if you’ve received one), the bank account, and the employer and tax return information. Taxpayers can also use the Online Payment Agreement to set up short-term payment plans up to 120 days. Short-term payment plans don’t incur installment agreement user fees.


Using CAF Number to Pay IRS Installment Agreement

Representatives using the Online Payment Agreement must have their CAF number and either the date the Form 2848, Power of Attorney and Declaration of Representative, was signed or the caller ID number from the taxpayer’s notice. Representatives must open a new session for each taxpayer. The Online Payment Agreement will be available for businesses who owe and meet the In-Business Trust Fund Express criteria. They will need the Employer Identification Number, the month and year the Employer Identification Number was issued, and the business address. We’re aware that there have been issues setting up an InBusiness Trust Fund Express online, because many people don’t know the month and year the Employer Identification Number was issued


Form 9465, Installment Agreement Request Form

You can also apply for an installment agreement by Form 9465, Installment Agreement Request Form. All individuals and out of business taxpayers can use this form. It can be attached to a return and submitted in response to a billing notice. The caveats are that it sets up monthly payment agreements only and can’t be used for short-term installment agreements.

Filing Form 9465 to Pay Back Taxes

There is an installment agreement user fee: $120 for monthly payment agreements, or $52 for monthly payment agreements paid by direct debit. Businesses who owe payroll taxes shouldn’t use the Form 9465. Instead, they should call 1-800-829-4933 to discuss their payment, or contact the IRS in writing, or contact the assigned Collection staff. Trust fund debts are given a high priority at the IRS, and we encourage you to take the necessary steps to correct payroll tax deficiencies as soon as possible.