IRS Installment Agreement
If you are unable to pay your tax debt in one lump sum, an Installment Agreement, also known as a structured payment plan, could be a convenient option. If you are seeking a formal arrangement, our team of Tax Attorneys and CPAs at Azarvand Tax Law can assist you. Start by booking a free consultation by clicking here.
What is an Installment Agreement?
An Installment Agreement is a formal arrangement between a taxpayer and the IRS to pay off a tax debt over an extended period. Instead of making a lump-sum payment, taxpayers can make monthly payments until the debt is fully paid off. There are options for both short-term (180 days or less) and long-term payment plans (181 days – 2,190 days (six years)).
Long Term Installment Agreements Options
Depending on the circumstances, there are multiple types of Installment Agreements for which a taxpayer may be eligible, including:
Guaranteed Installment Agreement: Taxpayers who owe $10,000 or less in combined tax, penalties, and interest and have filed all required tax returns may qualify for a guaranteed installment agreement. Under this agreement, the taxpayer agrees to pay the full amount owed within three years or the Collection Statute Expiration Date (CSED), whichever is earlier.
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Streamlined Installment Agreement: Generally, the Streamlined Installment Agreement criteria is divided into two tiers, a balance due of $25,000 or less and balance due of $25,001 to $50,000 (depending on the taxpayer type). The taxpayer must also pay by direct-debit or through payroll deduction.
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Partial Payment Installment Agreement (PPIA): An installment agreement that will not pay the entire balance before the Collection Statute Expiration Date (CSED) is called a Partial Payment Installment Agreement (PPIA). This agreement requires the taxpayer to complete a financial statement and provide supporting documentation.
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Non-Streamlined Installment Agreement: An Installment Agreement established under the Six-Year Rule is an NSIA (Non-Streamlined Installment Agreement). The Six-Year Rule refers to the taxpayer being required to pay their tax debt in full within 72 months (six years).
Interest and Penalties
Failure to Pay Penalty: This penalty, which can reach up to 25% of the unpaid balance, accrues when a taxpayer fails to pay the full amount of tax owed by the due date. The Comptroller of Maryland may reduce or eliminate this penalty under certain circumstances. Note: The Failure-to-Pay (FTP) penalty is reduced to 0.25% per month during an approved Long Term Payment Plan. Otherwise, the FTP penalty starts at 0.5% per month and increases to 1% per month if the taxpayer has received a Notice of Intent to Levy and fails to pay within 10 days.-
Interest: The IRS charges interest on unpaid tax debt, which continues to accrue until the debt is fully paid off. While interest cannot be entirely waived, the Comptroller may reduce the interest rate based on the terms of the installment agreement.
Benefits of an Installment Agreement
Reduced Penalties: The Failure-to-Pay (FTP) penalty is reduced to 0.25% per month during an approved payment plan. Otherwise, the FTP penalty starts at 0.5% per month and increases to 1% per month if the taxpayer has received a Notice of Intent to Levy and fails to pay within 10 days. The maximum FTP penalty is 25% of the unpaid amount.
Financial Flexibility: Taxpayers can pay off their tax debt over time in manageable monthly installments, allowing them to better manage their finances.
Avoiding Collection Enforcement Action: By entering into Installment Agreements, taxpayers may avoid more severe collection actions such as levies and wage garnishments.
Maintaining Compliance: Fulfilling the terms of an Installment Agreement helps taxpayers stay in compliance with the IRS.
Qualification Criteria
Qualifying for an Installment Agreement often involves meeting certain criteria set by the IRS. While specific requirements may vary depending on the taxpayer’s circumstances and the amount owed; common qualification criteria include:
Filing Compliance: Taxpayers must be current with all required tax filings. This means that the past six years of tax returns must be filed before requesting an Installment Agreement.-
Tax Debt Amount: The total amount owed, including tax, penalties, and interest, determines the type of Installment Agreement for which a taxpayer qualifies for.
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Ability to Pay: The IRS will assess the taxpayer’s ability to pay based on their income, expenses, assets, and overall financial situation. This evaluation helps determine the appropriate monthly payment amount.
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Financial Disclosure: Taxpayers may be required to provide detailed financial information to the IRS of Maryland as part of their request for an Installment Agreement. This information helps the IRS assess the taxpayer’s ability to fulfill the terms of the agreement.
Next Steps
At Azarvand Tax Law, our experienced tax attorneys and CPAs can help you navigate the complexities of the Installment Agreement process and negotiate favorable terms with the Comptroller of Maryland. Contact us at 410-698-4005, Info@AzarvandTaxLaw.com, or click here to schedule a free 30-minute consultation and take the first step toward resolving your tax debt.
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