requirements for IRS installment agreement

Guaranteed Installment Agreements

Whenever you see tax resolution firms advertise, you’ll usually see a qualifier in their ad that says something to the effect of, “If you owe the IRS at least $10,000, then give us a call.” The reason for this is that if you owe the IRS less than $10,000, there is a provision in the tax code that REQUIRES them to accept your proposal to pay them in monthly installments if you meet certain requirements. In fact, you don’t even need to provide them with financial statements to qualify.

To qualify for a guaranteed installment agreement, you must:

Owe only income tax, not any other types of tax.
Have properly filed and paid all tax returns during the 5 years prior to accumulating the tax debt.
Not be able to pay the tax immediately out of savings or other means.
Pay the tax fully within 3 years (e.g., the payment plan cannot exceed 36 months).
File and pay all tax returns on time during the period of the installment agreement.
Not have had an active installment agreement during the past five years.
Owe less than $10,000 in TAX, not including penalties and interest.

Another beautiful thing about guaranteed installment agreements is that the normal legal minimum monthly payment of $25 per month does not apply. Yes, you can actually offer payments of $10 per month, and as long as that will fully pay the debt within 36 months, they have to grant you the request!

Lastly, guaranteed installment agreements can be granted by the lowest level collections employees of the IRS without managerial approval. All you have to do is make one phone call to the Automated Collection System (ACS), wait on hold for an hour, talk to a human for 10 minutes, and you’re DONE. If you’re not sure where to call, dial the number in the upper right hand corner of the notices you’ve been receiving and you’ll more than likely be connected to ACS. If you don’t want to talk to anyone, you might be able to do it online.

Do keep in mind, however, that penalties and interest continue to accrue during these – and all other – Installment Agreements, although they are guaranteed by law. Because of this, you may decide it is in your best interest to fully pay any balances due as soon as you possibly can.

Requirements of IRS Installment Agreements

It’s not uncommon for taxpayers who owe the IRS to start to panic when they are faced with a sizable balance. However, there are options if you can’t pay your balance all at once. In this post, we outlined how to deal with the situation. In it, we also discussed the IRS monthly payment plan referred to as an “Installment Agreement” or “IA” for short. In this post, we’ll discuss what you need to do in order to set up an IA.

The actual process of setting up an IA is pretty straightforward. The challenging part is making sure you are compliant and that you actually meet a number of basic requirements. We assist our clients in meeting these requirements, and then negotiate the actual payment amount after it’s determined that you are eligible.

So without further ado, here are the requirements one must meet to be eligible for a payment plan:

File any missing tax returns or substitute for returns (SFRs).
Begin making current estimated tax payments (for self-employed people) or Federal Tax Deposits (payroll tax payments for businesses), if applicable.
Disclose specific financial information, such as income, expenses, and assets.
Demonstrate that you cannot pay off the tax debt from savings, a loan, or other means.
If you owe less than $10,000 in tax, be able to pay off the entire debt in 3 years or less. If you owe $50,000 or less, you get 5 years. If you owe more than $50k, there is no time limit.
Not have defaulted on another IA in the past 5 years.

So as you can see, the requirements aren’t all that challenging. However, the most difficult part of this process for self-employed and small business taxpayers is #2 — finding the money to begin making payments on their CURRENT tax obligations. This involves some painful elimination of expenses and changing of priorities that most people don’t like, but it’s necessary. Remember, the IRS is the most powerful creditor that we have and they can really make a mess of your life if you don’t work with them. Thus, it’s best to get them taken care of, even if that means damaging vendor relationships, not paying other bills, etc.

If you’re eligible, then obtaining a payment plan is actually pretty straightforward. But as mentioned above, getting into current compliance is a critical first and second step, and is the most difficult part for most taxpayers.

Until next time…

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