If you are in a position when you think you can settle your tax debt over time, you should consider negotiating an Installment Agreement with the IRS. If you qualify for this program, the IRS allows you to pay your debt in small installments that allow you to chip away at your tax liabilities without leaving you so broke you can’t live your life. You can think of it like a car payment — a significant but manageable monthly bill that you must account for and which, in the end, will satisfy for your debt.

Here are some frequently asked questions about negotiating a payment plan with the IRS.

What do you have to do to be eligible for an installment agreement?

To be eligible for an installment agreement, all returns that are due must first be filed.

What are the payment terms?

Installment agreements generally require equal monthly payments. The amount of an installment payment will be based on the amount owed and on the taxpayer’s ability to pay that amount within the time legally available for the IRS to collect. By law, the IRS has the authority to collect outstanding federal taxes for ten years from the date of assessment.

What are the conditions of an installment agreement?

As a condition of an installment agreement, any refund due in a future year will be applied against the amount owed. Therefore, taxpayers may not get all of their refund if they owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt, then the installment agreement continues until all of the terms are met.

What are the benefits of hiring a tax resolution specialist to negotiate my Installment Agreement  with the IRS?

Whether the IRS demands full payment up-front or a payment plan that is substantially higher than what you can afford to pay, a professional tax resolution specialist can help you negotiate an arrangement for the lowest possible monthly payment and also provide you with various options for making those payments. And if you owe more than $25,000 to the IRS, you will be required to provide full financial disclosure and you will need to hire professional representation to negotiate on your behalf with the IRS.

Does interest stop with an installment agreement?

Interest does not stop accruing until the entire obligation is paid. An installment agreement is more costly than paying all the taxes owed now. Penalties and interest continue to be charged on the unpaid portion of the debt throughout the duration of an installment agreement.

Are there fees to set up an installment agreement?

The IRS charges a user fee of $43 to set up the installment agreement. And it is possible for an installment agreement to be reinstated if the agreement defaults. Also, installment agreements may be restructured to include additional amounts owed in one agreement. Reinstating or restructuring an existing installment agreement will cost an additional $24 user fee.

What are enforced collection actions?

Generally, IRS enforced collection actions (levy against personal or real property) are not made while an installment agreement request is being considered, or:

While an agreement is in effect,
* For 30 days after a request for an agreement has been rejected, and
* For any period while a timely appeal of the rejection or termination is being evaluated by the IRS.

Can my installment agreement be defaulted?

Yes. Failure to make timely payments can default the agreement. A defaulted installment agreement could subject a taxpayer’s account to enforced collection action and potentially have a negative effect on a taxpayer’s credit standing.

What is an annual statement of balance due?

In accordance with the law, installment agreement taxpayers receive an annual statement from the IRS. The statement provides the amount owed at the beginning of the statement period, the payments (credits) posted to account(s), any fees or assessments, and the ending balance. Currently, the annual statement is sent each year in July.

If you have tax problems, our specialized staff of attorneys, CPAs, EAs and tax professionals can help. Visit the Tax Resolution Services web site  for a free tax relief consultation or call us at 866-477-7762.

More Tax Help, IRS News and Tax Relief Tips:

1. How to Negotiate an IRS Installment Agreement and Set Up a Payment Plan for Your Tax Debt
2. What the IRS May Not Tell You About Payment Plans
3. Melt Your IRS Fears Away - Tax Help if You Can’t Afford to Pay Your 2008 Taxes
4. Tax Resolution News: IRS Warns Against Frivolous Tax Arguments That Can Incur Severe Penalties
5. Tax Help: How to Resolve Your Back Taxes & Prevent Tax Problems If You’re Short on Cash This Season

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This entry was posted on Wednesday, February 11th, 2009 at 5:13 pm and is filed under IRS Installment Agreements, Seeking Professional Tax Help, Tax Problem FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.