An Installment Agreement is a payment arrangement whereby the government allows a taxpayer to pay liabilities over time. Once a payment plan is established, the IRS will not take enforced collection action, including the levy of bank accounts or wages, as long as the taxpayer remains current with all filing and payment obligations. However, interest and penalties would continue to accrue until the outstanding balance is satisfied. Additionally, a tax lien may be filed as part of the terms of the installment payment agreement, depending on the amount of the total liability.
The IRS encourages taxpayers to pay what they owe as quickly as possible. For those individuals or businesses not able to resolve a tax debt immediately, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.
In most cases, the IRS will accept some type of payment arrangement for past due taxes.
However, 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 specialized tax representation to negotiate on your behalf with the IRS. It is also important to know what the IRS may not necessarily tell you about payement plans.
In order to qualify for a payment plan with the IRS you must meet the following rules and provide the IRS with this information:
* You must have filed all tax returns (It’s OK to owe money but you must file).
* You will need to disclose all assets owned including all cash and bank accounts.
* You must not have adequate cash available in a checking, savings, money market, or brokerage account to pay the IRS.
* You must not have the capacity to borrow the amount owed to the IRS from other sources (i.e., a second mortgage on your home).
* You must not have adequate equity in a retirement account from which you can borrow or liquidate; for example, IRA’s or 401K’s.
The total dollar amount you owe usually dictates with whom the negotiations will be handled.
* Typically, IRS Revenue Officers are not involved in cases where the amounts owed are less than $25,000.
* The IRS will ask you to complete a personal financial statement and if a business is involved, you will also need a business financial statement.
* The IRS has determined allowable monthly expenses for individuals, which will be matched against your actual monthly expenses.
* The difference between your monthly income and your allowable monthly expenses will be the amount that the IRS will require you to pay on a monthly basis.
These monthly payments will continue until your outstanding tax liabilities are paid in full.
If you need help settling your tax debt, our specialized staff of attorneys, CPAs, EAs and tax professionals can help you successfully resolve your IRS problems. Visit the Tax Resolution Services web site for a free tax relief consultation or call us at 866-477-7762.
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