Installment agreements are perhaps the most widely used method for paying past tax debts.
If you cannot afford to pay your tax liability in full, the IRS may enter into an installment agreement with you.
This will allow you to pay off your tax liability through monthly payments or installments. Installment agreements may pay all (full pay) or part (partial pay) of your past tax liability.
If you cannot pay the amount you owe within 60 months, you must file Form 433-A or 433-B. The IRS will analyze these forms and use the information to determine the amount you can pay.
The IRS has the discretion to decide on the payment amount and will usually, negotiate with you in food faith. The IRS will consider your financial situation and assets while negotiating with you. You will typically not be approved for an installment agreement if you have money or assets that IRS deems unnecessary to live on.
The IRS will usually inform you within 30 days whether or not your request has been accepted or denied or if any additional information is required to be submitted by you.
If the IRS approves your request, you will be required to pay a one time fee of $105.
Requirements for Receiving an Installment Agreement
? You must be current on all your tax returns. ? If self employed, you must be current on your quarterly estimated tax payments for the current year. ? If you have employees, you must be current on your payroll tax and Form 941 filings. ? You must make all installment payments on time. ? You must also file all tax returns and make tax payments including any estimated tax payments or Federal Tax Deposits during the term of the agreement on time.
Once you have been approved for an installment agreement, the interest and penalties continue to accrue on the unpaid portion of back tax liability throughout the duration of the installment agreement till you pay off your entire tax debt.
The interest is adjusted quarterly and combined with penalties, the rate is about 15% per year. In most cases, you could end up paying more than what you owed at the beginning. You will be charged interest and a late payment tax penalty by the IRS on the tax not paid by April 15th, even if your request to pay tax in installments is granted by the IRS.
Once you enter into an installment agreement, the IRS will suspend all collection efforts and will stop issuing wage garnishments, bank levies and notices. Depending on the circumstances, the IRS may file a Notice of Federal Tax Lien to protect its interest until you pay the liability in full.
For higher tax dues you will have to fill up Collection Information Statement as well in Form 433F and may have to visit the tax office. You can also call the IRS and explain your problem to them who will then guide you in the matter.
Remember, however, to file all the back returns, if not filed, as that is a necessary precondition for granting installments.
Apart from the Collection Information Statement, the IRS may also require you to furnish copies of supporting documents. Based on the details provided of the assets and income, the IRS determines the quantum of monthly installment and the number of months for which the installments are to be paid.
This is an area of negotiation. The IRS may ask you to modify the proposals and even refuse to accept your proposal.
It needs to be remembered that the law allows only a ten year period to the IRS for collecting the dues. The time is to be measured from the date of assessment leading to the demand. However, the tax payer has the power to extend this time and if he does so, the IRS may be willing to allow installment payment beyond the ten year period.
It is in the interest of the tax payer, however, to pay the demand as early as possible. This is because interest continues to accumulate on the unpaid amount during the installment period.
Delayed payments of tax also invite penalty, though it may be possible to seek their abatement if the delay is for bonafide reasons. Considering the cumulative impact of interest and penalty, tax payers may be better off by borrowing money and paying taxes at the earliest.
The mode of payment of tax is another area of negotiation. The IRS prefers that taxes be paid by way of payroll deduction from the wages or by way of direct debit from your bank account.
This may also be in the interest of the tax payer as it makes for regular payment which enables the continuance of installment agreement. In case of default, the installment agreement may be canceled and the tax payer may be subjected to coercive recovery action such as wage garnishment and bank levy.
Both Larry Weinstein, Cpa & Neil Lemons are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Larry Weinstein, Cpa has sinced written about articles on various topics from IRS Tax. Larry M. Weinstein, CPA is the Director of the National Tax Practice for www. SolveMyTaxProblems.com, and has developed a 7 Step Proprietary Process known as, the ?Strategic IRS Tax Problem Resolution Process?? and is the author of ?The 7 Things You Must. Larry Weinstein, Cpa's top article generates over 720 views. to your Favourites.
Neil Lemons has sinced written about articles on various topics from Legal Matters, Dog Care and Payday Loans. Neil Lemons represents Allied Tax Solutions, a 30 year IRS tax representation firm with ex-IRS agents that help you get your life back. To learn more on. Neil Lemons's top article generates over 6600 views. to your Favourites.