If a taxpayer is unable to pay the full amount of her tax liability, she may be able to enter into an installment agreement with the IRS. § 6159 Installment agreements allow full payment of the tax liability in equal monthly payments. The amount of the installment payment will be based on the amount the taxpayer owes and the taxpayer’s ability to pay that amount within the statute of limitations for collection of the tax.
When considering an installment agreement, make sure you also do an evaluation of the possibility of abating penalties.
The IRS is required under IRC § 6159 to accept an installment agreement if:
- The amount of the tax owed (not including interests, penalties and other additions) is $10,000 or less;
- The taxpayer, within the last five years, has not failed to file a return, has not failed to pay any tax shown on such return or has not entered into a prior installment agreement;
- Based on information provided by the taxpayer, the IRS has determined that the taxpayer is financially unable to pay the liability in full when due;
- The installment agreement will result in satisfaction of the full liability within three years;
- The taxpayer agrees to comply with the requirement of filing returns and making payments while the agreement is in effect.
In cases where the requirements of IRC § 6159 are not present, the IRS has the discretion to accept or reject a taxpayer’s proposed installment agreement.
The taxpayer may request an installment agreement over the telephone or by submitting a written request using IRS Form 9465. A financial statement (Form 433-A or B) is not required if the taxpayer owes less than $50,000. The IRS issued interim guidance (SBSE-05-0112-013) in a Memorandum dated January 18, 2013. These changes will be incorporated into IRS 5.14.10. In addition the period for full payment increased from 60 months to 72 months. If the taxpayer qualifies, no lien determination or managerial approval is required. The streamlined offer will use the Allowable Living Expenses standards to determine whether the taxpayer has sufficient income to pay the installment offer.
Consequences of an Installment Agreement
- Penalties and interest continue to accrue.
- An installment user fee of $43 will be taken out of the first payment.
- IRS may still file a tax lien.
- The IRS may begin levy action if taxpayer defaults.
- Future tax refunds will be withheld and applied to the liability until paid in full.
- Taxpayer must continue making payments while an offer in compromise is pending.
Taxpayers are entitled to an administrative review of any rejection of a proposed installment ageement. § 6159(f),
Documents on IRS.gov
Installment Agreement Request – IRS Form 9465
Collection Information Statement for Wage Earners and Self-Employed Individuals-Form 433-A (Not OIC)
Collection Information Statement (Short Form) – Form 433-F
The IRS Collection Process – IRS Publication 594
IRC §6159: Place and Due Date for Payment of Tax