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IRS Payment Plan & Installment Agreement

The IRS Payment Plan (commonly referred to as an Installment Agreement) is available to certain qualifying taxpayers who wish to pay their tax debt via monthly payments. This payment plan is for taxpayers who are in “Current Compliance” with the IRS* and have the means to pay off their tax debt yet are unable to do so in one lump sum or within 120 days. Common scenarios for taxpayers entering into an Installment Agreement include:

  • The taxpayer owes income tax on Form 1040
  • The taxpayer is responsible for a Trust Fund Recovery Penalty
  • The taxpayer was self-employed and owes self-employment or unemployment taxes and is no longer operating the business
  • The taxpayer is personally responsible for a partnership liability and the partnership is no longer operating
  • The taxpayer was the owner of a limited liability company (LLC), is personally responsible for taxes in the name of the LLC, and the LLC is no longer operating

*As applicable, “Current Compliance” with the IRS means that the taxpayer has filed all tax returns that he/she is legally required to file, made all required estimated tax payments for the current year, and is current on all payroll tax deposits.

There are several important factors to consider before requesting a payment plan:

  • Additional Costs: The IRS charges fees for setting up a payment plan. The fees charged depend on the method used for making payments and can range from $43 – $105. Additionally, interest and applicable penalties will continue to accrue on any remaining debt until the balance is paid in full.
  • Appropriation of Refunds: Even with a payment plan in effect, any tax refund owed to the taxpayer in future years will be appropriated and applied towards any outstanding tax debt. In the case that a refund is forfeited, the taxpayer is nonetheless bound by the Installment Agreement and therefore required to continue making all regular monthly installment payments until the debt is paid in full.
  • Consider all Resources: If at all possible, it may be in the taxpayer’s best interest to consider other sources for paying off his/her tax liability. Like a bad credit card, it’s possible to pay for years towards an IRS debt yet end up owing more than when one started due to ongoing accumulation of interest and penalties.

Why should you contact a Tax Attorney? Although an Installment Agreement may be a good option for resolving certain tax problems, not everyone is eligible. Additionally, eligibility does not necessarily indicate that an Installment Agreement is your best option. A knowledgeable and experienced tax attorney can discuss all of the options available for you based on your individual circumstances. A skilled and qualified tax attorney can negotiate with the IRS on your behalf and help you to propose a payment plan that you can afford. For a FREE CASE EVALUATION, please contact me at 865-566-0125.

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