A tax installment agreement is one of the easiest ways to get yourself out of a bind with the IRS. Since the IRS almost never forgives a debt in its entirety, you are going to end up paying something, even if it is a great deal less than your original deal. But what if you can’t pay even that in a lump sum? Or what if you would like to make an offer to pay in installments before moving on to an offer in compromise?
The IRS is very receptive to tax installment agreements and will generally work with you to design IRS payment plans that can work for your situation. Before you set up an agreement, you will need to be current on having filed all of your taxes. You should also have all information the IRS will want in order to decide if your installment agreement offer is reasonable. This includes your tax returns for the past three years, pay stubs for the past three months, copies of your bank records, and three months worth of all your expenses.
Installment Agreements Can be Full or Partial
You can either ask for an IRS tax installment agreement to simply spread out the payments and try to pay in full, or you can request a Partial Payment Installment Agreement. With a partial payment agreement, you will pay the agreed upon monthly amount until a specific figure is reached. At that time, the remainder of your income tax debt is forgiven and the slate is essentially wiped clean.
An income tax expert, preferably a tax attorney or tax accountant with a great deal of experience dealing with the IRS, can help you determine whether you are likely to get a positive response to a Partial Payment proposal. In either case, if you apply for an IRS tax installment agreement you will often get a response in as little as a month, which is quite fast given it’s a government entity. It shows just how much they are interested in working with individuals on making these agreements work.
Keep in mind that the IRS will prefer that the debt be paid off in two to five years, and that you will have to keep up with your other taxes in the meantime – you can’t tack each new year onto the agreement, and defaulting on the next year’s taxes will usually void your current agreement.
To find out more about setting up a tax installment agreement, talk to a qualified tax professional who can help you develop the best possible proposal for an IRS payment plan that will work for you.