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Installment Agreements – Which One Is Right for You?

Napoleon Yancey Sept. 4, 2020

We routinely represent taxpayers in IRS civil tax cases located in Memphis and Jackson Tennessee, North Mississippi, and West Memphis Arkansas. If you have an IRS tax debt that is too large for you to pay off, and you have too much income to qualify for an Offer in Compromise (OIC), then your best bet is to enter into an installment agreement. This might seem like a straight forward process; however, if you deal with the IRS individually, they will try to put you on terms that are favorable to them and could potentially leave you with very little to no residual income each month. Additionally, there are multiple types of installment agreements. So, how do you find out which installment agreement you should try to get and how to acquire the best terms when facing off against the IRS?

First, you need to know there are three types of installment agreements. The three types of agreements are (1) Streamlined Installment Agreements, (2) Regular Installment Agreements, and (3) Partial -Pay Installment Agreements.

Streamlined Agreement – If you owe less than $50,000; have not had any tax issues within the last 5 years (ex. Back-tax debt); and the agreement can be fully paid in less than 72 months then you might qualify for a streamlined plan. Streamlined plans are quicker to set up and generally require less financial support to qualify.

Regular Installment Agreement – If you do not qualify for a streamlined agreement, then your next best bet is a regular installment agreement. This type of agreement requires more work to qualify to obtain. The IRS will want a complete financial breakdown of your income and expense to determine where they want to set the payment plan. You will want a tax professional to assist you in gathering and communicating the requested information. The reason being that if left unchallenged, the IRS will try to set the plan in such a way that you pay off the debt as fast as possible without concern for how much remaining cash you have each month. The IRS wants to do this because they know that most people will default on the payment plan. So, they try to get as much money as they can on the frontend.

Partial-Pay Installment Agreement – I see this option as a hybrid between an Offer in Compromise and an installment agreement. Under this agreement type, you set up an installment agreement and make payments toward your tax debt; however, the payments are not high enough to pay the full tax debt before the Collection Statute Expiration Date (10-year statute of limitations on IRS tax debt). Because 10 years of collectability has run, then the IRS forgives the remaining balance. To see if you qualify for a partial pay agreement, you have to do the same analysis as an Offer in Compromise. Unlike the streamlined agreement and the regular installment agreement, the IRS will do a checkup every 18 months or so to see if your financial situation has improved. The IRS will adjust your payment up if your disposable monthly income has increased with any significance.

To see which installment agreement is right for you; have any questions about IRS tax resolution; offers in compromise; or any other IRS issue, please feel free to contact me.