IRS Process -- An IRS Installment Agreement -- Find out Your Options


IRS Payment Plan / 

IRS Installment Agreement




If you cannot pay the IRS right away, but have the assets and/or income to pay the amount or part of the amount over time, an IRS installment agreement may be a good choice for you.




An IRS Installment Agreement is one of the most common method for individuals to arrange payment for back taxes owed with the IRS. Even if you are filing your taxes and know you cannot pay the entire amount owed, people typically send in the installment agreement form with their tax return. 

An IRS installment agreement is typically easy to obtain when the tax amount owed is under $25,000, but will be more involved to obtain when a taxpayer owes the IRS more. If you have an IRS tax debt and want an Installment Agreement, living expenses must be factored in before the correct amount is figured out to pay for an Installment Agreement. Many of the same factors go into an Offer and Compromise as well as being placed in Currently not Collectible status.

Realize that an IRS Installment Agreement (IA) can get a levy released but you may also qualify for an Offer In Compromise, Penalty Abatement,Currently not Collectible, bankruptcy and so on. A Federal tax lien can be avoided if a taxpayer utilizes the IRS Direct Debit Installment Agreement. This is an IRS Installment Agreement that requires monthly payments be deducted directly from their bank account.

Setting Up an IRS Installment Agreement

IRS Seizure

The IRS can back out of the Installment Agreement: 

  1. if a payment is missed, 
  2. if a taxpayer falls behind on other taxes that are due to the IRS, 
  3. if a taxpayer does not give updated financial records when requested by the IRS, 
  4. the IRS finds out that a taxpayer gave false information when setting up an Installment Agreement. 
  5. Once payments are missed the IRS can place an IRS Federal tax lien on your assets or they could place a tax levy on your paycheck (IRS wage levy / wage garnishment), Social Security, Social Security Disability (SSDI), Veterans Pension,bank account and/or brokerage account. 
An Installment Agreement with the IRS will allow a taxpayer to pay their back tax debt in smaller, more manageable amounts. An IRS Installment agreement will generally require equal monthly payments. The amount of the installment payments and the number of payments to be made will be based on the amount owed and a taxpayer's ability to pay the tax debt within the time the IRS can legally collect payment from you (Statute of Limitations).

A struggling taxpayer should be aware that an IRS installment agreement is more costly than paying all the taxes you owe now in 1 (one) lump sum. As with most revolving credit arrangements, the IRS will charge interest and penalties on the unpaid portion of your tax liability.

If a taxpayer owes a back tax debt that is:
  • $25,000 or less in, the IRS will tell you what you need to do to set up the agreement
  • More than $25,000, the IRS may still be able to set up an installment agreement for you, but the IRS will also ask for financial information to help determine your ability to pay.
Even if you set up an installment agreement, the IRS may still file a Notice of Federal Tax Lien to secure the government's interest until you make your final payment.

Note: The IRS can't take any enforcement action affecting your property while the IRS:

  1. Considers your request for an installment agreement, 
  2. While your Installment Agreement is in effect, 
  3. For 30 days after the IRS rejects your request for an agreement, or 
  4. For any period while a taxpayer appeals the rejection.

What Happens If I Miss an Installment Payment?

IRS Enforcement

Throughout the term of an IRS installment agreement, your payments must be made on time. If your payments cannot be made due to a change in your financial condition, a taxpayer should look at alternative remedies. You may be Currently not Collectible (CNC), your monthly payment may be lowered or you may be eligible for an Offer in Compromise through the Fresh Start Initiative. 

Failure to make timely payments could default your IRS installment agreement. A default of your installment agreement may cause the IRS to file a Notice of Federal Tax Lien and/or enforce collection through an IRS levy action. Either can have a negative effect on your credit standing and cause financial difficulties and may leave you devastated.


Enforced Collection Actions

Generally, IRS Enforced Collection Actions (i.e., levy against personal or real property) are not made while an installment agreement request is being considered, or:
  • While an installment agreement is in effect,
  • For 30 days after a request for an agreement has been rejected, and
  • For any period while a timely appeal of the rejection or termination is being evaluated by the IRS.

Types of IRS Installment Agreements

There are different types of Installment Agreements, which allow you to pay IRS taxes over a series of monthly payments if you cannot pay in full. Below you find the most common types of IAs, and a link to each which will provide you the details as to how to file, their specific requirements, and their details.  

Streamlined Installment Agreement is intended for taxpayers that have tax debt of $25k or less. It is deemed "Streamlined" because it will not require full financial disclosure. The problem with this streamlined installment agreement is that the IRS will dictate to you.

Financially Verified Installment Agreement - If you owe over $25k or you can't make the minimum monthly payment on a Streamlined Installment Agreement you want to look at getting this type of installment agreement. It has many names, but basically will require you to fill out Form 433 to fully verify your financial situation. A tax professional is best to work with here.

Installment Agreement Over 100K - If you owe over $100,000, a taxpayer will have increased problems and will need a longer term installment agreement. If you owe the IRS more than $100,000, a taxpayer will more than likely have a Revenue Officer assigned to their case. A Revenue Officer could require a taxpayer sell off assets to satisfy the back tax debt. If this is the case, then we recommend that you have an experienced professional represent you.

Partial Payment Installment Agreement - If you are struggling financially and find that you are unable to pay off your back tax debt in a lump sum, a taxpayer may apply for a Part-Pay Installment Agreement which will require payment which is less than what is owed in full over time. This is a type of IRS Installment Agreement Agreement is very rarely accepted and requires full financial disclosure so you need to be prepared to give the IRS your bank statements etc. Flat Fee Tax Service, Inc. does not recommend that a struggling taxpayer prepare an IRS 433 Form on their own.
With all types of IRS Installment Agreements, a taxpayer can utilize IRS Form 9465, the Installment Agreement Request. This can be found on the IRS website. If you owe less than $25,000, including penalties and interest, a taxpayer may use the Online Payment Agreement application which is also on IRS website.

Negotiating a Monthly Payment

  • Negotiate a payment plan you can live with. The IRS will want the completed Form 433-A before they. Good luck doing 

  • Offer to pay at least the amount of your income minus your necessary living expenses. This is the cash you have left over every month after paying for the what the IRS calls "the necessities of life". Don't, however, promise to pay more than you can afford just to get your plan approved. Promising the IRS more than you can deliver is a serious mistake; once an Installment Agreement is approved, the IRS makes it difficult for you to renegotiate it.

If the IRS grants an installment plan, it may take several months to notify you in writing.

Making Monthly Payments

Until you receive written notice of approval, send payments to your local service center using the payment slips and bar-coded envelopes provided. If you don't want the IRS to know where you bank, use a money order or cashier's check from another bank.
You have two other options for making payments once your Installment Agreement is approved:
  • Use a direct payroll deduction. Request a payroll deduction on Form 2159,Payroll Deduction Agreement. Your employer must agree to send payments to the IRS each month using the IRS's payment slips.
  • Use a direct debit. Have your bank automatically debit your checking account each month and send a payment to the IRS. As long as you keep the account open, this is the most foolproof way to make sure you don't miss a payment and risk having the agreement revoked.

If the IRS Refuses Your Installment Agreement Proposal

If the IRS won't agree to installment payments, it is for one of three reasons:
  • Your living expenses are not all considered necessary. The IRS may deem your expenses extravagant. For example, if you have hefty credit card payments, make any charitable contributions, or send your kids to private school, expect the IRS to say "no way." Although reasonable people would disagree on what is necessary and what is extravagant, the IRS is rather stingy here.
  • Information you provided on your Collection Information Statement, Form 433-A, is incomplete or untruthful. The IRS may think you are hiding property or income. For example, if public records show your name on real estate or motor vehicles that you didn't list, or the IRS received W-2 or 1099 forms showing more income than you listed, be prepared to explain.
  • You defaulted on a prior Installment Agreement. While this doesn't automatically disqualify you from a new Installment Agreement, it can cause your new proposal to be met with skepticism.
If your Installment Agreement proposal is first rejected, you can keep negotiating. Ask to speak to the collector's manager. Just making this request is sometimes enough to soften the collector up. If you get nowhere with the manager, you can go over her head -- everyone at the IRS has a boss. You can complain to her immediate boss, then the collections branch chief, and then the district director. Squeaky wheels sometimes do get greased. Again, just talking about going up the ladder may cause a change in attitude at the lower rungs and get you a fair payment plan.

When the IRS Can Revoke an Installment Agreement

Once you receive approval of your IA, you and the IRS are bound by the terms of the agreement, unless any of the following are true:
  • You fail to file your tax returns or pay taxes that arose after the IA was entered into. Although IRS computers do not continue to review your finances, they do monitor you for filing future returns and making promised payments.
  • You miss a payment. Under the terms of a Installment Agreement, payments not made in full, and on time, can cause the Installment Agreement to be revoked immediately. In practice, the IRS usually waits 30 to 60 days before revocation -- at least on the first missed payment. You are entitled to a warning or a chance to reinstate the agreement.
  • Your financial condition changes significantly -- either for the better or worse.The IRS usually won't find out about this unless you tell them. The IRS may review your situation every 18 to 24 months, however, and require you to submit a new Form 433-A in order to continue your Installment Agreement.
  • The IRS discovers that you provided inaccurate or incomplete information as part of the negotiation. For example, you may have omitted to mention certain valuable assets. In this case, you will be serious trouble.

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    1. Before you agree to an Installment Agreement with the IRS, find out if you can reduce your tax liability. Find out if you are Currently not Collectible. Find out if you are eligible for an IRS settlement through the Offer in compromise program.


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