How to Set Up an IRS Payment Plan Under the New IRS Streamlined Rules: Part One of Two Parts
This two part series is intended to help taxpayers set up an IRS Payment Plan without the assistance of a Certified Tax Resolution Specialist (CTRS). The New Streamlined IRS rules allow taxpayers to structured Installment Agreement for amounts up to $50,000, if the taxpayer meets specific qualifications. Note: it is possible to get an installment agreement for up to $100,000, however, the rules for this level of debt become more complicated. It is absolutely critical the taxpayer understands the qualification requirements. It would be a devastation for taxpayers to divulge all of their financial information to the IRS only to find out they do not qualify under the New IRS Streamlined Rules. In that situation the taxpayer has left themselves completely vulnerable to aggressive collections. The final half of the article will discuss a few pitfalls each taxpayer should be aware to avoid the failure or default of the Installment Agreement.
If your debt is less than $50,000 (for all years), the new rules allow six (6) years to pay off the debt (if you otherwise qualify). Therefore, if you owe $50,000 or less, you would take the amount owed and divide it by 72 (72 months = 6 years). So, if you owe $48,000, you could divide that by 72 and the IRS will usually accept a payment of $667 per month, if requested ($48,000 / 72 = $666.67). The actual payment plan will go beyond the 72 months to allow for penalties and interest.
Please understand by entering into an Installment Agreement, the taxpayer is agreeing not to increase their tax liabilities with the IRS and pay them off over time. It is critical to understand if the taxpayer incurs additional tax liabilities not listed under the Installment Agreement, it will default and terminate the agreement. While it is possible to add an additional year or years, it becomes increasingly more difficult each time you initiate another agreement. The same can be said for defaults due to failure to make the payment each month.
One of the key advantages of an IRS Installment Agreement is it allows the taxpayer to pay their balance owed over time. The disadvantage is penalties and interest will continue to accrue. Each taxpayer will want to determine if an installment agreement is the best solution based upon their unique set of circumstances. The other potential solutions are Currently Not Collectible Status, Offer in Compromise, Partial Pay Installment Agreement, Innocent Spouse and Bankruptcy.