Payment Plans and Installment Agreements

Whether you call it an installment agreement, payment agreement, payment option or a payment plan, the idea is the same - you make payments on the tax you owe. That sounds like a good deal, but you can save money by paying the full amount you owe as quickly as possible to minimize the interest and penalties you'll be charged. For those who cannot resolve their tax debt immediately, however, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.

In order for the IRS to consider making an agreement for an installment plan:

• You must have filed returns and paid your taxes for the five years immediately prior to incurring the tax debt you cannot pay now all at once;
• If you're self-employed, you must be up to date on your quarterly estimated tax payments;
• You must promise to file tax returns and pay all tax due while the installment agreement is in effect;
• You must not have had an installment plan agreement with the IRS within the past five years;

There are different types of installment plans depending on the amount you owe. If you owe $10,000 or less (not including penalties and interest), you may be eligible for a guaranteed installment plan agreement if you are or will be able to pay the entire amount you owe within three years.

If you owe $25,000 or less, you may qualify for what the IRS refers to as a streamlined installment agreement, if you are or will be able to pay the entire amount you owe within five years.

If you owe more than $25,000, you will have to provide extensive financial information to the IRS in order to be able to negotiate an installment plan.

What are the Advantages of an Installment Plan?

The positive side of getting the IRS to agree to installment payments is that you won't have to worry about the IRS taking what's in your bank account or seizing your property to pay your back taxes.

What are the Disadvantages of an Installment Plan?

The disadvantage of paying your tax debt over time is that penalties and interest will still continue to add up while you're paying, unlike an Offer in Compromise. So you'll end up paying more than if you paid the debt right away.

Can I Combine Other Tax Balances Owed on My New Installment Agreement?

If you already have an installment agreement from a previous tax debt and your financial situation has changed, we may be able to modify or restructure your installment agreement to include additional amounts owed into one agreement. Additionally, a Collection Information Statement may have to be completed to further illustrate your financial situation. If an installment agreement is modified, reinstated or restructured, a $45 user fee may be charged.

Are there Fees to Set Up an Installment Agreement?

The IRS charges a user fee to set up your installment agreement. The user fee for new installment agreements entered into after January 1, 2007 is $105 and $52 for agreements where payments are deducted directly from your bank account. Taxpayers with income at or below established levels, based on the Department of Health and Human Services poverty guidelines, can apply and be qualified to pay a reduced user fee of $43 for establishing new agreements including agreements where payments are deducted directly from your bank account. Information about requesting the reduced user fee will be included in installment agreement acceptance letter sent to individuals.

There is also a user fee of $45 effective January 1, 2007 regardless of income level for reinstating defaulted agreements or restructuring existing agreements. If you already have an approved installment agreement from a previous tax debt and your financial situation has changed, we may be able to modify or restructure your installment agreement to include additional amounts owed into one agreement.

What Happens If I Miss an Installment Payment?

Throughout the term of an installment agreement, your payments must be made on time. If your payments cannot be made due to a change in your financial condition, you should contact the IRS immediately. Failure to make timely payments could default your agreement. A default of your installment agreement may cause the filing of a Notice of Federal Tax Lien and/or an IRS levy action. Either can have a negative effect on your credit standing and cause financial difficulties.

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 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.

How Do I Get Started?

You can contact us at 617-245-8080, or by emailing the Massachusetts and Federal Tax Attorney Tax Attorneys Mooney McGinn LLP. We offer a confidential consultation to assess your needs and recommend a specific course of action.

The Massachusetts Tax Attorneys at Mooney McGinn LLP represent clients throughout greater Boston, the Commonwealth of Massachusetts, and (for representation with the IRS) across the United States.

The Tax Attorneys at Mooney McGinn LLP assists individuals and businesses in resolving federal tax issues and state tax issues. We also help our tax clients implement plans to avoid future IRS problems.

If you need help with an IRS tax issue, call Massachusetts Tax Attorneys at Mooney McGinn LLP at 617-245-8080 for a consultation.

Here is a list of the tax services Tax Lawyers Mooney McGinn LLP provides and the federal tax issues we resolves everyday for our clients:

• Resolution of Tax Levies
• Stopping Garnishments
• Tax Lien Releases
• Tax Litigation
• IRS Tax Audits
• IRS Tax Appeals
• Bankruptcy Litigation involving Tax
• Reduction or Elimination of Interest
• Business Tax Planning
• Individual Tax Planning
• Personal Income Tax Return Preparation
• Business Income Tax Return Preparation
• Estate Planning - Trusts
• Tax Planning
• Tax Consulting
• Tax Collection Counseling
• Abatement of Penalties
• Offers in Compromise
• IRS Payment Plans
• Installment Agreements
• Payroll Taxes & Independent Contractor
• Innocent Spouse Relief
• Statute of Limitation Issues
• Business Entity Planning - Business Formation