- An IRS Installment Agreement is often the best payment plan for taxpayers who don’t qualify for an Offer in Compromise but still need a realistic way to keep their back tax account out of active collection status.
- There are multiple types of installment agreements, each with different qualifications, processes, and consequences, making legal guidance essential.
- At The Law Offices of Michael Raff, we help clients negotiate manageable payment plans, reduce penalties, and protect their rights under federal tax law.
Many taxpayers who contact our office are in the same situation: they owe a significant amount to the IRS, but they earn too much or own too many assets to qualify for an Offer in Compromise. While the IRS isn’t offering to simply forgive the debt, there is still a viable path forward.
That path is often an Installment Agreement, a structured payment plan that allows a taxpayer to pay off tax debt over time. If you’re looking for a way to resolve a difficult tax situation while keeping finances stable, this may be your best option. As an experienced Illinois tax law firm, we’ve helped many people navigate this process with clarity and confidence.
What Is an IRS Installment Agreement?
An IRS Installment Agreement is a formal arrangement between a taxpayer and the IRS that allows tax debts to be repaid through monthly payments over a period of time. It’s one of the most common types of tax resolutions available, especially for individuals or businesses who don’t qualify for a tax settlement.
The IRS will process installment agreements when a taxpayer is unable to pay the full amount owed in one lump sum but is willing to cooperate and remain compliant with future filings and payments. Installment agreements can help you avoid active collections, including levies and potentially liens, while giving you space to work out your obligations in a way that fits your financial situation.
Types of IRS Installment Agreements
There’s no one-size-fits-all solution. There are several types of installment agreements, each with specific eligibility rules, approval criteria, and financial thresholds. Choosing the right one requires a close look at your income, assets, and the amount of your tax liability.
Time-Based vs. Income-Based Terms
Some payment plans are based strictly on a repayment period, while others focus more on your income and expenses to determine a realistic monthly payment amount. Understanding this distinction is crucial when choosing the best strategy.
Streamlined Installment Agreements
Available to taxpayers who owe up to $50,000 in assessed balance, this installment type requires no detailed financial documentation if the balance can be paid off within 72 months. A taxpayer that can meet these parameters may also qualify to avoid the filing of a Notice of Federal Tax Lien.
Collection Statutory Expiration Date Agreements
For tax debts exceeding $50,000, or when you can’t meet the criteria for a streamlined agreement, a customized payment plan must be negotiated with the IRS. If the IRS can be shown how the debt can be repaid in full, with accruing interest and penalty, by the expiration of the collection statutory expiration date, the Service is likely to work with the taxpayer to allow payment in full with taxpayer proposed monthly payments. These agreements will likely require full financial disclosure, and are often accompanied by the filing of a Notice of Federal Tax Lien.
Partial Payment Installment Agreements (PPIA)
If a taxpayer can’t afford to pay the full debt, even over time, the IRS may approve a reduced monthly payment that covers only a portion of the tax debt until the collection statute expires. This requires detailed financial documentation and is closely scrutinized, as the IRS may limit what it deems to be “reasonable and necessary” living expenses when determining an appropriate monthly payment amount.
Entry into this type of installment agreement requires the IRS to reconsider a taxpayer’s financial condition every two years, so a PPIA is not a good option for those looking to have a one and done installment agreement.
How The Law Offices of Michael Raff Can Help You Get the Right Agreement
Trying to handle a complex IRS installment agreement on your own is risky. At The Law Offices of Michael Raff, we work with taxpayers across the Chicago and Illinois to craft the best possible payment plan under the circumstances.
Here’s how our legal services can help:
- Evaluate your financial situation: We review your income, expenses, and assets to determine the best strategy.
- Match you with the best IRS program: Based on your eligibility, we identify overall resolution options and provide them to you in a detailed report.
- Negotiate directly with the IRS: We handle all communication, ensuring the IRS has the correct information while protecting your rights.
- Ensure IRS compliance: We can help you stay up to date with your tax returns and avoid defaulting on your agreement.
- Align your payments with your lifestyle: Our goal is to make sure the monthly payments are realistic and sustainable, not a setup for failure.
Risks of DIY or Poorly Structured Agreements
Many people assume that setting up a payment plan with the IRS is as simple as filling out a form. Unfortunately, that’s not often the case. Asking for monthly payment amounts that are too low will invite IRS scrutiny for income, expense and asset information. Further, if you agree to monthly payments that you can’t realistically maintain, you risk a default of the installment arrangement and having to go through the process again.
Further, many taxpayers who setup agreements on their own behalf don’t often comprehend why they owe a balance. Working with a qualified tax law firm allows taxpayers to ask questions and obtain a better understanding of taxes and required withholdings to prevent owing an income tax balance when a return is filed.
Frequently Asked Questions
What is the minimum payment the IRS will accept?
The IRS doesn’t publish a one-size-fits-all minimum, but the amount must cover your reasonable living expenses and show good faith effort to repay your tax debt. A tax attorney can help you propose a fair and sustainable amount.
How long do IRS installment agreements last?
Most agreements last up to 72 months, but this depends on how much you owe and your financial situation. Some can be longer if they’re based on partial payment terms or involve complex negotiations.
Will the IRS file a tax lien if I set up a payment plan?
The IRS may still file a Notice of Federal Tax Lien, especially if you owe over $50,000. However, certain agreements can help you avoid or remove liens if you stay in good standing. We can help minimize that risk.