Ohio Tax Lawyer Michael McNamee Explains How Installment Agreements With the IRS Work
It happens to everyone at some point. You have a good year income-wise, you go to file your taxes with the Internal Revenue Service, and you owe money.
When you do not currently have the money to pay your taxes, an installment agreement plan with the IRS is an option. We've provided a brief explanation of this process for your review, but we encourage you to contact our Ohio tax lawyer for details specific to your case.
Options Available to a Taxpayer Requesting an Installment Agreement
If taxes are owed to the IRS, a taxpayer has a few options available to them. They can establish a payment plan (‘installment agreement') with the IRS or they can request that the IRS temporarily delay the collection process against the taxpayer. There are a few different types of installment plans that a taxpayer may set up, and it depends on the dollar amount of taxes owed, whether the taxpayer is a business or individual, and how long the taxpayer needs to pay the taxes. In this article, we will focus on an individual taxpayer and not a business owner.
If You Owe Less Than $10,000
If a taxpayer owes the IRS less than $10,000, then they are eligible for a guaranteed installment plan with the IRS if the taxes are paid off in 36 months and there are no delinquent tax returns. For example, if Joe Smith owes the IRS $9,000 and is current in his tax filings, then he can offer to pay the IRS $250 a month for 36 months and the IRS would have to accept this payment plan.
If You Owe Between $10,000 and $50,000
If a taxpayer owes more than $10,000 to the IRS but less than $50,000, then the taxpayer can still set up an installment plan via the online portal. However, the IRS will not automatically approve the dollar amount that you offer to pay each month and may request that you increase your monthly payment.
A user fee would have to be paid at the time this installment agreement is submitted to the IRS and this fee will range anywhere from $31 to $225 depending on whether the online portal is used to set up the fee and whether the taxpayer pays with a check, money order or direct debit from a bank account.
If You Owe More than $50,000 and Can Not Pay Within 120 Days
If a taxpayer owes more than $50,000 to the IRS, they can not use the IRS online portal to set up a payment plan and must complete two forms. The first is Form 9465 Installment Agreement Form, and the second is Form 433-F Collection Information Form.
The Collection Information Form will request detailed financial information such as your personal bank account (including bank account numbers), investments in any brokerage accounts, stock, bonds, IRA accounts, 401k accounts, gold, and any other investments. You must also disclose if you have any virtual currency accounts, any real estate and other assets such as but not limited to vehicles, boats, or life insurance.
The Collection Information Form will also request that you list your credit cards along with the credit limit on each card, and if you own a business, you must disclose a variety of information on your business.
A Taxpayer will also have to disclose their employment information, including how often they are paid. Finally, the taxpayer must disclose their total monthly income and their total monthly living expenses.
Supporting documentation must be provided for this Form and it must be signed “Under penalty of perjury”
As you can understand, the Collection Information Statement required to be completed can be very time-consuming, and you must disclose your personal financial information.
One way around not having to file this form is to first reduce the outstanding balance that is owed to the IRS to bring the amount under $50,000. For example, if Sue owes the IRS $55,000 and she can not full pay and needs an installment agreement. She does have currently $8,000 in her savings account and can use this amount to reduce her IRS tax debt to $47,000. She can then set up an installment agreement for the $47,000 and not have to file a Collection Information Statement.
The IRS will require the balance of the delinquent taxes to be paid over a 72-month period in order for them to accept the installment agreement. However, even with an installment agreement, the IRS will continue to charge interest on the unpaid portion of the taxes.
After Your Installment Agreement Is in Place, You Must Stay Current
Once a taxpayer has set up an installment agreement with the IRS, the taxpayer must also stay current with their tax filing and payment obligations. This means that all future tax returns must be filed by the due date of the return. If future taxes are owed on these tax returns, then the tax must also be paid. Also, if a taxpayer is self-employed or is required to make estimated tax payments, then those estimated tax payments must be made.
If a tax return is not filed or future taxes are not paid when owed, then the IRS can terminate the installment agreement and pursue other collection actions against the taxpayer.