The first thing to do is not panic! The IRS offers a number of options for taxpayers facing financial hardships including installment agreements. If you can pay the full amount within 120 days simply call 1-800-829-1040 and inform the IRS representative of your intention to pay the balance in full within 120 days.
If 120 days is not enough you have the option of an installment agreement. You will have to fill out Form 9465 Installment Agreement Request. 9465 is a simple form where you list the amount you owe, how much you can pay monthly and the day of the month you would like your payment due. You can also list banking information if you would like to set up an auto draft.
If your request is approved a fee of $120 will be deducted from your first payment ($52 if you make your payments by direct debit).
Remember penalties and interest will still accrue while you are making payments, so make the payment as high as you can afford.
As part of the agreement, you agree to meet all your future tax obligations. This means that you must have enough withholding or estimated tax payments so that your tax obligation for future years is paid in full when you timely file your return.
Your request will be denied if you have not filed returns for other years, so you should make sure to file all returns before requesting an installment agreement. If you have balances for multiple years, you should include those balances on the request.
Also, any refund you have in a future year will be applied against the amount you owe.
There are 4 Installment Agreement Options available:
Guaranteed Installment Agreement
You are eligible for a guaranteed installment agreement if the tax you owe is not more than $10,000 and:
During the past 5 tax years, you (and your spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax
You agree to pay the full amount you owe within 3 years and to comply with the tax laws while the agreement is in effect. This means filing and paying all future tax liabilities that come due during the period of the installment agreement
You are financially unable to pay the liability in full when due.
Streamlined Installment Agreement
You can qualify for a streamlined installment agreement if the balance owing is less than $50,000 and agree to pay off the balance in 72 months or less.
The same qualifying criteria apply as in the guaranteed installment agreement above:
All returns for the preceding 5 years must have been filed and taxes paid
All future tax liabilities for the period of the agreement must be filed and paid
Partial Payment Installment Agreement
If financial circumstances are such that either of the options above are not possible then the partial payment installment agreement may be the best option. This agreement is based on what you can actually afford after taking into account essential living expenses.
In this instance the IRS requires a collection information statement to be completed (Form 433-F) The IRS will review the terms of the agreement every 2 years. They may also file a federal tax lien in order to protect its interests in collecting the debt.
“Non-Streamlined” Installment Agreement
If you don’t meet any of the above criteria and owe more than $50,000 then this is the only option available. Essentially it means directly negotiating with the IRS for a mutually acceptable set of terms and conditions. Form 433-F will need to be completed.
Of course, I am available to discuss all of these matters with you on a strictly confidential basis and to offer advice and assistance. Please don’t hesitate to call me at (281) 890 2554