If you\u2019re granted an IRS installment agreement that does not pay the balance in full before the statute expires, the IRS will review your account every two years to look for additional income sources.\u00a0 They will also compare future tax returns to the financial statement you submitted to determine if you can afford to pay more each month.\u00a0 Basically, you\u2019ll be under constant review while in a partial pay installment agreement.<\/p>\n
An IRS installment agreement costs $43 to set up and, if it\u2019s voided, a $24 user fee will be assessed to reinstate.\u00a0 Of course, these fees are minimal compared to the time and effort (and legal fees if you hire a professional) an installment agreement on a large balance due will require.<\/p>\n
Note that, if your IRS installment agreement request is approved, interest and penalties will continue to accrue and a tax lien will likely be filed to protect the government\u2019s interests should you default.\u00a0 The lien will be required unless you can prove that it will cause you significant harm.<\/p>\n
* In my experience, the only time the government doesn\u2019t file a lien is when the debt will be paid in 12 months or the client had a clause in his employment contract that he will be terminated if he became subject to an IRS tax lien\u2026 usually someone in the financial or investment business.<\/p>\n
Interest will accrue at around 7% to 8% per year and is at a variable rate.\u00a0 For the current interest rates, see www.IRS.gove<\/a>.\u00a0 Late payment penalties will apply at 0.5% of the unpaid tax for each month or partial month you are late, up to 25%.\u00a0 If the IRS was forced to track you down, this penalty can be increased to 1% per month for a total of 50%.<\/p>\n <\/p>\n If you recently filed your returns on April 15 with a balance due, you may be able to avoid the late payment penalty by paying in full, including interest, by October 15.\u00a0 In any event, if you are proactive with the IRS, you should be able to avoid the extra 25% late payment penalty\u2026 pay 25% in late penalties rather than 50%.<\/p>\n Most IRS installment agreements require you to complete a detailed financial statement, and provide supporting documents, using IRS Form 433-A.\u00a0 There are two exceptions to this requirement:<\/p>\n <\/p>\n <\/p>\n If you owe $10,000 or less of income tax (not including interest and penalties), you qualify for a Guaranteed IRS Installment Agreement without the need for a financial analysis or manager approval.\u00a0 You may request a Guaranteed Installment Agreement through www.IRS.gov<\/a> if all of the following conditions are met:<\/p>\n This means that, if you can afford to pay off the debt in 3 years, you don\u2019t need to hire a professional.\u00a0 You should simply go on to the website and get it done.<\/p>\n If you can\u2019t afford to make significant payments, then you will be required to provide detailed financial information and might want to hire someone to at least review your 433-A before it goes in.\u00a0 In this case, you should consider being listed as uncollectible or placed on a partial pay installment agreement.\u00a0 I don\u2019t often recommend an Offer in Compromise on such a relatively small balance due because of the effort and costs involved and that you would need to be (basically) destitute to qualify.<\/p>\n Who Is A Perpetual Traveler Under The US Tax Code?<\/span><\/em><\/a><\/p>\n <\/p>\n If you owe $25,000 or less (including interest and penalties), you may qualify for a Streamlined IRS Installment Agreement.\u00a0 Again, this doesn\u2019t require a financial statement or other supporting documentation.\u00a0 It does require you to be up to date on your filings and estimated payments or W-2 withholdings.<\/p>\n The streamlined agreement allows you to make payments over 60 months rather than 36 months\u2026 assuming the collection statute won\u2019t expire in that time.<\/p>\n As with all installment agreements, you must keep up to date on your IRS filings and payments or the agreement will be voided and collection actions will resume.<\/p>\n I also note that the streamlined agreement is only available to individuals and businesses owing income tax or, if the business is closed, any kind of tax.\u00a0 This means that civil penalties don\u2019t generally qualify for the streamlined agreement.<\/p>\n <\/p>\n When you don\u2019t qualify for either of the simplified IRS installment agreement programs, you are in for a battle.\u00a0 You must complete IRS Forms 433-A and\/or 433-B (or IRS Form 433-F) and provide all kinds of supporting documentation.\u00a0 This often includes 3 to 6 months of bank statements, pay stubs, W-2s, and proof of most expenses (housing, automobile and utilities).\u00a0 Then, these expenses are compared to the allowed standards.\u00a0 Any expense that the collector deems is excessive or unnecessary will be disallowed.<\/p>\n Once your income and expenses have been reviewed and pared down, the IRS will expect you to hand over the difference (if any) each month.\u00a0 So, if your income after taxes is $5,000 and your allowed expenses are only $2,000, then you can \u201cafford\u201d to pay $3,000 per month to the government.<\/p>\n Note that many expenses will be denied out of hand.\u00a0 For example, the IRS won\u2019t usually allow you to make payments to your credit cards or for any unsecured loans (such as loans from family).\u00a0 Your Uncle wants his cut off the top, no matter how it will damage your credit or business.\u00a0 You may need to deal with these bills before beginning to negotiate an IRS installment agreement.<\/p>\n <\/p>\n The Service has two categories for your expenses:\u00a0 Necessary and conditional.\u00a0 Necessary expenses are those which provide for you and your family\u2019s health and welfare or for the production of income.\u00a0 These include (minimal) housing, an automobile to get to and from work, food, clothing, utilities, and current taxes.\u00a0 If you don\u2019t have a job, or you have two cars and only one spouse works, then you may not be allowed an automobile expense.<\/p>\n Conditional expenses are those that are not necessary and are allowed only if the tax liability, including interest and penalties, will be paid in full within 5 years.\u00a0 If you can\u2019t afford to pay off the IRS within 5 years, then you can request up to 1 year to reduce or eliminate your conditional expenses and get your necessary expenses in line with the standards.<\/p>\n If you\u2019re not able to pay the debt in full and are requesting a partial pay IRS installment agreement, no conditional expenses will be allowed.\u00a0 As stated earlier, the government will be very tough on you if you are requesting a partial pay agreement.<\/p>\n One last comment on the IRS installment agreement.\u00a0 When only one spouse owes the great collector, the IRS is usually unable to collect from the innocent spouse.\u00a0 This occurs when you use the married filing separate return or one spouse is hit with a civil penalty.<\/p>\n When the \u201cguilty\u201d spouse goes to negotiate an installment agreement, the IRS will allow only a portion of the household expenses\u2026 usually calculated as a percentage of his contribution towards the total family income.\u00a0 For example, if the husband is the one caught in the IRS\u2019s web, and he makes 45% of the total family income, he is allowed 45% of the family expenses.\u00a0 If the government says you\u2019re permitted $3,000 per month in expenses, he will be allowed $1,350 of this and the IRS will want the rest.\u00a0 If he is earning $5,000 after taxes, he can afford an installment payment of $3,650 per month.<\/p>\n IRELAND: A LESSER KNOWN TAX HAVEN<\/a><\/em><\/strong><\/p>\n <\/p>\n You\u2019ve been successful in negotiating an IRS installment agreement and now find you can\u2019t afford it.\u00a0 This happens all the time\u2026 I believe because the collector pushes so hard on the taxpayer\u2019s expenses that he or she has no safety net and no way to deal with changes in circumstances.<\/p>\n An IRS installment agreement will be revoked if:<\/p>\n I hope this post on the IRS installment agreement has been helpful.\u00a0 I will conclude by noting that an installment agreement longer than 5 years is seldom a good deal.\u00a0 If you owe the IRS more than you can pay in 5 years, you should think about an Offer in Compromise or borrow to pay off the great collector.<\/strong><\/p>\n For help with your taxes please contact our partners HERE<\/a>.<\/strong><\/p>\n Here are some additional articles on taxation and Uncle Sam!<\/strong><\/p>\n Should I Fear the IRS?<\/a><\/strong><\/p>\n The IRS Can Take Your Retirement Account<\/a><\/strong><\/p>\nWhat’s Next<\/strong><\/h2>\n
![\"Expat](\"http:\/\/www.escapeartist.com\/wp-content\/uploads\/2015\/11\/Expat-Tax-Hacks-300x250-300x250.gif\")
<\/a><\/p>\nGuaranteed Installment Agreement<\/strong><\/h2>\n
\n
Streamlined Installment Agreement<\/strong><\/h2>\n
Help, I Owe the IRS Big Time<\/strong><\/h2>\n
There Are Two Categories<\/strong><\/h2>\n
What if I Default on an IRS Installment Agreement?<\/strong><\/h2>\n
\n