See also: Form 9465, Installment Agreement Request
The IRS must enter into a requested installment agreement if the aggregate tax liability (without interest, penalties, additions to tax, and additional amounts) is $10,000 or less, and the taxpayer satisfies certain other conditions set out in Code §6159(c)(2), including full payment within 3 years, and compliance with all Code provisions while the installment agreement is in effect.
Internal Revenue Code §6159 authorizes IRS to enter into written installment agreements if the IRS determines it will facilitate the full or partial collection of the tax. An installment agreement generally requires taxpayer to pay the entire tax over the term of the agreement (ending with the expiration of the statute of limitations on collection at the latest). If this is not possible, the IRS will enter into a “partial pay agreement” with taxpayer making payments until the statute of limitations expires, and the balance is never collected. The amount of the monthly payment is generally determined by review of taxpayer’s financial information and applying the IRS collection standards, which the IRS typically requires taxpayer to update for IRS review and adjustment as appropriate every 2 years.
The IRS is continuing to test expanded criteria for streamlined processing of taxpayer requests for installment agreements. During this test, more taxpayers will qualify to have their installment agreement request processed in a streamlined manner, generally without collection of financial information, including Individual taxpayers with an assessed balance of tax, penalty and interest between $50,000 and $100,000, if the proposed monthly payment is the greater of: (i) the assessed balance divided by 84; or (ii) the amount necessary to fully satisfy the liability by the Collection Statute Expiration Date. Approximately 90% of individual taxpayers qualify to use the IRS’s Online Payment Agreement application. Direct debit payments or payroll deduction are preferred, but not required, but, if one of these methods is not used, then a Collection Information Statement is required. For operating businesses with a trust fund tax liability, criteria for streamlined processing of installment agreement requests has not changed, see Internal Revenue Manual Part 5, section 5.14.5. The aggregate unpaid balance of assessments (the SUMRY balance) is $50,000 or less. The unpaid balance of assessments includes tax, assessed penalty and interest, and all other assessments on the tax modules. It does not include accrued penalty and interest. If pre-assessed taxes are included, the pre-assessed liability plus unpaid balance of assessments must be $50,000 or less. The minimum payment amount is determined by dividing the SUMRY balance by 72. The IA must resolve all balances due prior to the expiration of the collection statute of limitations. A lien determination is not required for a streamlined installment agreement but may be made at the discretion of the revenue officer and liens may be filed.3/3/19
Six Year Rule for Repayment of Tax Liability 2/1/18
The Collection Financial Standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The vast majority of installment agreements secured by Collection employees are streamlined agreements, which require little or no financial analysis and no substantiation of expenses. In cases where taxpayers cannot full pay and do not meet the criteria for a streamlined agreement, they may still qualify for the six-year rule. The time frame for this rule was increased in 2012 from five years to six years. The six-year rule allows for payment of living expenses that exceed the Collection Financial Standards, and allows for other expenses, such as minimum payments on student loans or credit cards, as long as the tax liability, including penalty and interest, can be full paid in six years. Taxpayers are required to provide financial information in these cases, but do not have to provide substantiation of reasonable expenses.
The IRS charges different fees for installment agreements depending on whether they are set up on the phone or on-line, and whether they are paid by direct debit. Tehre are also fees to modify an installment agreement. See IRS Additional Information on Payment Plans 3/3/18
Penalties and interest
Interest and some penalty charges continue to be added to the amount you owe until the balance is paid in full. Learn more about penalties and interest at irs.gov. You may qualify for relief from some penalties, if you tried to comply with the requirements of the law, but weren’t able to meet your tax obligations. See penalty relief for more information.
Filing of Notice of Federal Tax Lien
Lien filing is not required for assessed balances up to $25,000, or assessed balances of $25,001 to $50,000 with a direct debit or payroll deduction agreement. If taxpayer oves over $25,000 but does not agree to direct debit or payroll deduction, they qualify for Streamlined installment agreement, but a Notice of Federal Tax Lien may be filed.
Disability income can be considered
In Matthews, TC Memo 2012-225, the Court held that IRS did not abuse its discretion when it considered Matthews’s VA disability income in determining its installment agreement offer. New 12/8/15
Levy while installment agreements are in place
While the government is precluded from using an administrative levy while an installment agreement is pending, the government is not precluded from seeking judicial enforcement of their tax lien. The existence of an installment agreement did not preclude the government from enforcing its tax lien against the individual under the statutory law. State Auto Property and Casualty Insurance Company, DC Miss., 2017-2 USTC Par. 50,435. 8/13/18
IRS on-line payment agreement application (OPA) 2/3/09
For balances under $50,000 (combined tax, penalties and interest) available M-F 6AM-12:30PM EST, Sat 6AM-10PM EST and Sun 4PM-12midnight EST IRS OPA. You need:
- social security number (SSN) or taxpayer identification number (TIN)
- personal Identification Number (PIN) (you need an IRS notice with your Caller Identification Number (Caller ID) to get a PIN if you do not have one)
- you may need information about your income and expenses to determine the monthly installment amount (rent or mortgage statements, pay stubs, utility bills, etc.).
If you recently filed your income tax return and owe, but have NOT yet received an IRS bill, you need:
- balance due shown on the return
- taxpayer identification number
- spouse’s taxpayer identification number (if applicable)
- date of birth
- Adjusted Gross Income from last year’s income tax return
- total tax from last year’s income tax return
The IRS requires you to provide them with financial information in order for it to determine your ability to pay your tax. If cash flow exceeds “necessary and reasonable living expenses” (as determined by the IRS), the IRS requires the excess to be paid monthly. “Cash flow” is the actual cash available to support the household, including e.g., child support and gifts. See IRS collection standards regarding calculation of living expenses. Payments continue until the tax is paid in full or the limitations period expires, and penalties and interest continue to accrue. The IRS has extensive collection standards to determine necessary and reasonable living expenses.
Statute of limitations
The IRS will enter into an installment agreement even if the installment payments will not pay the tax, penalties, and interest in full before the limitations period ends. Previously, the taxpayer was required to extend the limitations period, and still does in certain cases. The IRS will continue to review the taxpayer’s financial situation to see if increasing the payment amount is appropriate during the period.
The Internal Revenue Manual 220.127.116.11.3 (09-26-2008) provides:
“1. Do not secure Collection Statute Expiration Date (CSED) waivers on non-PPIA agreements. Generally, do not secure waivers on PPIAs; however, consider securing waivers with PPIAs in the following situations:
A. There is an asset that will come into the possession of a taxpayer after the CSED and liquidation of that asset offers the best case resolution (in lieu of liquidating existing assets to partially pay the liability).
B. A waiver is no longer required to be secured when the taxpayer’s only ability to satisfy the tax liability after the CSED expiration is through a continuation of the installment agreement and there is no significant change in ability to pay as identified through the two year financial review process.
2. The waiver can only be secured at the inception of the PPIA and not during the two year review process, unless a new PPIA is executed at that time. The length of the extension must be based on the time that it will take to make payments and cannot exceed five years plus one year to provide for other administrative actions. 3/2/10
Scheduled increases and review
The IRS may schedule increases in the monthly payments, e.g., when your car loan is paid in full you presumably will have more money available to make increased payments to the IRS. By that time you may need to trade cars and incur a new monthly car payment and would have to file updated financial information and pay a $24 fee to have the installment agreement revised.
Taxpayer requested changes
You can also request a change in the installment amount (generally a decrease as you can pay more without permission or requesting a change, and then drop back to the agreed amount if necessary, again without permission). There is a user fee for this change, see below.
You can request to skip a monthly payment for a VERY good reason, e.g., your car had a major repair which you can not pay for if you make the IRS installment payment, and you can not get to work unless the car is repaired. If that occurs you should contact the IRS as soon as possible, but should do so rarely and only if there is no other alternative. Do NOT skip a payment without talking to the IRS or you will “default” your installment agreement and the IRS will use enforced collection (e.g., a levy on your bank account or wage garnishment).
Failure to make an installment payment, or file or pay the tax on a return will default your installment agreement, and the IRS may use enforced collection.
Once you default on an installment agreement, it is substantially more difficult to get the IRS to agree to another installment agreement.
The IRS Fresh Start program (historical information from 2013) made changes to the installment agreement and lien filing and withdrawal procedures, and expanded and streamlined the offer in compromise program. 4/17/13