Services: Pay Over Time / Installment Agreement
Based on a taxpayer’s financial condition, the IRS may be unwilling to accept an Offer in Compromise to settle his or her tax liability. For example, if you have the financial ability to pay your assessed liability in full over time, the IRS will not accept an Offer in Compromise. In that event we may be able to negotiate an installment agreement with the IRS as a way to resolve your tax liability.
Installment agreements are contractual arrangements with the IRS that allow a taxpayer to pay his or her liability in full over time. The basis of an installment agreement is the monthly payment that is negotiated between the IRS and a taxpayer for a specific period of time. The IRS typically formalizes an installment agreement on a Form 433D.
There are generally three types of installment agreements:
- Regular installment agreements
- Streamlined installment agreements
- Partial payment installment agreements
For regular installment agreements, the IRS will demand that financial statements be prepared and filed in order to determine your ability to pay under an installment agreement. The financial statements are used as the basis for negotiating an acceptable monthly payment. A potential downside to filing financial statements, in addition to the added time and expense related to the preparation of these documents, is that you are forced to disclose your entire financial condition to the IRS. This disclosure may or may not be favorable to you depending upon your particular circumstances.
Case study: In this case study, our taxpayer owed approximately $125,000.00 to the IRS. We prepared a Form 433A, Financial Statement, and negotiated an installment agreement with the IRS in an amount the taxpayer could afford. The taxpayer ultimately paid the liability in full under the installment agreement and no longer has any IRS problems.
A streamlined installment agreement may be available if the amount of your IRS liability is not too large. If the liability is small enough, the IRS may not demand the filing of financial statements and we can negotiate an installment agreement for up to 60 months (five years). If you are eligible for a streamlined installment agreement, we can save both time and money to attempt to resolve your tax liability.
Case study: In this case study, our taxpayer owed about $21,000.00 to the IRS. We were able to quickly negotiate a streamlined installment agreement with the IRS without having to disclose the taxpayer’s income or assets to the IRS. The monthly payment was $437.00 per month. According to our taxpayer, the liability was paid in full under the installment agreement in about five years.
Another alternative is a partial payment installment agreement. We could refer to a partial payment installment agreement as a “poor man’s Offer” because the taxpayer will pay less than what he owes under this program, just like an Offer in Compromise. Under a partial payment installment agreement, the taxpayer enters into installment agreement with the IRS and makes payments on a monthly basis. However, the amount paid to the IRS will not be enough to pay the outstanding liability in full before the collection statute of limitation expires. In this fashion, the taxpayer still cuts a deal with the IRS because he will not pay the full amount due.
Case Study: In this case study, the taxpayer owed approximately $425,000.00 to the IRS. Because of her income potential, she was not eligible for an Offer in Compromise. We negotiated an installment agreement with the IRS for $1,800 per month. However, because of the collection statute of limitation (the period that limits the time in which the IRS can legally collect money) will expire in a few years, our taxpayer will enjoy the benefit of a “poor man’s Offer” because she will not pay all of the liability due before the collection statute of limitation expires. In this fashion, our taxpayer will pay significantly less to the IRS.
As with any contract, you must comply with the terms and conditions of the installment agreement. If you fulfill your obligations under the installment agreement, the IRS will take no enforced collection action against you. You will also enjoy a final resolution to your tax problems.
Patrick T. Sheehan & Associates, Attorneys at Law, P.C. has successfully negotiated many installment agreements with the IRS since its inception in 1991. If you would like us to help you negotiate an installment agreement with the IRS, please call us. We can help. Call us before the IRS calls you!®