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Frequently Asked Questions about Negotiating IRS Payment Plans To Settle Back Taxes

Guest post by: Michael Rozbruch

Article Overview: One way to settle back taxes and delinquent tax returns is to negotiate an Installment Agreement with the government that that allows you to pay liabilities over time. With so many Americans in financial distress, the IRS has pledged greater flexibility to help struggling taxpayers. Here are some answers to common questions that may help you determine if you may be eligible for these tax breaks and if a payment plan is the right option for you.

Frequently Asked Questions about Negotiating IRS Payment Plans To Settle Back Taxes

Before we begin, let's briefly define what an IRS Installment Agreement is: The installment agreement is a payment plan between you and the IRS. The IRS has some flexibility regarding the payment amount as long as the debt will be paid off before the statute of limitations expire. If the amount due is relatively small ($15,000 or less) and you are offering large payments, it can be quite simple to get an installment agreement.

The agreement comes with some strings attached, such as staying current on the filing and paying of future tax returns for as long as the agreement is in place. Penalties and interest will continue to be charged although the penalty rate is currently reduced during the installment agreement. The IRS charges a nominal fee to setup an installment agreement. For larger debts ($15,000 or more) and especially back taxes involving payroll tax issues, you will need professional tax representation to negotiate on their behalf with the IRS to arrange for the lowest possible monthly payment and also ensure you are given various options for making those payments. More answers to frequently asked questions about IRS installment agreements:

What do you have to do to be eligible for an installment agreement? To be eligible for an installment agreement, all returns that are due must first be filed.

What are the payment terms? Installment agreements generally require equal monthly payments. The amount of an installment payment will be based on the amount owed and on the taxpayer's ability to pay that amount within the time legally available for the IRS to collect. By law, the IRS has the authority to collect outstanding federal taxes for ten years from the date of assessment.



What are the conditions of an installment agreement? As a condition of an installment agreement, any refund due in a future year will be applied against the amount owed. Therefore, taxpayers may not get all of their refund if they owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt, then the installment agreement continues until all of the terms are met.



Does interest stop with an installment agreement? Interest does not stop accruing until the entire obligation is paid. An installment agreement is more costly than paying all the taxes owed now. Penalties and interest continue to be charged on the unpaid portion of the debt throughout the duration of an installment agreement.

Are there fees to set up an installment agreement? The IRS charges a user fee of $43 to set up the installment agreement. And it is possible for an installment agreement to be reinstated if the agreement defaults. Also, installment agreements may be restructured to include additional amounts owed in one agreement. Reinstating or restructuring an existing installment agreement will cost an additional $24 user fee.

What are enforced collection actions? Generally, IRS enforced collection actions (levy against personal or real property) are not made while an installment agreement request is being considered, or:

While an agreement is in effect,

• For 30 days after a request for an agreement has been rejected, and
• For any period while a timely appeal of the rejection or termination is being evaluated by the IRS.

Can my installment agreement be defaulted? Yes. Failure to make timely payments can default the agreement. A defaulted installment agreement could subject a taxpayer's account to enforced collection action and potentially have a negative effect on a taxpayer's credit standing.



What is an annual statement of balance due? In accordance with the law, installment agreement taxpayers receive an annual statement from the IRS. The statement provides the amount owed at the beginning of the statement period, the payments (credits) posted to account(s), any fees or assessments, and the ending balance. Currently, the annual statement is sent each year in July.

There is more information and answers to questions regarding IRS Payment Plans in my free tax guide: Tax Resolution University.

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Article Tags: delinquent tax returns, installment agreement, IRS, irs, tax breaks, tax help, tax resolution, taxes, taxpayers



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