Installment Agreements (IA)
The IRS and most state Departments of Revenue provide a variety of different options for paying back your taxes over time. The considerations when evaluating available Installment Agreements include compliance, the size of the debt, the qualification factors, the requirements for payment method, the lien treatment, and the impact of the Collection Statute Expiration Date.
Filing and paying compliance must be considered prior to determining that the best manner of paying delinquent taxes is through an installment agreement. IRS will not establish an IA for even a tiny amount of back taxes if there is a return missing or there is obvious noncompliance with estimated taxes or withholdings.
Debt size matters, and the size of the debt that matters changes whether the taxpayer is an individual or an operating business. Relevant debt amounts are $25,000 and $50,000, and the amount of relative underlying assessed balance versus total balance including accruals can be a factor.
The factors that qualify a taxpayer for a payment arrangement can be simply the amount of the proposed payment. That is, if the debt is small enough, and the proposed payment is large enough, it may qualify for an agreement without any consideration of ability to pay. Once ability to pay is considered, the valuation of assets and projected income-versus-expenses of the taxpayer become relevant. The considerations for determining ability to pay is purportedly the same throughout the Collection function, though the venue of the case (Revenue Officer, Automated Collections, etc.) has a significant impact on how the ability to pay determination is made. Generally, however, IRS standards for monthly expenses, policies for predicting future income, and methods for valuing assets come into play and are the area of a great deal of negotiation.
Most IA’s may be established so that payments are simply mailed to the Service by the due date. Some IA’s require the establishment of a direct debit arrangement, among other requirements.
Some IA’s can prevent the filing of a lien if established timely. In contrast, other IA’s can require the filing of a lien. Lastly, certain IA’s now qualify the taxpayer for a Withdrawal of Lien, the most advantageous lien treatment other than avoiding issuance in the first place.
Collection Statute Expiration Date
The CSED used to be a more difficult factor in the establishment of Installment Agreements, particularly on older or larger debts. With the establishment of the Partial Payment Installment Agreement, however, the CSED factors in more prominently where a taxpayer’s monthly expenses exceed IRS standards or are non-standard entirely.