It is not uncommon for people to struggle with paying the federal income tax they owe. In many cases, the tax they owe is way more than what they can pay. This is incredibly stressful, but the IRS has its ways of making it easier for them. One of the best options for people in such situations is to go for an IRS installment agreement. An installment agreement gives people the option to make monthly payments to the IRS instead of paying the federal income tax they owe at once.
Dorothy Lawrence, the CEO of Dorothy Butler Law Firm, believes that people often rush into such agreements and make mistakes. That’s why she strongly recommends people first understand the eligibility criteria of IRS agreements along with other basics before applying.
Eligibility Criteria
Here is everything Dorothy wants you to know regarding the eligibility for IRS installment agreements.
- You are eligible for an installment agreement only if you are a “compliant” taxpayer, i.e., you have filed all the required tax returns, and you are up-to-date with your tax obligations for the current year.
- You are eligible for a streamlined installment agreement if you owe the IRS an amount equal to or less than $50,000 in taxes, interest, or penalties.
- If you owe the IRS $50,000-$100,000, you can still be eligible for a streamlined installment agreement if you fulfill an expanded criterion set by the IRS.
- If you owe the IRS more than $100,000, the IRS will ask you to submit a financial statement.
Important Things to Keep in Mind
Dorothy recommends keeping the following points in mind while applying for an installment agreement so that you don’t make any mistakes.
- Keep the collection statute expiration date in mind, which is generally ten years.
- Keep your financial documents ready before you apply for an installment agreement. Make sure you have all the necessary documents related to your income, assets, and expenses.
- Choose your installment agreement carefully because some installment agreements come with a federal tax lien.
- Always file and pay on time.
Which Installment Agreement to Go for?
Since there are many different types of Installment Agreements, Dorothy strongly recommends people consult a financial attorney in order to figure out which one is best for them. Generally, Dorothy says, if you owe up to $10,000, you should go for a Guaranteed Installment Agreement. If you owe less or equal to $50,000, you should go for a Streamlined Installment Agreement. However, things can be very complicated. For example, if you owe the IRS up to $50,000 but can’t pay them within the next six years, you shouldn’t go for Streamlined Installment Agreement. If you don’t know which installment agreement is best for you, consult the Dorothy Butler Law Firm, which will look into your situation and help you decide what’s best for you.
What Can Terminate Your Installment Agreement?
If you get an installment agreement, it is very important to make all payments on time. If you fail to make the due payments, the IRS can terminate your existing payment plan. Similarly, the IRS can revoke the agreement if your form 433 was inaccurate, your total tax liability increased, or you failed to file subsequent returns. If the IRS terminates your installment agreement, you still have the option to appeal. Dorothy recommends contacting an attorney or the IRS as soon as you receive Notice CP 523.
