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IRS Installment Agreements

If you do not qualify for an offer in compromise then the next potential option you can aim at is an installment agreement. An installment agreement is similar to a home mortgage. An installment agreement is a monthly payment plan you set up with the IRS. When you have a valid installment agreement set up with the IRS the IRS can take no further collection activity against you. So, in other words, they cannot also levy your wages or bank accounts. But, you must stay current with your monthly payments and make sure they are received on time because if not, the IRS will immediately revoke your installment agreement and begin enforced collection activity against you. The installment agreements are monitored by a computer so if they are one day late or one penny short the installment agreement will be revoked. Now, the installment agreement will continue until you have either paid your tax liability (including penalties and interest) in full or until the statute of limitations for collections has expired. The statute of limitations for collection in generally 10 years from the date of the assessment of the tax. Often times an installment agreement will be an effective offer in compromise because there will be know way to full pay your tax during the life of the statute of limitations. Also, you should know that an installment agreement can be changed down the road should your financial situation change. So, if you lose your job in 10 months or something like that you can call the IRS back and change your installment agreement to a lower amount. After saying all of this, the big question is, “how much am I going to have to pay each month?”

The amount of money you owe the IRS will determine how difficult it is to set up your installment agreement. Usually, if you owe less than $25,000 to the IRS (including penalties and interest) you will not have to provide the IRS financial information like you would in an offer in compromise. You simply call the collections department and let them know that would like to set up an installment agreement. If you can agree to pay what they propose then they will immediately set up an installment agreement.

If you do cannot afford to pay what the IRS proposes or if you owe more than $25,000 then you will be required to provide financial information to the IRS. You will need to fill out a Form 433-F which is a shorter form than the Form 433-A you fill out during the offer in compromise process. I would recommend that you fill this form out completely before calling the IRS so you know exactly how your form should be filled out and you don’t let them talk you into a lower amount for an expense or something like that. Also, the form points out what type of documents it requires to prove income and expenses. You should go ahead and gather these documents before you call. We will discuss why in just a moment. Then you can call the IRS and ask for an installment agreement. If you owe more than $25,000 or you cannot agree to pay what they propose, they will begin to ask for financial information from you. Basically, they go line by line through the 433-F. Their computer automatically calculates what the national standard expenses is for each category if your actual expense is greater than the national standard. After than conversation the collections officer you are talking to may ask you to send in some additional information such as bank statements, pay stubs, court orders and other similar documents. If you are on a timeline (like you have a levy you are trying to get released) or you would just like the piece-of-mind that comes from knowing the installment agreement has been set up you will need to be close to a fax machine so you can immediately fax these documents to the revenue officer. You can only fax these documents while you are on the telephone with the revenue officer.

If you feel less comfortable talking to a revenue officer about your installment agreement, you can prepare your 433-F and the documents that it requires along with an installment agreement request form which is IRS Form 9465 for the periods you owe for and ask for the amount that you feel you can comfortably pay each month. Then follow the instructions associated with Form 9465 and mail it to the proper IRS office for where you live. It generally takes the IRS eight weeks to respond to the type of request and set up your installment agreement.

Here’s a list of articles to help you with your Installment Agreement questions:

Can you add New Tax Years to your Installment Agreement?

Worried about an IRS Wage Levy after setting up an installment agreement.

The impact of owing additional new taxes to your installment agreement