IRS Installment Agreements

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IRS Installment Agreements

• Introduction and Summary

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Does IRS Allow Installments?
Can I ask to make installment payments on the
amount I owe? Yes. If you cannot pay the full amo
unt due as shown on your return, you may ask to
make monthly installment payments. However, you
will be charged interest and you may be charged a
late payment penalty unless you can show
reasonable cause for not paying on the tax not
paid by April 15, even if your request to pay in
installments is granted. Before requesting an
installment agreement, you should consider less
costly alternatives such as a bank loan.
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Setting Up an Installment Agreement
Installment agreements allow you to pay your full
debt in smaller, more manageable amounts.
Installment agreements generally require equal
monthly payments. The amount of your installment
payments and the number you make will be based on
the amount you owe and your ability to pay that
amount within the time the IRS can legally
collect payment from you. You should be aware,
however, that an installment agreement is more
costly than paying all the taxes you owe now. As
with most revolving credit arrangements, the IRS
charges interest and penalties on the unpaid
portion of the debt. Another cost associated w
ith an installment agreement is a user fee. This
is a one-time fee (currently 43) the IRS charges
to set up the agreement. If you don't meet the
terms of the agreement throughout the life of the
agreement, the IRS charges an additional fee of
24 to reinstate it.
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Setting up Continued

• If you want to pay off your tax debt through an
  installment agreement, consider the following If
  you owe
  
• 25,000 or less in tax, be prepared with cash
  flow information see the organizer (if you need
  a business organizer)
  
• More than 25,000, the IRS is more likely to ask
  more detailed information and ask for bank
  statements and proof of income
  
• The IRS will determine how much you the taxpayer
  will pay
  
• Even if you set up an installment agreement,
  expect the IRS to file a Notice of Federal Tax
  Lien to secure the government's interest until
  you make your final payment.
• Note The IRS cannot take any collection actions
  affecting your property while it considers your
  request for an installment agreement, while your
  agreement is in effect, for 30 days after we
  reject your request for an agreement, or for any
  period while you appeal the rejection.
• If you arrange for an installment agreement, you
  can pay with
  
• Personal or business checks, money orders, or
  certified funds (all made payable to the U.S.
  Treasury)
  
• Payroll deductions your employer takes from your
  salary and regularly sends to IRS
  
• Electronic transfers from your bank account or
  other similar means

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Do I Get Tax Refunds?
Can a person receive a tax refund if they are
currently in a payment plan for prior year's
federal taxes? You may not get all of your refund
if you 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 you must continue the
installment agreement.
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Collection Period
Generally the Internal Revenue Service has 10
years from the assessment of a tax liability to
collect the liability. The date by which the
liability must be collected is called the
Collection Statute Expiration Date (CSED). Should
you file an installment agreement request (Form
9465) your account will be reviewed to ensure
your liability, including penalties and interest,
will be paid in full by the CSED prior to
approval of the agreement.
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IRS Attitude and Position
10 Years to Collect Levy Seizure Distraint

Judgment
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Cost of an Agreement
What Will You Be Charged? You will be charged a
43 fee if your request is approved. Do not
include the fee with Form 9465. After approving
your request, IRS will send you a letter telling
you how to pay the fee and how to make your first
installment unless you choose direct debit(see
below). You will be charged interest and may be
charged a late payment penalty on any tax not
paid by its due date, even if your request to pay
in installments is granted. To limit interest and
penalty charges, file your return on time and pay
as much of the tax as possible with your return.
Before requesting an installment agreement, you
should consider other less costly alternatives,
such as a bank loan.
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How Does It Work?
How does the Installment Agreement Work?
If IRS approves your request, it will send you a
letter. It will tell you how to pay the fee and
make your first payment. By approving your
request, IRS agrees to let you pay the tax you
owe in monthly payments instead of immediately
paying the amount in full. In return, you agree
to make your monthly payments on time, pay all
your future tax liabilities and file timely.
This means you must have adequate withholding or
estimated tax payments so that your tax liability
for future years is paid in full when you timely
file your return.
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Interest Charges
InterestFor individual income tax returns, tax
is to be paid on the due date of the return,
usually April 15. If the tax is not paid by the
due date of the return, interest is charged at
the rate in effect from that period to the date
of payment in full. Interest is compounded daily
and adjusted quarterly. Section 6601 of the
Internal Revenue Code provides for interest on
underpayment, nonpayment, or extensions of time
for payment, of tax. Generally, if any amount of
tax imposed by the Internal Revenue Code "is not
paid on or before the last date prescribed for
payment, interest on such amount at the
underpayment rate established under Section 6621
shall be paid for the period from such last date
to the date paid."
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Is Interest Deductible?
Is the interest amount that we paid to the IRS
deductible? No, only mortgage or investment int
erest is deductible on Schedule A. Interest paid
to the IRS is considered personal interest and
nondeductible. It would be the same as interest
on a credit card or automobile loan.
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Penalties
Penalties For individual income tax returns, the
return is to be filed on the due date. If the
return is not filed, and tax is owed and not paid
by the due date of the return, failure to file
penalty is charged. The penalty amount is 5
percent of the outstanding tax amount per month
for the first month, with an additional 5 percent
for each month or part of a month. The penalty is
charged until the return is filed and the tax is
paid, or the penalty assessed is 25 percent of
the tax amount owed. The penalty is assessed on
net tax due, tax amount after deducting payments
and credits.
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Failure to File On Time
Failure to File (Late Filing) Section 6651 of the
Internal Revenue Code provides for penalty
assessments in addition to tax and interest for
certain conditions. In case of 6651(a)(1) failure
to file any return required under authority of
the Internal Revenue Code "unless it is shown
that such failure is due to reasonable cause and
not due to willful neglect, there shall be added
to the amount required to be shown as tax on such
return 5 percent of the amount of such tax if the
failure is for not more than 1 month, with an
additional 5 percent for each additional month or
fraction thereof during which failure continues,
not exceeding 25 percent in the aggregate."
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Penalty - Continued
For individual income tax returns, the tax is to
be paid and the return filed on the due date. If
the return is filed, and tax is owed and not paid
by the due date of the return, failure to pay
penalty is charged. The penalty amount is 0.5
percent of the outstanding tax amount per month
for the first month, with an additional 0.5
percent for each month or part of a month. The
penalty is charged until the tax is paid in full,
or the penalty assessed is 25 percent of the tax
amount owed. The penalty is assessed on net tax
due. This penalty is increased to 1 percent per
month or part of a month once the Internal
Revenue Service makes notice and demand for
immediate payment.
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Late Payment Penalty
Failure to Pay (Late Payment) Section 6651(a)(2)
- In case of failure to pay the amount shown as
tax on any return "on or before the date
prescribed for payment of such tax (determined
with regard to an extension of time for payment),
unless it is shown that such failure is due to
reasonable cause and not due to willful neglect,
there shall be added to the amount shown as tax
on such return 0.5 percent of the amount of such
tax if the failure is for not more than 1 month,
with an additional 0.5 percent for each
additional month or fraction thereof during which
such failure continues, not exceeding 25 percent
in the aggregate."
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Penalty Reduction
The Restructuring and Reform Act of 1998 provides
for a reduction in the failure to pay penalty.
The penalty is reduced when the return is timely
filed and the taxpayer enters in to an
installment agreement prior to the Internal
Revenue Service notice and demand for immediate
payment. The penalty is reduced only if the
taxpayer timely filed the return relating to the
liability that is subject to the installment
agreement. Late filed returns do not received the
reduction in the failure to file penalty. The
penalty amount will be reduced to half the usual
rate, from .5 percent to .25 percent per month,
for any month in which an installment agreement
with the Service is in effect. This reduction
will be effective for months beginning after
December 31, 1999.
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Penalty Reduction Continued
Section 6651(h) - Limitation on penalty on
individual's failure to pay for months during
period of installment agreement (effective Dec.
31, 1999). In the case of an individual who files
a return of tax on or before the due date for the
return (including extensions), paragraph (2) of
subsection (a) "shall be applied by substituting
0.25 for 0.5 each place it appears for purposes
of determining the addition to the tax for any
month during which an installment agreement under
section 6159 is in effect for the payment of such
tax."In all cases subject to both failure to
file and failure to pay penalties, no taxpayer
will be subject to more than 5 percent combined
penalty per month. Additionally, miscellaneous
penalties may apply depending on the
circumstances of each individual situation.
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Notice of Missed Payment

• What is the notice telling me?
• This notice is telling you that IRS intends to
  terminate your installment agreement. The IRS may
  also issue a levy against your wages and/or bank
  accounts. The notice tells you the specific
  reason for this action. Some examples are
• You missed a payment.
• You have a new balance due
• You didn't file your tax return.

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How Long From The Notice?
How much time do I have? You have 30 days from th
e date of the notice to contact us.
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