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Installment Agreements

1) Traditional Installment Agreement:

The most common payment plan is what we refer to as the traditional installment agreement. To qualify for a traditional installment agreement, taxing authorities (again, primarily the IRS) require that the taxpayer, whether it be an individual, couple filing jointly, or business, be what the taxing authority refers to as Current and Compliant. What this, in the simplest terms means, is that all tax returns then currently due have been filed, AND for the current tax year that sufficient withholdings or estimated tax deposits have been made to cover their anticipated tax liability for that tax year. It’s only when a taxpayer is current and compliant that a proposal can be submitted.
The IRS requires (State requirements vary but are not substantially dissimilar) that proposals be submitted with their approved Form 433A. The form is what is commonly referred to as an Individual Collection Information Statement. It’s a disclosure form to the taxing authority, identifying taxpayer assets and liabilities as well as a summary of monthly income and expenses. Businesses are required to provide Form 433B which is a Business Collection Information Statement. Transmittal of these forms (with the proposal for installment agreement) require that certain items be attached (examples are current bank statements, evidence of income (pay stubs), copy of the most recently filed tax return, and evidence of monthly obligations).

The information provided with the form 433A or form 433B should back up or support the income and expense information listed in the Collection Information Statement. It’s the tax resolution professional’s role  to insure that they do before the proposal is presented to the IRS. After transmittal of the proposal, negotiation by a tax resolution professional follows and culminates with a written acceptance letter from the taxing authority outlining the terms of the installment agreement (the payment plan). These traditional payment plans are based on an amount that (theoretically) equals the taxpayers ability to pay (on a monthly basis) after considering  categorical expense limitations outlined under IRS administrative rules.

 

2) IRS Quick Start Installment Agreement:

The quick start installment program allows taxpayers with limited IRS tax liability to enter into an installment agreement without providing detailed financial information to the IRS. Summary requirements: Your liability must be able to be retired (paid in full) over 72 months from the date the agreement is entered into. For this program, the IRS requires that you sign an agreement which provides in part that you agree to have your monthly payment debited from your bank account. You are only allowed to enter into this program one time. If a taxpayer defaults on a quick start installment agreement, the taxpayer will not be allowed to participate in the program in the future.

 

3) Partial Pay Installment Agreement:

The taxpayer will be required to disclose their financial condition to the IRS  using an IRS form (for an individual Form 433A; for a business Form 433B). The form is a Collection Information Statement. Completion of the form provides to the IRS information (disclosed by the taxpayer) identifying assets, liabilities, income and expenses (both monthly and otherwise). Supporting information must be provided. If the IRS determines (typically via negotiation) that the taxpayer cannot make monthly payments that will retire the full taxpayer tax liability over the term of the collection statute, then a Partial Pay Installment Agreement would be granted.

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