If you cannot pay the full amount of tax you owe by the April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. If you have the ability to pay your tax liabilities in full based on your income and assets, but are unable to make a lump sum payment, you may want to consider an installment agreement.

An installment agreement allows you to pay your tax in monthly installments. To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments. If your tax liability is below $50,000, you can apply for an installment agreement either by completing an Online Payment Agreement or by filing Form 9465. If your tax liability is $50,000 or above, you may need our assistance to guide you through the process.

• Online Payment Agreement
• Form 9465 - Installment Agreement
• Tax Liability Below $10,000
• Tax Liability Below $50,000
• Tax Liability $50,000 and Above
• Penalties and Interest Imposed by IRS
• How We Can Help
• Offer In Compromise

Online Payment Agreement

The Online Payment Agreement (OPA) is a Web-based application on IRS.gov that allows taxpayers who owe $50,000 or less in combined tax, penalties and interest to self-qualify, apply for and receive immediate notification of approval. Taxpayers can also request an installment agreement before their current tax liabilities are actually assessed by using OPA. The OPA option provides a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with the IRS and reduces paper processing.

Filing Form 9465

If you do not meet the requirements for the Online Payment Application, you may request an installment agreement by filing Form 9465. The form may be filed with your return or separately.

Tax Liability Below $10,000

If the tax liability is below $10,000, a taxpayer can simply request an installment agreement. More than not, this request will be granted. The only requirements are:

• the tax liabilities must be paid in 3 years,
• the taxpayer must not have failed to file tax returns and/or pay taxes nor entered into an installment agreement within the last 5 years,
• the taxpayer must agree to comply with the terms of the agreement and tax laws for the duration of the installment agreement.

Tax Liability Below $50,000

Under the Installment Agreement program, there is the “Streamline Program” if the tax debt is $25,000 and below and there is the newly introduced “Fresh Start Program” which applies if tax liability is below $50,000. There are certain criteria and guidelines the IRS uses to determine what your monthly installment will be and how long you have to pay it off. Under this program, the IRS will not make any determination whether a lien may be imposed and managerial approval of the installment agreement is not required. A lien is basically a charge or claim on the taxpayer’s property to secure the payment of taxes due.

Tax Liability Above $50,000

The Installment Agreement program gets complicated if the tax liability is higher. At a certain level, the IRS will require the taxpayer to provide financial information by completing a financial statement form to be submitted to determine the amount of the monthly installment before it approves the request. But many taxpayers, if not most, are reluctant to share financial information with the IRS.

Penalties and Interest

Penalties and interest apply to taxes that are not paid in full by the due date and to tax returns not filed by the due date. If you have an unpaid tax debt, penalties and interest will accrue until the debt is paid in full. Penalties and interest do not apply in years when you are entitled to a refund.

The penalty charged for filing late is generally 5% per month, up to 25% of the amount of tax due on the return. The penalty charged for paying late is 1/2 of 1% per month, up to 25% of the total unpaid amount due.

Interest is calculated on the unpaid balance, penalties, and interest that have been charged to the tax account. While making partial payments on an unpaid balance, penalties and interest will continue to accrue on the unpaid portion, even as your debt increases due to compounded penalties and interest. The interest rate used to determine interest charges changes quarterly with federal interest rates. Interest rates can vary widely, and have recently been from 4 to 7%.

If taxes are not paid and no effort is made to pay them, the IRS can ask you to take action to pay the taxes. The actions you are asked to complete may include selling or mortgaging assets. If you still do not take action after a request, the IRS may take enforced collection action, including levying bank accounts, wages or other income, or seizing your assets. A notice of Federal Tax Lien could be filed, which will harm your credit rating.

How We Can Help

The IRS is the most powerful collection agency in the United States. They want their money within the shortest time possible. This may cause financial hardship as the installment payments may be considerably more than what taxpayers can handle usually leading to default and starting the dreadful process all over again with more penalties and fees.

Our tax professionals will help you through the process of submitting your preferred arrangements. If you would like, we will help you review and analyze your financials so that an acceptable amount can be offered to the IRS agent or collection officer. The IRS normally considers an acceptable amount as a portion of the taxpayer’s monthly disposable income, which is defined as income remaining after allowable expenses are deducted from gross income. Examples of allowable expenses are home mortgage or rental payments, utilities, car expenses, food and clothing allowances. Deductions from the taxpayer’s income that are required by law (such as taxes and social security contributions), as well as court ordered payments like child support and alimony, are also deductible.

One of the advantages of applying for an installment agreement is that while the IRS is considering it, the IRS cannot levy the taxpayer’s properties. Also, if the application is rejected, no levy will be imposed within 30 days after rejection and during the pendency of any appeal on the rejection. A levy is legal seizure or taking of a taxpayer’s property by the IRS to satisfy a tax debt.

Offer In Compromise Alternative

The Offer in Compromise (OIC) is considered to be the best tax resolution program offered by the IRS or by any state taxing agency. Many tax resolution companies advertise this program as “pennies to a dollar” solution to attract troubled taxpayers but there is more than meets the eye.

Although the OIC is a real program, it is not as easy as “pennies to a dollar.” There are certain qualifications before a taxpayer can utilize this program. There are strict requirements to follow and it is not for every taxpayer who walks in the door who has a tax liability.

In general, an OIC is a written agreement between the IRS and a taxpayer which allows the taxpayer to pay a lesser amount as payment in full of the actual tax liability (tax, penalties and interests). For example: Joe owes the IRS $25,000 and he offers $1,500 to pay the entire liability. If Joe meets all the requirements of the OIC, the IRS will accept the $1,500 as full satisfaction of the $25,000 tax liability.

The IRS will consider an OIC application based on following grounds:

• Doubt as to liability
• Doubt as to collectibility
• To promote effective tax administration

The OIC is a complicated process and no tax resolution company can guarantee a 100% approval. Taxpayers should be wary of the “pennies to a dollar” promise. The best way to start an OIC application is to consult a tax professional.