Which Installment Agreement is Right for You?

Notice of state income tax dueBeing in personal debt to the IRS may feel like a nightmare scenario. The prospect of being subject to collection actions is a definite sleep-ruiner, but it does not have to be. There are mechanisms in place for just this situation. Plenty of people owe money to the IRS, and it’s in all parties’ self-interests to resolve their situation in as clean and efficient a way as possible. Hence, installment agreements. Installment agreements involve paying off a debt in, well, installments, spread out over a set number of months. This remedies the pressure of paying one’s debt upfront in full, and has the added bonus of suspending other collection actions for the duration of the agreement. There is a range of installment agreements, particular to the degree and context of the debt being resolved.

On the lighter side, there are Guaranteed Installment Agreements. These have straightforward applications and are made for resolving debts of $10,000 or less. The IRS does not require a full financial statement for Guaranteed Agreements, but there are still criteria that need to be met. Past tax returns must be filed, those of the past five years must have been filed and paid on time with no use of an Installment Agreement, and the proposed Agreement must pay the full tax debt in three years or less.

In a similar vein, there are also Streamlined Installment Agreements. These are very comparable to Guaranteed Agreements but are made for tax debts of up to $50,000. Since the debt cap is higher, the amount of time allowed for repayment is extended, up to six years.

If the tax debt in question is over $50,000, it becomes more difficult to get an Installment Agreement for paying it off. This hardly means that it is impossible to get one, but rather that it will require a full financial statement, as well as comprehensive reviews by the IRS to make sure it stays on track. From this case on, it can be especially advisable to seek professional assistance.

There are also mechanisms in place for when a debt is even higher, relative to the individual holding it. Specifically, when it appears impossible to make the consistent, minimum payments that would be required in a standard Installment Agreement. In this case, a Partial Payment Agreement may be the method for resolving the debt. These are similar to Installment Agreements, except that the total amount paid off is less than the total debt. Because of this, a lien will be filed by the IRS as insurance. The IRS will also check in on the debtor’s finances regularly, and in some cases resolve the remainder of the debt through the sale of assets.

Finally, at the most extreme end of the range, there are Offers in Compromise. These are the least common of all the agreement types because in order to qualify for them, one must be in such a bad financial situation that the IRS agrees to accept payment of less than the total amount of one’s debt. The process of applying for an Offer in Compromise is even more extensive and thorough than for Partial Payments and other high-debt agreements.

From the simplest Installment Agreements to the most complex, all can be made easier to handle with the assistance of a qualified professional. If you need to make an Installment Agreement with the IRS in order to resolve your tax debt of any amount, contact us today.