Payment plans, also referred to as installment arrangements, enable you to pay your tax debt on a monthly basis at an amount, which we can convince the IRS, fits within your budget. Four types of installment arrangements are: (1) regular, (2) direct debit, (3) payroll deduction, and (4) streamlined.
A regular installment arrangement is the most common and enables you to make monthly payments toward your tax debt. The IRS may send you a billing notice each month with a return envelope. This is quite convenient. If, however, IRS does not send you a billing statement, you still are required to make the payment. The downside of a regular installment arrangement is that the interest rate can be high. Sometimes the interest on borrowed funds is less than the interest that accrues on your tax debt under a regular installment arrangement.
In a direct debit installment agreement, the IRS may deduct the monthly payment amount from your bank account. In a payroll deduction, the IRS may deduct the monthly payment amount from your wages. Last, the streamlined installment arrangement may be used when your tax debt is $10,000 or less and you have filed your returns and paid your taxes for the previous five years without an installment arrangement in place. This arrangement also is available to taxpayers who offer to pay off their tax debt within a certain period of time and who further promise to remain in compliance with the tax laws during the term of the arrangement.
Installment arrangements for tax debts of $25,000 or less generally can be successfully negotiated without the IRS filing a lien under certain circumstances. An additional benefit of an installment payment arrangement is that the IRS will not issue a levy on your property while the agreement is being negotiated.
Generally, a competent tax professional can reach an agreement with IRS for a taxpayer to pay their outstanding taxes on an installment basis. The bigger issue with installment payment plans is the amount per month the IRS will agree to accept. This amount is almost always significantly greater than the monthly amount a taxpayer is willing to pay. In addition, we must convince the IRS that you cannot pay the tax debt in full from your available cash and assets.
The role of a competent tax professional is to convince the IRS that the amount the taxpayer agrees to pay each month is reasonable and fits within IRS guidelines. A variety of factors must be addressed in order for the tax professional to prevail including the number of months the IRS is willing to accept as the duration of the agreement, the date each month the tax payment is due, the financial resources available to the taxpayer to meet his obligations under such a plan and the steps the taxpayer has taken to prevent future tax problems.