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IRS Installment Agreements: What Type of Tax Agreement is Best For You

There is nothing quite as intimidating as owing the IRS back taxes. Unlike a debt collector, the IRS has a very long arm and the ability to apply significant pressure to those who owe tax liabilities. The very powerful collection methods available to the IRS can wreak havoc on your personal finances and ability to retain control over your money. For this reason, it is in the taxpayers best interest to resolve any back tax issues with the IRS before action is taken to collect monies owed. There are several options available to filers who are unable to pay their tax liability in full. One such option is the IRS Installment Agreement (IA) which allows taxpayers the opportunity to pay off back taxes with regular installment payments to the IRS. Here we look at the different types of IA's available and the requirements for each.

Guaranteed Installment Agreement

Of all the installment agreements available through the IRS, the Guaranteed IA is the most commonly used by taxpayers. As long as you meet the requirements set forth by the IRS, this is the easiest type of installment agreement available. To qualify you must owe less than $10,000 in back taxes. You must also agree to pay off the tax liability in three years or less by making monthly payments. If you are currently making payments via an installment agreement for a separate tax bill, you will not be eligible for the Guaranteed IA. Anyone who has filed for or is in bankruptcy or accepted an Offer in Compromise is also ineligible.

Streamlined Installment Agreement

When a taxpayer owes the IRS between $10,000 and $25,000 the Streamlined IA may be an option. This type of installment agreement allows the taxpayer to repay the debt in monthly installments over a five year period. Similar to the guaranteed installment agreement, taxpayers who are in bankruptcy proceedings, currently paying previous taxes via an installment agreement or those who have accepted an Offer in Compromise are not eligible for the Streamlined IA. If back taxes owed are older than five years or you have failed to file tax returns in that period, you will also be ineligible for this type of installment agreement.

Financially Verified Installment Agreement

Once a tax liability exceeds $25,000 the IRS will require additional information regarding your financial situation before agreeing to an installment agreement. Based on the financial information you provide and the balance owed, the IRS may require taxpayers to liquidate assets to pay off a portion of the balance. Eligible taxpayers would be required to agree to installment payments to cover the remainder of the balance. To be eligible for a Financially Verified Installment Agreement, you must meet the same requirements regarding other IA's, bankruptcy and the filing of tax returns as listed for the previous installment agreements.

Installment Agreement Over 100K

If you owe the IRS more than $100,000 in back taxes, you will need to consult with a tax professional to learn more about options available for a long term installment agreement. Similar to the Financially Verified Installment Agreement, full disclosure of your finances will be required before an installment agreement is considered. You may also be required to sell assets to reduce your tax liability as part of the agreement.

Partial Payment Installment Agreement

Sometimes referred to a a Part-Pay Installment Agreement, this option is available to those who are unable to pay their tax liability in full. If approved for a Partial Payment Installment Agreement, the taxpayer would be required to make monthly installment payments that are less than the amount that would be required to pay the tax liability in full. This type of IA is not easily obtained and requires the assistance of a tax professional to ensure all the proper paperwork is in order. For the few people who are eligible for this option, the IRS will require full financial disclosure and revisit the case every two years to determine if installment payments can be increased or in some cases terminated.

Dealing with the IRS and back taxes can be frustrating, confusing and downright scary.  For this reason it is recommended that a tax professional be consulted with any questions regarding the process.

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