Suppose you can’t pay your taxes on time? The IRS may allow you to pay your taxes over time. According to the IRS, over 2.62 million installment agreements were entered into in 2008. Or course, the IRS wants to collect owed taxes as quickly as possible. If there is any other way to collect a tax liability, the IRS will chose that method. Installment agreements, from an IRS perspective, are a last resort. That implies, of course, that it is a first resort from the taxpayer’s perspective.
Request an installment agreement using Form 9465 (Installment Agreement Request.) You cannot request an installment if you are able to pay the full taxes owed within 120 days. If you can’t pay right now, but need a few months, contact the IRS and request a short-term extension. No fee is charged for an extension, but interest and penalties continue to add up.
If your total taxes owed are less than $25,000 (including assessed penalties and interest) and you can pay the taxes within 5 years your local IRS office can approve a streamlined installment agreement. If your income taxes are less than $10,000 (excluding penalties and interest) you have the statutory right to an installment agreement if you meet the following criteria:
- You have filed your returns and paid your tax liabilities over the prior 5 years;
- You have not entered into an another installment agreement in the last 5 years;
- You can pay the tax liability within three years (not five);
- You agree to comply with all tax laws and the terms of the agreement; and
- You promise to submit financial statements to the IRS, if asked, and the IRS determines you can’t pay your tax in full.
The IRS can accept an installment agreement that provides for less than full payment of your tax liability. A partial payment installment agreement (PPIA) is favored by the IRS, because unlike an offer in compromise, it is open-ended. If your financial situation improves, the IRS can request an increased monthly payment. For more on PPIA’s see Offers-in-Compromise.
A tax professional can help you negotiate an installment agreement. With a tax attorney, you don’t need to work with the IRS directly in most cases. A tax attorney can argue the merits of various expense items in your budget and help you get a payment that is reasonable and affordable.
The Franchise Tax Board also allows for installment agreements by using form FTB 3567.
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