How to Seek an Installment Agreement with the IRS

By Lisa Kroulik © October 9, 2011

Have you received some unpleasant mail from the Internal Revenue Service (IRS) informing you that you made a mistake on your tax return several years ago, and they want what you really owe them, plus interest, a week from Friday? Maybe you put off filing your most recent tax return as long as possible because you knew you were going to get nailed, and now that you’ve filed it, are wondering where in the world you will get the money to pay Uncle Sam.

There’s good news and bad news for both of these types of situations. The bad news is that you owe the government money, and not even filing bankruptcy can usually get you out of it. The good news, if you choose to look at it that way, is that the IRS may allow you to enter one of four types of payment plans, depending on how much you owe.

Although it can be scary to contact the IRS and tell them you can’t afford your tax bill, in reality most IRS agents aren’t horned monsters out to destroy you. The sooner you contact them, the sooner you can resolve the stress of your tax problem.

There’s good news and bad news for both of these types of situations. The bad news is that you owe the government money, and not even filing bankruptcy can usually get you out of it. The good news, if you choose to look at it that way, is that the IRS may allow you to enter one of four types of payment plans, depending on how much you owe. Before contacting the IRS to discuss a payment plan, read the information below to determine your eligibility based on your total tax debt.

To qualify for a guaranteed installment agreement with the IRS, you need to have a total tax debt of less than $10,000 and meet all of the following terms:

• You can not have filed your return late or paid a balance due late at any time during the preceding five years. You also can not have had another installment agreement within the past five year.
• Your current year's tax return has to have been filed and received by the IRS.
• You have a maximum of three years to repay your debt under this plan type.
• Payments must be received on time while you are on the installment plan, and your future tax returns must also be paid on time if you have a balance due.
• The minimum amount you can pay each month is 1/30th of your total balance.
• There will be a fee to set up this plan which ranges from $40 to $105, depending on how you pay it, unless you pay the balance in full within four months. In this case, there is no set-up fee.

This payment plan is for taxpayers who owe between $10,000 and $25,000. It works much like the guaranteed installment plan, with a few adjustments for the greater amount that is owed. You have five years to pay the entire balance and the minimum amount due each month is 1/50th of the total.

This type of plan is based on your ability to pay once your income and expenses for the past three months have been submitted to the IRS. You will need to do this using form 433-F. The IRS will also require you to send paycheck stubs, bank statements and copies of your bills to prove the information you list on the 433-F is true.

If this plan is approved, the IRS will require you to become re-certified every two years by submitting the 433-F and supporting documentation. The IRS may require larger payments if your income has increased or your other debts have decreased. While you are on this payment plan, the IRS will levy one or more tax liens against you to insure that they get their money in case you default.

If you owe the IRS more than $25,000 in back taxes, you will need to speak to a representative about your individual situation. An IRS supervisor will need to approve a payment plan for you. For tax debts this large, the IRS may require you to sell assets or apply for a bank loan in order to pay them. You also need to fill out a form 433-F and submit the supporting documentation.