When Installment Agreements Are Necessary in Managing Your Tax Payments

After filing their annual tax returns, several people discover that they owe a substantial amount of money to the IRS. Soon enough, the realization hits that they don't have the sufficient funds needed to pay such a large debt. Fortunately, there are other options or methods that can help make that IRS tax debt more manageable. One of these methods is the setting up of an installment agreement with the IRS, which is in essence, a payment plan arranged with the Federal Government.

The IRS actually permits you to establish your monthly due as well as the date that it has to be settled in your request for an installment plan. In fact, the IRS is more likely to approve your request if your tax bill does not go over $10,000, have filed your returns and paid your taxes in a timely manner and have justified that you don't have that much money available. Among the primary concerns of this set-up is the assurance that your terms will allow you to fully pay your debts within a 3-year period. Applying for one is as easy as accomplishing Form 9465 (Installment Agreement Request Form) and attaching it to your tax return.

In certain instances, especially when the taxpayer is really financially troubled, the IRS can offer the option to make partial payments of tax liability. Those who avail of this option are required to give specific financial details regarding their equity assets. Since the IRS will verify these data, it is essential that the pieces of information provided are authentic. Also, the IRS will re-assess every two years if the taxpayer is now in better financial standing. If so, then there is a probability that the monthly payment will be increased or the arrangement will be terminated, altogether. This type of arrangement is still considered an installment plan although this is slightly different from the one discussed in the previous paragraph.

The only disadvantage of installment options is the fact that the longer you stretch your payment agreement, the more money you will be required to pay the IRS. In installment plans, you are actually buying time from the IRS to pay for what you owe them. These options also don't go without costs. The IRS charges you with a one-time fee of $105 for an approved installment plan. The fee is lowered to $52 when you get a direct debit agreement, which requires you to debit monthly payments from your bank account. If you qualify for the lower income bracket, the fee is considerably reduced to $43.

Although many people feel that making installment payments is a viable option that enables them to pay off their tax debt within the three year period, there are others who won't be able to do this. In fact, a better solution for them would be to propose what is called an Offer in Compromise to the IRS. Basically, this involves offering a lump-sum amount that is considerably lesser than the total tax dues in the hopes that a certain part of the debt is forgiven. Again, the need to seek professional assistance on IRS issues requiring any of the methods discussed above should not be underestimated.

Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbel and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbel's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He teaches attorneys, CPAs and Enrolled Agents in the finer aspects of IRS representation all around the United States. He can be reached at his website at http://www.getIRShelp.com