An Installment Agreement with the IRS allows taxpayers that cannot afford to full pay their back tax liability the option to pay their back taxes through monthly payments. There are guidelines regarding how the IRS determines the payment amount and time frame for the agreement. Additionally, a taxpayer must be compliant with all past tax filings before establishing the agreement. Depending on the circumstances and the amount of time that the IRS has left to collect the tax debt, the Installment Agreement may pay all or part of the back tax liability.
Often, when a taxpayer attempts to establish an Installment Agreement with the IRS, they encounter competing interests. The IRS wants to collect the entire amount of the taxes as quickly as possible, while the taxpayer wants a payment that is manageable and affordable for their financial situation. Unfortunately for many taxpayers, they end up with monthly payments greater than they can reasonably afford causing them a financial hardship. In many situations like this, the taxpayers end up defaulting on their Installment Agreement causing the IRS to begin collection activity all over again. Therefore, it is important to have an affordable Installment Agreement established properly the first time.
Once an Installment Agreement has been established the IRS suspends their collection efforts and refrains from issuing wage garnishments, bank levies, sending notices and making harassing phone calls. Consideration for being on an Installment Agreement is that penalties and interest continue to accrue on the unpaid portion of back tax liability throughout the duration of an Installment Agreement. Additionally, depending on the circumstances, the IRS may file a Notice of Federal Tax Lien to protect their interest until the liability is paid in full.
There are certain conditions that must be kept after the Installment Agreement is established such as being compliant with future tax filings and payments. For those that cannot afford to full pay their back taxes immediately and do not qualify for an Offer in Compromise or a Currently Not Collectible status, an Installment Agreement may be the best alternative.
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