An installment agreement is basically an agreed settlement between the taxpayer
and the IRS to repay all or most of an unpaid tax balance.
In accordance with the Internal Revenue Code (as written by Congress) the IRS
has 10 years from the date the tax was assessed to attempt to collect any taxes
owed by the taxpayer. It is called the Collection Statute Expiration Date.
There are several types of installment agreements available primarily based
upon the amount of the tax debt and the time remaining before the 10-year
statute of limitations runs its course.
The two most common installment agreements are the Guaranteed Installment
Agreement and the Streamlined Installment Agreement.
The Guaranteed Installment Agreement is available for taxpayers who do not owe
more than $10,000 (excluding interest and penalties). The IRS must allow this
type of installment agreement as long as the taxpayer has filed and paid their
taxes on time within the last 5 years. The taxpayer also cannot have been on
an installment agreement during that time. This agreement allows the taxpayer
to full pay the taxes (including interest and penalties) within the next 3 years.
The Streamlined Installment Agreement is available for taxpayers who owe more
than $10,000, but less than $50,000 (INCLUDING interest and penalties). The
IRS is flexible with the monthly payment as long as the full balance owed is
paid within 6 years. They are quick to process without financial analysis or
managerial approval. The full balance must also be paid entirely prior to the
Collection Statute Expiration Date (10 years from the date of tax assessment).
Any tax balances owed that exceed the $50,000 threshold are also available for
an installment agreement, but full financial disclosure and managerial approval
is required. This type of installment agreement involves a somewhat complicated
mathematical formula using pre-determined Nationals Standards amounts, and in
some cases, actual expenses, to determine what amount the taxpayer can afford to
pay the IRS each month. The monthly payment amount determined must allow the
taxpayer the ability to afford basic living expenses, such as food, housing,
clothing, medical, and transportation expenses.
It is important to understand that an installment agreement may be more expensive
than borrowing money from other sources to pay what you owe the IRS. The IRS will
charge interest and penalties during the period of the installment agreement, and
the amount charged may be more than, say, the interest rate on a bank loan or a
cash advance on your credit card. Also, if you can get a second mortgage or home
equity line of credit, the interest may be deductible, whereas any interest and
penalties charged by the IRS are not deductible.
Lastly, even though an installment agreement may be accepted by the IRS, a lien
could still be filed against you, although the IRS is not allowed to levy (seize)
your property, your wages, your bank account, or other income, including social
BA Tax Service
Tel: (918) 258-0009
Fax: (918) 251-6995
505 North Aspen Avenue
Broken Arrow, OK 74012
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