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INSTALLMENT AGREEMENTS

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 security benefits.







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BA Tax Service
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