In today’s economy, it is not easy to plan for your unpaid taxes and it is getting tougher and tougher for individuals and businesses to pay what they owe to IRS. For those who are unable to pay their taxes, IRS offers four different types of installment agreements. It is important that you decide with your tax relief attorney which of the four installment agreements will best suit you or which you qualify for, so that you can let the IRS know which installment agreement you intend to set up.
Guaranteed Installment Agreements
When you file a guaranteed installment agreement, the main benefit is that the IRS does not report this to the credit bureaus. This means that your credit history is not affected negatively to obtain future credit. Furthermore, the IRS will not ask you to fill out a financial statement (Form 433-F) in an effort to analyze your current financial situation. You can file for a guaranteed installment agreement only if your balance due is $10,000 or less and the following criteria are met:
- For the last 5 years, your taxes have been paid and filed on time.
- All your tax returns are filed.
- In the previous 5 years, you have had no installment agreement.
- Your monthly installment payments will pay off your tax balance in 3 years or less.
- You agree to file and pay your taxes on time for future years.
Your minimum monthly installment payable to IRS is calculated by dividing your total balance due including your penalties and interest by 30. If you do not meet the above criteria, you should consider the streamlined installment agreement.
Streamlined Installment Agreements
As in the guaranteed installment agreement, the streamlined installment agreement also does not require a federal tax lien. This means that your credit history is not negatively affected and the IRS will not ask you to fill out a financial statement (Form 433-F) to analyze your current financial situation.
For IRS to approve this installment plan for you, the following criteria should be met.
- Your balance due should be $25,000 or less
- You should be willing to pay off the balance in 5 years or less. If your balance will expire within this five-year period due to the ten year statute of limitations on collections, then the IRS will require full payment within the remaining statute of limitations.
To calculate your minimum installment payable to IRS is calculated by dividing your total balance due including your penalties and interest by 50.
Partial Payment Installment Agreements
Unlike the guaranteed or streamlined agreements, the partial payment installment agreement is based on what you can afford to pay. To calculate your installment, your necessary living expenses are taken into consideration and you can set up a longer term for repayment.
The IRS may also file a federal tax lien in this installment agreement, to protect its interests in collecting the debts. Unlike in the guaranteed or streamlined agreements, the IRS will ask you to submit supporting documents like your bank statements and paystubs. You will also be required to fill out Form 433-F and declare your average income and living expenses for the last 3 months. The IRS also keeps a check and re-evaluates the terms of this agreement to see if you can pay higher installments to pay off the amount owed to IRS.
“Non-Streamlined” Installment Agreements
If you do not meet the criteria of any of the above installment agreements, you will not have an option but to go in for the non-streamlined installment agreement. You will also need to opt for this agreement if your balance due is over $25,000 and you need more than 5 years to pay off this amount. The IRS will likely file a federal tax lien. You will be asked to provide your financial statement so that IRS can analyze how much you can afford to pay every month. IRS may also ask you to sell off your assets or get a home equity loan etc so that you can pay off your dues to IRS without getting into an installment agreement.
If you fall under this agreement, it is advisable that you seek help of an IRS tax attorney who can talk to IRS on your behalf and help you manage the process, as it can get overwhelming.