PROS AND CONS OF IRS INSTALLMENT PLANS
If you are an individual or business owner with significant tax debt that you are financially unable to pay, you may be eligible to enroll in an installment agreement with the Internal Revenue Service. An installment agreement is essentially a payment plan that enables you to pay off your taxes over time. The time differs for different installment agreements. To qualify, you must file all required tax returns and disclose all of your assets and cash to the IRS. This is because if you have enough cash, equity in your house or other assets and the ability to borrow the amount owed, or funds in a retirement account that covers your debts, then you are not eligible for an installment plan.
In addition to the above mentioned formality requirements, there are different types of agreements that place limits on who is eligible to enroll based on the amount of debt that they owe. For instance, in a Streamlined Installment Agreement, the IRS limits the amount of debt to those individuals who owe $50,000 or less in back taxes. This amount has been raised to $100,000 under an IRS test program that is set to expire on September 30, 2017. This limit is in contrast to Guaranteed Installment Agreements, which are automatically granted to individuals owing $10,000 or less, and Express Installment Agreements, which are for businesses that owe $25,000 or less in payroll taxes. These limits are imposed because those individuals are more likely to pay off their debt in full within the timeframe provided, which is usually three to five years. However, if you owe more than the limit for any of these plans, you may pay down the debt before applying for an agreement in order to qualify.
Tax professionals are experienced in helping taxpayers navigate the complicated landscape of the IRS by informing them of their rights and options. Below we outline the major pros and cons associated with these payment plans. To sign up for an installment agreement plan, taxpayers are to complete the form 9465 along with their income tax return and select the amount they would like to pay each month. The different IRS installment agreement plans taxpayers can choose from include:
Guaranteed Installment Agreements – This is for taxpayers owing $10,000 or less. This type of plan is the easiest to obtain.
Non-disclosure Installment Agreements – This is for taxpayers owing $25,000 or less
Streamlined Installment Agreements – This is for taxpayers owing between $25,000 to $50,000
Partial Payment Installment Agreements – This is for taxpayers who have no assets or cannot access equity in assets.
PROS
An IRS installment payment plan offers many advantages for taxpayers.
Taxpayers are allowed to set the amount they can pay by installment –The installment plan allows taxpayers to set their own monthly payments to pay back their large debts over a period of time, eliminating the need to come up with large lump sums at once. This allows for the taxpayer to retain control over their finances, even while paying back a significant debt. This reduces the financial burden or owing taxes and increases the chances that the debtor can successfully fulfill the agreement.
Reduced penalties – IRS penalties are reduced for those enrolled in a plan. For example, the Failure to pay penalty, which is generally 0.5% per month of your unpaid taxes, is cut in half. This saves the debtor money.
Taxpayers can decide to pay off in full without further penalty – Even if you are enrolled in a plan, you may pay off your taxes in full at any time without incurring further, or additional penalties. This way, you can wait until your debt is down to a manageable amount and pay it off in full when you are more comfortable and able to do so.
The Collection statute continues running – The IRS generally has ten years to collect a tax once it has been assessed. The clock on this ten-year period is stopped when you request an installment agreement, but begins to run again while your agreement is in effect. If the clock runs out, you do not need to make any further payments.
CONS
Although IRS installment agreement plans clearly have more advantages, IRS plans also have some disadvantages and drawbacks, such as:
Increased Interest and penalties – Like any debt, additional interest and penalties apply for each month the debt is not paid in full. This means that the taxpayer will ultimately pay more than the original debt by the time they complete their plan payments.
The IRS may still file a Federal Tax Lien – A federal tax lien means that the IRS has the right to seize your property if you fail to pay your taxes. A lien is served by notice from the IRS that they will seize your property if you do not submit immediate payment. If you do not pay within the specified time after receiving a lien notice, then your property, including your house, can be sold off to satisfy your debt.
Sign up or enrollment fees – Unless you can pay off your debt within 120 days, IRS plans have their own fees associated with signing up. Although not very high, they still range from $43 for low income applicants all the way up to $225 for regular installment plan applicants.
Despite these disadvantages, it is typically far more advantageous to enroll in an IRS plan when you are unable to pay a large tax liability off in full.
Each installment agreement plan has specifications and specific criteria that must be fulfilled in order to qualify. This is why individuals are advised to seek the help of a tax professional to help them decide which installment agreement plan is the most suitable for them. Tax professionals are well committed to helping taxpayers navigate the complicated framework of the IRS, while reducing the stress associated with their debts owed.
It is important to know that the IRS can also deny you a payment plan based or certain rules and regulations. Some reasons why they can deny include:
· You defaulted on a previous INSTALLMENT PLANS with the IRS
· You are in a process of paying a tax debt from the previous year
· The plan doesn’t pay off the debt before the end date.