If a taxpayer cannot pay the tax owed in full, the taxpayer has the option of setting up an installment agreement. As a general rule, the IRS is prohibited from taking collection action (except the filing of a Notice of Federal Tax Lien) when an installment agreement proposal is pending or when an installment agreement is in force. Therefore, this is an important tool to protect a taxpayer from a bank levy, wage garnishment, and seizure of property. Additionally, the same arrangement can be worked out with State taxing authorities.
Taxpayers wishing to pay off a tax debt through an installment agreement, who owe more than $25,000, are generally required to complete one of the Collection Information Statements listed below. Additionally, taxpayers need to be current with all taxes and delinquent returns in order to be eligible for an installment agreement.
Form 433A – Collection Information Statement
Form 433B – Collection Information Statement
Form 433F – Financial Information Statement
When determining the amount of an Installment Agreement, the IRS reviews the completed Collection Information Statement and determines the taxpayer’s ability to pay. It is important to note that the IRS has national and local standards for many of the expenses listed on these forms. Often, collection personnel at the IRS will persuade taxpayers who are not familiar with these forms or the Internal Revenue Manual that certain expenses they are claiming are not allowed. As a result, many taxpayers will find the amount the IRS is saying they can pay is out of line with their current budgets. An experienced representative can often times negotiate a payment arrangement that is much more reasonable.
For taxpayers owing less than $25,000 (of tax, interest, and penalties), taxpayers can use the Online Payment Agreement (OPA) or call the number on the IRS bill or notice. Additionally, a taxpayer can complete Form 9465, Installment Agreement Request and mail it to the address on the bill.
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