If you owe taxes to the Internal Revenue Service (IRS) but cannot pay the full amount owed, an installment agreement may be a viable solution. An installment agreement is an agreement between the taxpayer and the IRS that allows the taxpayer to pay their tax debt over time in equal monthly payments.
The IRS has specific codes and regulations for installment agreements known as the IRS Code Section 6159. The IRS Code Section 6159 outlines the rules and regulations for installment agreements with the IRS. It is important to be aware of these regulations before setting up an installment agreement with the IRS.
There are two types of installment agreements: guaranteed and streamlined. A guaranteed installment agreement is available to taxpayers who owe $10,000 or less and can pay off the debt within three years. As long as the taxpayer has filed all required tax returns and has not had an installment agreement in the past five years, they will be guaranteed approval for the installment agreement.
A streamlined installment agreement is available to taxpayers who owe less than $50,000 and can pay the debt off within six years. The taxpayer must agree to have the monthly payment automatically deducted from their bank account. If the taxpayer has previously defaulted on an installment agreement or has not filed all required tax returns, they will not be eligible for a streamlined installment agreement.
Both types of installment agreements require the taxpayer to pay the debt in monthly installments. The monthly payments are determined based on the amount of debt owed and the length of the agreement.
It is important to note that interest and penalties continue to accrue on the outstanding tax debt during the installment agreement period. The IRS may also file a federal tax lien against the taxpayer’s property until the debt is paid in full.
If the taxpayer defaults on the installment agreement by missing a payment, the IRS may cancel the agreement and take enforcement action, including levying bank accounts, garnishing wages, and seizing assets.
In conclusion, an installment agreement with the IRS can be a helpful solution for taxpayers who cannot pay their tax debt in full. However, it is important to understand the rules and regulations outlined in the IRS Code Section 6159 before setting up an installment agreement. It is also essential to make all monthly payments on time to avoid defaulting on the agreement and facing enforcement action by the IRS.