Installment Payments 9/28/16
See also: Form 9465, Installment Agreement Request
Internal Revenue Code §6159 authorizes IRS to enter into written installment agreements if theIRS determines it will facilitate the full or partial collection of the tax.
The IRS must enter into a requested installment agreement if the aggregate tax liability (without interest, penalties, additions to tax, and additional amounts) is $10,000 or less, and the taxpayer satisfies certain other conditions set out in Code §6159(c)(2), including full payment within 3 years, and compliance with all Code provisions while the installment agreement is in effect.
The IRS generally may accept "streamlined" installment agreements without requiring financial statements or managerial approval if the taxpayer owes no more than $50,000 in back taxes (IRM 220.127.116.11). The maximum term for a streamlined installment agreement is 72 months.
An installment agreement generally requires taxpayer to pay the entire tax over the term of the agreement (ending with the expiration of the statute of limitations on collection at the latest). If this is not possible, the IRS will enter into a "partial pay agreement" with taxpayer making payments until the statute of limitations expires, and the balance is never collected. The amount of the monthly payment is determined by review of taxpayer's financial information and applying the IRS collection standards, which the IRS typically requires taxpayer to update for IRS review and adjustment as appropriate every 2 years.
After Jan. 1, 2014 the fee is $120 for entering into a regular installment agreement (prior fee since 2007 was $105); $52 for a direct debit installment agreements (same as prior fee since 2007); $43 for installment agreements by low-income taxpayers (same as prior fee since 2007) (Reg. § 300.1); and $50 for restructuring or reinstating an installment agreement that is in default (prior fee since 2007 was $45) (Reg. §300.2). TD 9647. 12/3/13
The IRS Fresh Start program made changes to the installment agreement and lien filing and withdrawal procedures, and expanded and streamlined the offer in compromise program. Individual taxpayers who owe up to $50,000 can pay through monthly direct debit payments for up to 72 months (six years). While the IRS generally will not need a financial statement, they may need some financial information from the taxpayer. The easiest way to apply for a payment plan is to use the Online Payment Agreement tool at IRS.gov. If you don't have Web access you may file Form 9465, Installment Agreement, to apply. Taxpayers who need an installment agreements for tax debts over $50,000 or longer than 6 years must provide a financial statement to the IRS. The IRS may ask for 1 of 2 forms: either Collection Information Statement, Form 433-A or Form 433-F. 4/17/13
In Matthews, TC Memo 2012-225, the Court held that IRS did not abuse its discretion when it considered Matthews's VA disability income in determining its installment agreement offer. 12/8/15
The TAS YouTube channel is available at www.youtube.com/TASNTA 4/15/11
- Federal Payment Levy Program
- Installment Agreements
- The Power of the Notice of Federal Tax Lien
For balances under $50,000 (combined tax, penalties and interest) available M-F 6AM-12:30PM EST, Sat 6AM-10PM EST and Sun 4PM-12midnight EST IRS OPA. You need:
- social security number (SSN) or taxpayer identification number (TIN)
- personal Identification Number (PIN) (you need an IRS notice with your Caller Identification Number (Caller ID) to get a PIN if you do not have one)
- you may need information about your income and expenses to determine the monthly installment amount (rent or mortgage statements, pay stubs, utility bills, etc.).
If you recently filed your income tax return and owe, but have NOT yet received an IRS bill, you need:
- balance due shown on the return
- taxpayer identification number
- spouse’s taxpayer identification number (if applicable)
- date of birth
- Adjusted Gross Income from last year’s income tax return
- total tax from last year’s income tax return
The IRS requires you to provide them with financial information in order for it to determine your ability to pay your tax. If cash flow exceeds "necessary and reasonable living expenses" (as determined by the IRS), the IRS requires the excess to be paid monthly. "Cash flow" is the actual cash available to support the household, including e.g., child support and gifts. See IRS collection standards regarding calculation of living expenses. Payments continue until the tax is paid in full or the limitations period expires, and penalties and interest continue to accrue. The IRS has extensive collection standards to determine necessary and reasonable living expenses.
Statute of limitations
The IRS will enter into an installment agreement even if the installment payments will not pay the tax, penalties, and interest in full before the limitations period ends. Previously, the taxpayer was required to extend the limitations period, and still does in certain cases. The IRS will continue to review the taxpayer's financial situation to see if increasing the payment amount is appropriate during the period.
The Internal Revenue Manual 18.104.22.168.3 (09-26-2008) provides:
"1. Do not secure Collection Statute Expiration Date (CSED) waivers on non-PPIA agreements. Generally, do not secure waivers on PPIAs; however, consider securing waivers with PPIAs in the following situations:
A. There is an asset that will come into the possession of a taxpayer after the CSED and liquidation of that asset offers the best case resolution (in lieu of liquidating existing assets to partially pay the liability).
B. A waiver is no longer required to be secured when the taxpayer's only ability to satisfy the tax liability after the CSED expiration is through a continuation of the installment agreement and there is no significant change in ability to pay as identified through the two year financial review process.
2. The waiver can only be secured at the inception of the PPIA and not during the two year review process, unless a new PPIA is executed at that time. The length of the extension must be based on the time that it will take to make payments and cannot exceed five years plus one year to provide for other administrative actions. 3/2/10
Scheduled increases and review
The IRS may schedule increases in the monthly payments, e.g., when your car loan is paid in full you presumably will have more money available to make increased payments to the IRS. By that time you may need to trade cars and incur a new monthly car payment and would have to file updated financial information and pay a $24 fee to have the installment agreement revised.
Taxpayer requested changes
You can also request a change in the installment amount (generally a decrease as you can pay more without permission or requesting a change, and then drop back to the agreed amount if necessary, again without permission). There is a user fee for this change, see below.
You can request to skip a monthly payment for a VERY good reason, e.g., your car had a major repair which you can not pay for if you make the IRS installment payment, and you can not get to work unless the car is repaired. If that occurs you should contact the IRS as soon as possible, but should do so rarely and only if there is no other alternative. Do NOT skip a payment without talking to the IRS or you will "default" your installment agreement and the IRS will use enforced collection (e.g., a levy on your bank account or wage garnishment).
IRS to increase installment payment agreement fees and offer reduced fee online options 8/22/16
The IRS currently charges 3 rates for installment agreements:
- $120 for an installment agreement;
- $52 for a direct debit installment agreement (taxpayer authorizes monthly electronic funds transfer from taxpayer's bank account; and
- $43 notwithstanding the method of payment if the taxpayer is a low-income taxpayer (at or below 250% of the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the U.S. Department of Health and Human Services. (Reg. § 300.1).
- $50 for restructuring or reinstating an installment agreement that is in default. (Reg. § 300.2).
As of Jan. 1, 2017, under the new proposed regs, the following fees would be charged for installment agreements:
- Regular Installment Agreements $225 – sets up in person, by phone, or by mail to make manual payments by mailing a check or electronically through the Electronic Federal Tax Payment System (EFTPS). (Prop Reg § 300.1(b))
- Direct Debit Installment Agreements $107 –sets up by phone or mail to make automatic payments through a direct debit from a bank account. (Prop Reg § 300.1(b)(1))
- Online Payment Agreements $149 – sets up by Online Payment Agreement application on http://www.irs.gov to make manual payments by mailing a check or electronically through the EFTPS. (Prop Reg § 300.1(b)(2))
- Direct Debit Online Payment Agreements $31 – sets up by Online Payment Agreement application onhttp://www.irs.gov to make automatic payments through a direct debit from a bank account. (Prop Reg § 300.1(b)(2))
- Restructured/Reinstated Installment Agreements $89 – modifies a previously established installment agreement or reinstates a previously established installment agreement on which the taxpayer has defaulted. (Prop Reg § 300.2(b))
- Low-Income Rate remains at $43 – any type of installment agreement, other than a direct debit online payment agreement ($31), and when a low-income taxpayer restructures or reinstates any installment agreement. (Prop Reg § 300.1(b)(3))
The IRS announced the first increase in user fees for installment agreements since the fees were implemented in 1995 (including those made using the Online Payment Agreement application on the IRS web site). IR-2006-176, Nov. 13, 2006.
Effective January 1, 2007, the following fees will increase:
- for new direct debit installment agreements, where payments are deducted directly from a taxpayer’s bank account, from $43 to $52.
- for other new installment agreements from $43 to $105 (the fee is only $43 for taxpayers with income at or below certain U.S. Department of Health and Human Services poverty guidelines).
- to restructure an existing or reinstate a defaulted installment agreement from $24 to $45.
All taxpayers entering into an installment agreement will automatically be considered for the reduced user fee using information the IRS already has on hand from the taxpayer’s current tax return. Those who qualify will be charged the reduced $43 fee for all installment agreements established through any method. These include the Online Payment Agreement application on the IRS Website at IRS.gov, telephone, face-to-face or mail. (IR-2008-33, March 4, 2008) 3/10/08
Failure to make an installment payment, or file or pay the tax on a return will default your installment agreement, and the IRS may use enforced collection.
Once you default on an installment agreement, it is substantially more difficult to get the IRS to agree to another installment agreement.
IRS Commissioner Doug Shulman announced 5 specific steps to offer leniency to taxpayers owing taxes, including allowing taxpayers to miss an installment agreement payment without automatically having their agreement suspended (no guidance was provided if more than 1 payment could be skipped). 1/8/09