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Owe the IRS and can’t pay at once?

StartFragmentHere are some options for payment with each having its pros and cons.

The most popular method is simple monthly installments called installment agreements. But there are others such as:

  • Extension of time (whole balance)

  • Deferred Payment

  • Offer in compromise

What are the rules for installment agreements?

  1. Owe a compilation of taxes for multiple years? You have to bundle into one installment agreement

  2. The IRS has ten years to collect tax debts. If the expiration date is coming up you may have to make higher monthly payments or you could be disqualified.

  3. Certain installment agreements require financial proof with documentation. The IRS needs copies of assets, income, and expenses. The IRS can even limit your expenses to a reasonable time as they are calculating how much you can afford monthly.

  4. Agreements can come with a federal tax lien, which is public record. This affects your ability to borrow and sell assets.

  5. Pay on time so you are not in violation of your agreement.

Different Types of Installment Agreements

Note: Some people communicate directly with the IRS, while others go through tax pros such as enrolled agents (I am one) to examine the best path.

For Smaller Amounts

There are no tax liens and are the simplest due to the lack of financial proof. To create an IRS online payment agreement application, or call the IRS. To avoid a lien, it is important to set up your agreements before the IRS begins to collect on your balance.

Guaranteed Installment Agreements


Owe at or less than $10,000 (not including penalties and interest)

Can pay it off in three years, or by the collection statute expiration date. (whichever occurs first)

Have filed all of your tax returns

Haven't set up any installment agreements within the past five years

STREAMLINED Installment Agreement

Qualify you must:

Owe $50,000 or less (not including penalties and interest)

Can pay all of your taxes in six years, or by the collection statute (whichever comes first)

This approach forces direct debit payments if the amount owed is more than $25,000. Consider paying the balance under $50,000 so you can do a streamlined agreement.

Complex Agreements

If you owe too much, the IRS will want to examine your financial situation to figure out your ability to pay. Your monthly payment will be calculated based upon your income and what they find as an allowable expense. You will also have to pay the tax balance in its entirety by the collection statute day.

This method usually comes with a tax lien, to avoid the lien, consider paying the balance to below $50,000 to qualify for a guaranteed or streamlined agreement.

Standard Ability to Pay Installment

If you request this plan:

Expect the IRS to file a tax lien if you owe more than $10,000

The IRS will perform an act of discovery in your finances

IRS Limits Expenses

IRS may force you to sell off assets

Conditional Installment Agreement (6 years)

This agreement allows you to have expenses over the IRS financial standards. Monthly payments may be less, but you still have to pay off your balance in full within the collection expiration date.

12-month lifestyle adjustment installment agreement

This is the probationary method. The IRS allows you to change your lifestyle for a year so that your expenses meet the IRS collection financial standards. After the initial year, it becomes an ability-to-pay installment agreement.

Partial Pay Installment Agreement

This is a gradual payment plan because it is similar to an ability to pay agreement, except you don't have to pay the entire balance by the collection statute expiration date. You will pay every month until the time to collect your balance expires. The IRS will re-evaluate every two years to see if you can pay more monthly.

Tax Pros

Each tax situation is different and factors are key players in each agreement. Some are really easy to request, while others require the assistance of a tax professional.

Need help navigating installment agreements? Give us a call, send an email, or drop us a chat at M&M Bookkeeping!


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