By definition an Installment Agreement (I. A.) is pretty straight forward. The I. A. allows taxpayers that cannot fully pay their back tax debt the opportunity to pay their back taxes through monthly payments. The settlement on a payment schedule must meet certain guidelines regarding the payment amount and time frame, or term for the agreement. As with nearly every settlement with the IRS, the taxpayer must be compliant with all past tax filings before establishing the agreement. Depending on the circumstances and the amount of time that the IRS has left to collect the tax debt, the Installment Agreement may pay all or part of the back tax liability.
There are Installment Agreements and then there are Installment Agreements. Frankly, the IRS wants their money as quickly as they can get it. Taxpayers attempting to establish an Installment Agreement with the IRS will often find themselves at opposite ends of the pendulum swing with the IRS. The IRS wants to collect the entire amount of the taxes as quickly as possible, while the taxpayer wants a monthly payment that fits into their life circumstances. The unfortunate reality is many taxpayers end up agreeing to monthly payments greater than they can reasonably afford. This burdensome agreement, along with unforeseen circumstances, can cause the taxpayer financial hardship. In many situations such as this, the taxpayers end up defaulting on their Installment Agreement which triggers an even more vigorous collection effort by the IRS. The object of negotiating a payment agreement is to make it reasonable for the taxpayer from the beginning, avoiding the risk of default.
Once an I. A. is in place, the IRS suspends their collection efforts and makes no attempt to issue wage garnishments, bank levies, send threatening notices or make harassing phone calls. The IRS does expect some consideration for placing a taxpayer on an Installment Agreement. Generally, the penalties and interest continue to accrue on the unpaid portion of back tax liability throughout the term of an Installment Agreement. In addition and depending on the case, the IRS may file a Notice of Federal Tax Lien to protect their interest until the liability is paid in full.
Here again, certain conditions must be met after the Installment Agreement is established; such as being compliant with future tax filings and payments. There are many taxpayers who cannot afford to pay their back taxes in full today but do not qualify for an Offer in Compromise or a Currently Not Collectible status. For these taxpayers a Five Star Tax Resolution negotiated Installment Agreement may be the best alternative.