Is an IRS installment agreement right for me?
Installment agreements should be considered by taxpayers who are not able to pay the total liability immediately. However, installment agreements are only available to taxpayers who have the ability to pay the total liability prior to the collection statute expiration date; an exception is made for Partial Payment Installment Agreements (“PPIA”). The IRS is authorized to enter into written agreements with any taxpayer under which such taxpayer is allowed to make payment on any tax in installment payments if the IRS determines that such agreement will facilitate full or partial collection of such liability.
The IRS is not required to enter into an installment agreement unless the tax liability is $10,000 or less and certain conditions are met.26 U.S.C. § 6159(c).
Does an installment agreement stop the IRS from Levying?
Generally, an installment agreement stops the IRS from levying the taxpayer’s bank account or garnishing the taxpayer’s wages. No levy may be made to collect a tax liability that is the subject of an installment agreement during the period that a proposed installment agreement is pending with the IRS, for thirty days immediately following the rejection of a proposed installment agreement, during the period that an installment agreement is in effect, and for thirty days immediately following the termination of an installment agreement. Further, the IRS may not refer a case to the DOJ for the commencement of a proceeding in court, against a person named in an installment agreement or proposed installment agreement, if levy to collect the liability is prohibited during the three time periods set out above.
A levy is not prohibited during these time periods, however, if: (1) the taxpayer files a written notice with the IRS that waives the restriction on levy; (2) the IRS determines that the proposed installment agreement was submitted solely to delay collection; or (3) the IRS determines that collection of the tax to which the installment agreement or proposed installment agreement relates is in jeopardy.
According to the Internal Revenue Manual (“IRM”), the determination that the offer of an installment agreement is merely to delay collection must be apparent to any impartial observer, i.e., there is clearly no reality to the offer. The IRM provides the following as an example: The taxpayer offers to make a periodic, token payment such as $1 a month. Collection is considered to be in jeopardy only if at least one of the conditions allowing a jeopardy assessment exists.
How do I request an IRS installment agreement?
Taxpayers may request a routine installment agreement by completing a Form 9465, Installment Agreement Request and mailing it to the IRS with the bill sent by the IRS. Taxpayers are strongly advised to seek legal counsel prior to communicating with the IRS or submitting any information to the IRS. Like a prosecutor in a criminal trial, the IRS can use against the taxpayer any oral or written statements made plus any documentation tendered. Therefore, taxpayers should fully understand the law and procedures as well as the strategy for victory prior to communicating directly with the IRS. Better yet, taxpayers should authorize their tax attorney to do all the talking. Alternatively, and against better advice, taxpayers can apply online for an installment agreement or contact the IRS directly by calling the phone number listed on the balance due notice.
The IRS charges a user fee to set up a monthly installment agreement. For low-income taxpayers, the user fee is reduced and possibly waived or reimbursed if certain conditions apply. Direct debit installment agreements offer a lower user fee than other installment agreements and help taxpayers avoid defaulting on the agreement by causing timely payments automatically. The user fee is waived for low-income taxpayers that agree to make electronic payments through a debit instrument by entering into a direct debit installment agreement. Interest and late payment penalties will continue to accrue while installment payments are made.
Complicated? You bet.
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