Menu

IRS Expands Installment Agreement

mug lach kathleenThe IRS is rolling out a new test program for streamlined installment agreements which runs through September of 2017. It will then make a determination whether it will become permanent. 

A “streamlined” installment agreement program was originally put in place by the IRS for taxpayers with outstanding tax liabilities of less than $25,000. Under this program, a taxpayer would qualify for a payment plan to address unpaid taxes without providing detailed financial information to the IRS, and without being subject to its determination on how much disposable income he had each month to pay toward the debt. Taxpayers were automatically granted the agreement to pay the tax with payment terms extending a maximum of 60 months. In 2012, that program was expanded to include taxpayers with liabilities of less than $50,000, and the terms were extended to a maximum payment period extending up to 72 months, again without having to provide detailed financial information, and without being subject to the IRS’ determination on how much a taxpayer could afford to pay each month based on his financials. 

Whether due to diminished resources at the agency, or the need to improve collection efforts, the terms of the streamlined program are again expanding. Under the new parameters, individual taxpayers with an assessed balance of tax, penalty and interest between $50,000 and $100,000 may take advantage of accelerated processing of their installment agreement request. The taxpayer’s proposed monthly payment must be greater than his total assessed balance divided by 84, or the amount necessary to fully satisfy the liability by the Collection Statute Expiration Date. Both the threshold for qualification under this program, and the time to pay, have been significantly expanded. 

During this test period, this expanded criteria for streamlined processing will only be available for installment agreement requests submitted to Small Business/Self Employed (SB/SE) Campus Collection Operations (including the Automated Collection System), and will not be available for requests submitted to Wage & Income Accounts Management, SB/SE Field Collection or through the Online Payment Agreement application.           

The following chart summarizes the current program, and changes within the test program for individual taxpayers who have filed all required returns and have an assessed balance of tax, penalties and interest of $50,000 or less. The test criteria also apply to defunct businesses with tax debts up to $25,000, and defunct sole-proprietorships with tax debts up to $50,000. For in-business taxpayers, test criteria apply to income tax debts only, up to $25,000.

CURRENT Streamlined CRITERIA TEST CRITERIA
Payment Terms
Up to 72 months – or – the number of months necessary to satisfy the liability in full by the Collection Statute Expiration Date, whichever is less
Payment Terms
None. This criteria is unchanged.
Collection Information Statement
Verification of ability to pay required in event of an earlier default for assessed balances of $25,001 to $50,000.
Collection Information Statement
Not required.
Payment Method
Direct debit payments or payroll. Deduction required for assessed balances of $25,001 to $50,000.
Payment Method
Direct debit payments or payroll. Deduction is preferred, but not required.
Notice of Federal Tax Lien
Determination not required for assessed balances up to $25,000. Determination is not required for assessed balances of $25,001 - $50,000 with mandatory use of direct debit or payroll deduction agreement. Note: If taxpayer does not agree to direct debit or payroll deduction, then they do not qualify for Streamlined IA over $25,000.
Notice of Federal Tax Lien
No change in criteria for assessed balances up to $25,000. Determination is not required for assessed balances of $25,001 - $50,000 with the use of direct debit or payroll deduction agreement. Note: If taxpayer does not agree to direct debit or payroll deduction, then they do qualify for Streamlined IA over $25,000, but a Notice of Federal Tax Lien determination will be made.

 

The chart below shows the changes for individual taxpayers who have assessed balances between $50,001 and $100,000. The test criteria also apply to all out of business sole-proprietorship tax debts between $50,001 and $100,000.

CURRENT CRITERIA TEST CRITERIA CHANGES
None - Streamlined processing criteria currently does not apply to assessed balances of tax between $50,001 and $100,000.

Payment Terms
Up to 84 months – or – the number of months necessary to satisfy the liability in full by the Collection Statute Expiration Date, whichever is less

Collection Information Statement
Not required if the taxpayer agrees to make payment by direct debit or payroll deduction.

Payment Method
Direct debit payments or payroll deduction is not required; however, if one of these methods is not used, then a Collection Information Statement is required.

Notice of Federal Tax Lien
Determination is required.

 

A taxpayer may request a payment arrangement by filing Form 9465, Installment Agreement Request, with the IRS. Streamlined arrangements may also be made by visiting a walk-in center, or by phone. The fees for entering into such an agreement have increased for 2017:

Type of Installment Agreement New Fee Prior Fee
Regular installment agreement $225 $120
Regular direct debit installment agreement $107 $52
Online payment agreement  $149 N/A
Direct debit online payment agreement $31 N/A
Restructured or reinstated installment agreement   $89 $50
Low-income rate $43 N/A

 

A taxpayer may qualify for a reduced fee of $50 if his income is below a certain level. A determination on the reduced fee is made using Form 13844, Application for Reduced User Fee for Installment Agreements.

It is also important to remind your clients that interest and late payment penalties on any tax not paid by its due date continue to accrue even if the request to pay in installments is granted. Further, if payments are late, or a new liability is assessed on a later return, the agreement will be in default, and the IRS may take enforcement actions, such as filing a Notice of Federal Tax Lien or an IRS levy action, to collect the entire amount owed.

Charts taken from www.irs.gov

 
Kathleen M. Lach is a Partner in the Tax and Litigation Departments of Arnstein & Lehr LLP. She represents clients before a variety of different tax authorities, including the Internal Revenue Service, the Illinois Department of Revenue, and the Illinois Department of Employment Security.