An installment agreement is just a fancy IRS term that means a payment plan With the IRS.
There are three different types of installment agreements. The first one i would like to talk about is called a streamlined installment agreement. It’s part of the new fresh start program. If you owe $50,000 or less to the IRS and you can full-pay your bill in 72 months or less, The service will let you enter into a streamlined installment agreement.
A huge benefit for entering into a streamlined installment agreement is the most cases you do not have to provide the IRS with your financial information.
If you owe IRS more than $50,000 then you will have to enter into a traditional installment agreement. (That is if you want or need an installment agreement of some type) a big drawback to this type of installment agreement is that you must provide detailed financial information on a form 433A or a 433B for your business or 433F. Another problem with the traditional installment agreement is that the IRS will scrutinize your expenses and they only allow what they call allowable expenses. In other words if your mortgage payment is greater than their allowable amount for mortgage payment they disregard your actual expense and treat it as though you are only paying the allowable amount, Therefore you Are treated as though you have more money left over to pay them (Of course you really don’t but that’s how they play the game and that’s part of the problem with this type of agreement)
The third type of installment agreement is called a partial pay installment Agreement. This can actually be a great tool to reduce Your tax bill. When I put my clients into a partial payment they are in effect getting a settlement for less than They owe. Here is how it works. The IRS has 10 years to collect a tax debt from a taxpayer. Here’s a real example drawn from my practice. Molly is a financial planner who owes the IRS about $65,000. There are only four years left on the statute of limitations. Based on Molly’s financials she can get a payment plan of $400 a month. Payment plan will end in four years when the statute of limitations expires. Molly will end up paying $16,000 on her $65,000 debt, the rest will ‘fall off’ Because of the statute of limitations.
Not everyone qualifies for a partial pay installment agreement. You must show the IRS that you have no substantial assets.
Keep in mind there are other ways to solve your IRS problem. Most of my clients never enter into an installment agreement of any type. But if you need an installment agreement, these are the three types available