Not all taxpayers have the financial means to pay off their tax debt in full. Individuals and businesses, despite the financial hardships they face, could set up other arrangements with the IRS to resolve this debt. An experienced tax lawyer can help a taxpayer address these tax liabilities by negotiating an installment agreement. An installment agreement is a payment plan where the taxpayer makes monthly payments over the course of several months to satisfy the tax debt.
There are different types of installment agreements. These agreements allow a taxpayer to pay down their bill over the course of months or years instead of in a lump sum payment. Before you agree to a payment plan, it is in your best interest to learn more information from an Orlando IRS installment agreements lawyer.
What is an Installment Agreement?
An installment agreement is a payment plan agreement between a taxpayer and the IRS. Under this agreement, the taxpayer agrees to make monthly payments toward their outstanding tax bill; and in exchange, the IRS agrees to withhold collection efforts, such as levies, a taxpayer is compliant with their tax obligations and making payments under the installment agreement.
There are benefits and drawbacks to installment payments. The major benefit is that an active installment agreement halts collection efforts by the IRS and allows you to slowly pay back your debt at a pace that you can afford. The downside is that these plans can be an expensive way to pay off an IRS debt. While collection efforts might end, the IRS will continue to charge interest on these debts. That interest can accrue quickly, and at a rate that is frequently between 4% and 6%. The end result could mean that you are ultimately paying more to the IRS this way as compared to settling the debt using a different method.
Whether or not a monthly installment plan is in your best interest will depend on multiple factors. Given what is at stake, it is never a good idea to pursue this option alone. An Orlando IRS installment agreement attorney can help you determine the best course of action by creating a customized plan based on your priorities, tax liabilities, and your ability to pay. Installment agreements are often not guaranteed and depending on the type of tax debt, the amount of the liability, the age of the liability, and other personal factors, negotiating an installment agreement can range from simple to extremely difficult.
Types of IRS Installment Agreements
There are several different options when it comes to entering into installment agreements with the IRS. Some installment agreements are simply granted as a matter of course and others need to be carefully negotiated. It all depends on the unique facts of a taxpayer’s situation and what their priorities are. An Orlando installment agreement attorney can provide helpful insight into which option might be right for you.
Guaranteed Installment Agreement
This option is for anyone that owes less than $10,000 to the IRS, excluding penalties and interest. This payment plan typically lasts 36 months and requires taxpayers to be current with their return filings.
Streamlined Installment Agreement
There are two different types of streamlined installment agreements: one for tax liabilities less than $25,000 and one for tax liabilities between $25,000 and $50,000. If a taxpayer can pay their back taxes over the course of 72 months, the IRS could agree to avoid placing a tax lien. To take advantage of this option, you must agree to a direct deposit arrangement.
Partial Payment Installment Agreement
A Partial Payment Installment Agreement is where the tax liability is not going to be paid off within the statute of limitations on collections, but the IRS agrees to take lower monthly payments from a taxpayer, which keeps the taxpayer from enforced collection action. The IRS does not like granting these types of installment agreements because it means they are not going to collect all the money that is owed. This option has to be carefully negotiated with the IRS and the request is not always granted. An attorney from Orlando Tax Law can review whether a Partial Payment Installment Agreement is the best option or whether an Offer in Compromise settlement may be better. Again, it depends on the unique facts and the goals of the taxpayer seeking assistance.
Graduated Installment Agreement
A Graduated Installment agreement is where the tax liability is paid back in full over time, but the payments are structured so that they start out small and grow over time. For example, someone may pay $500 per month in year one and then pay $750 per month in year two, $1,000 per month in years three and four, and then $1,500 per month in years five and six. While this may be a more affordable option for a taxpayer seeking assistance, the downside is that the interest accrues at a much faster rate since lower payment are being made at first. Again, it can be a great option, depending on someone’s unique situation and goals.
One Year Rule
Sometimes the IRS will allow an installment agreement where the first-year monthly rate is much less than the monthly rate for the other years (years two to six, typically). In this scenario, the IRS is giving taxpayers a chance to restructure their finances or get back on their feet before the standard higher payments start.
Reach Out to an Orlando IRS Installment Agreements Attorney Immediately
The specifics of an IRS installment agreement can be complicated to understand. In some agreements, depending on the tax owed, the IRS will likely follow a lien. Installment agreements should be considered alongside other settlement or payment options, such as currently not collectible status or offer in compromise. Instead of deciding if these plans are in your best interest, you could benefit from a discussion with our highly qualified team. Let an Orlando IRS installment agreements lawyer advise you on the best way of paying your back taxes. Call for a private consultation today.
