Installment Agreements

Installment Agreements with the IRS is used to pay tax debts over a series of months, generally not more than 60 (5 years) although the Service is legally allowed to collect over 10 years.

Installment Agreements are used where the taxpayer has an ability to pay back taxes as evidenced by an analysis is his/her financial affairs.

The financial analysis is based on Collection Standards. Those Standards are averages of costs that individuals living in various areas of the nation are likely to incur.

Standards are set for food and clothing, housing and utilities, transportation costs and health care (allowances for health care are set, not on standards, but on actual experience of each individual, plus legally mandated payments such as family support, student loans and judgments.

The allowances indicated in the Standards are summed and then subtracted from monthly after tax income. Any excess of after tax income over the allowance is referred to as 'ability to pay' and is the amount the IRS will demand each month in an Offer in Compromise or Installment Agreement. If 60 payments of the 'ability to pay' amount is less than the tax debt the IRS will consider an offer to pay the lesser amount.

If the 'ability to pay' amount is greater than the tax liability, the IRS will demand their money in an Installment Agreement over not more than 5 years.

Sizes for Installments Agreements

Installment plans come in two sizes. Anything over $25,000 demands financial disclosure on Form 433 A and B. Less than $25,000, financial disclosure is not required.

Any financial disclosure is a road map to the location of taxpayer assets. Financial disclosure should not be given unless absolutely necessary and it may be advisable to pay debt down to less than $25,000 in order to avoid disclosure.

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