When you owe the IRS money and you can’t pay everything right away, typically there are three options: (1) convince the IRS you can not currently pay anything and have your account marked as “currently not collectible;” (2) set up a payment arrangement; or (3) seek to settle through the offer in compromise program. Each option has its pros and cons. The IRS recently announced some helpful changes if you want to pursue the second option of setting up a payment plan.
Rules for IRS payment plans have always been classified based on how much is owed. These rules generally address the length of time that can be given for payment, the amount of financial disclosure required before a monthly payment amount will be accepted, and whether a tax lien will be filed. The significant thresholds of balances owed are $10,000, $25,000, $50,000 and over $100,000. As you would expect, the more you owe the more involved the rules become. Therefore, as a threshold consideration, before approaching the IRS about a payment plan, consider whether a partial payment can be made to move you down a tier or more in the escalating set of rules.
The recent changes relate to the “streamline installment agreements” for taxpayers owing less than $25,000 and those owing between $25,000 and $50,000. In each instance, taxpayers may now be given up to six years to pay an obligation (increased from five years). Taxpayers owing between $25,000 and $50,000 now need to make monthly payments by direct debit from a bank account. Also, at this higher level some financial disclosure will be requested but the sole purpose for gathering this information is to ensure that the payments can be maintained for the life of the plan, not to glean the highest monthly payment that can be made. Generally a tax lien will not be filed at either of these levels under the streamline rules.
If a payment plan is the best option to resolve a tax debt, all of these changes should make setting up a payment plan easier.