IRS Tax Liability Installment Agreement Requirements

The IRS refers to a monthly payment plan as an “Installment Agreement”, or “IA” for short. In order to enter into a payment plan to resolve your back tax liabilities, you must meet a number of basic requirements. Tax Resolution Specialists at many CPA firms assist their clients in meeting these requirements, and then negotiate the actual payment amount after the clients are eligible.

Here are the basic requirements to be eligible for a payment plan:

1. File any missing tax returns.

2. Begin making current estimated tax payments (for self-employed people) or Federal Tax Deposits (payroll tax payments for businesses), if applicable.

3. Disclose specific financial information, such as income, expenses, and assets.

4. Demonstrate that you cannot pay off the tax debt from savings, a loan, or other means.

5. If you owe less than $10,000 in tax, be able to pay off the entire debt in 3 years or less. If you owe $50,000 or less, you get 5 years. If you owe more than $50k, there is no time limit.

6. Not have defaulted on another IA in the past 5 years.

The most difficult part of this process for self-employed and small business taxpayers is #2 — finding the money to begin making payments on their CURRENT tax obligations. This will involve some painful elimination of expenses and changing of priorities that most people don’t like, but is necessary. Remember, the IRS is your most powerful creditor, so it’s best to get them taken care of, even if that means damaging vendor relationships, not paying other bills, etc.

If you are eligible, then obtaining a payment plan is actually pretty straightforward. But as mentioned above, getting into current compliance is a critical first and second step, and is the most difficult part for most taxpayers.

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