2) Monthly Installment Agreements:
Monthly Installment Agreements (IA) require equal monthly payments due on the same day every month. If you can make payments to the IRS, start making them as soon as possible, even before you negotiate a formal Installment Agreement. Making monthly payment BEFORE a formal Installment Agreement shows good faith. In fact, it is a very positive sign if the tax collector sees that you have made a few payments in advance of negotiations. Formal Monthly Installment Agreements must be negotiated with the IRS and are based upon your monthly income versus your monthly expenses, and can last for anywhere from a few months up to 16 years. Penalties and interest continue to accrue during the term of the Installment Agreement until the liabilities are paid in full. If you owe the IRS $25,000 or less and can pay off your liability within five years, it is relatively easy to negotiate an Installment Agreement directly with the IRS. In negotiating an Installment Agreement with the IRS you should try to make sure that the IRS will NOT file a Lien, although for amounts over $25,000 or agreements for more than five years, a Lien may be unavoidable. (The Federal Tax Lien is discussed later.) However, in addition, you must not accrue any additional liabilities during your Installment Agreement term. If you do, your Installment Agreement will be defaulted. A second Installment Agreement is possible, but can be much more difficult to obtain. Further, if you must miss a monthly payment due to unforeseen temporary circumstances while under an Installment Agreement, call the IRS before the due date of the payment. The IRS will normally allow you to skip one payment if your reason for doing so is legitimate. Installment Agreements for liabilities larger than $25,000 are definitely possible, but require complete financial disclosure and will probably include the filing of a Federal Tax Lien by the IRS. (The IRS also has a rarely used “Installment Agreement on Specified Balance Due Account” (IASBDA). The IRS uses the IASBDA when it is their best interest and when they think they can collect more money than via an Offer in Compromise. It is used on taxpayers who do NOT have the ability to submit an Offer in Compromise, but can make monthly payments. The downside is that the IASBDA will last the length of the Statute of Limitations PLUS an additional SIX YEARS. This can be as long as 10 to 15 years! In addition, at any time during the agreement the IRS can re-evaluate the taxpayer’s ability to pay and increase the amount of the monthly payment based on increased income. A taxpayer should think long and hard before entering into this type of long term Installment Agreement in lieu of an OIC.