Taxpayers who fail to file a tax return or fail to pay taxes by the deadline are subject, by law, to penalties assessed by the IRS. Taxes unpaid by the original filing due date are subject to interest and a monthly late payment penalty. The failure to file a tax return is also subject to penalty, which makes filing a timely return important even if the amount of taxes owed cannot be paid in full. One option for taxpayers to resolve their tax debt to the IRS is an agreement to pay the taxes in installment payments.
An installment agreement is a payment plan to pay delinquent taxes within an extended time frame. Taxpayers who believe they can satisfy their tax obligation in full within the extended time frame should consider requesting a payment plan. A short-term payment plan does not subject a taxpayer to any user fees. Taxpayers can apply for a short-term payment plan if they are able to pay the tax debt in full within 120 days and can thus avoid paying the fee to set up the installment agreement.
Taxpayers must responsibly manage their account to make an installment agreement work. They must pay at least the minimum monthly payment when due. Also, taxpayers must file all required tax returns on time and pay all taxes in full. While an installment agreement is in effect, the IRS will apply any future refunds to the taxpayer’s debt until it is paid in full. Penalties and interest continue to accrue until the balance is paid in full.
The IRS will generally not take any enforced collection actions when a payment plan is under consideration or while a plan is in effect. It will also refrain from enforced collection actions for 30 days after a request is rejected or terminated, or during the period it evaluates an appeal of a rejected or terminated agreement.
Taxpayers are eligible for a guaranteed installment agreement if the tax owed isn’t more than $10,000 and:
- During the past 5 tax years, the taxpayer (and spouse if filing a joint return) have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for the payment of income tax;
- The taxpayer agrees to pay the full amount owed within 3 years and to comply with the tax laws while the agreement is in effect; and
- The taxpayer is financially unable to pay the liability in full when due.
The benefits of an installment plan are substantial. Such an agreement avoids additional interest and penalties, the offset of future tax refunds, and the necessity to borrow money and assume new debt. If you need to resolve a delinquent tax debt, call The Gartzman Law Firm at (770) 939-7710.