Payment Agreements with the IRS; Which one is which and why?
The IRS has various Installment Agreements depending on the amount of tax debt and taxpayers’ ability to pay it. The Streamlined Installment Agreement is one of the simplest methods of paying tax debt, as it does not involve disclosure of extensive financial details. Under this payment plan, taxpayers need to pay the entire amount of tax debt, including interest and penalties charged on the tax debt. Partial Payment Installment Agreement, on the other hand, involves tax debt reduction because of the inability of the taxpayer applicant to pay the entire amount of tax debt.
The Streamlined Installment Agreement is for taxpayers that owe $25,000 or less in taxes. To calculate the amount to be paid in monthly installments, the IRS divides the total amount of back taxes by the number of months needed to pay it back. Both the IRS and the taxpayer agree upon the time period in which the full tax debt amount is to be paid. It cannot exceed 72 months. The major advantage of this type of Installment Agreement is that taxpayers do not need to disclose details of their finances to the IRS.
Partial Payment Installment Agreement is for taxpayers that need to get their tax debt reduced because their financial condition does not allow them to pay the full tax debt amount. The IRS considers income from all sources and assets of a taxpayer to determine their ability to pay. The IRS and taxpayers can come to an agreement about the reduced amount of tax debt that can be paid by the taxpayer in installments.
A Streamlined Installment Agreement is a wise choice for those that owe $25,000 or less in tax debt and have the ability to pay the full amount, but not in a lump sum. Partial Payment Installment Agreement, on the other hand, is an opportunity for taxpayers that cannot pay the full amount of tax debt and want to resolve their tax debt case.
Both these Installment Agreements require payment in installments in a fixed duration of time. When considering any Installment Agreement, taxpayers must ensure that they have the financial capability to pay the amount to be paid in installments so that they can smoothly resolve their tax debt.
Knowing the differences can help you understand how the IRS perceives your ability to pay. However, only a knowledgeable and aggressive tax attorney knows what can actually be accomplished. There are more tactics that can be employed and with the persistence of your attorney, while nothing can be guaranteed, miracles can happen.