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IRS Expands Installment Agreement Program

IRS Tests New Expanded Installment Agreement Criteria

Earlier this month, the IRS announced that it is testing the use of broader criteria for taxpayers to qualify for a certain type of installment agreement. This experiment runs through September 2017 and effectively doubles the dollar amount of tax debt that a taxpayer can owe and still qualify for a "Streamlined Installment Agreement."

But as I explain below, a traditional Streamlined Installment Agreement is still a better option for those that qualify because taxpayers taking advantage of the new higher limits will be faced with the filing of a federal tax lien.

Types of IRS Installment Agreements

There are three broad categories of installment agreements. Taxpayers who owe $10,000 or less are entitled to an installment agreement as a matter of law. Such an agreement can be set up online, does not require disclosure of financial information, and can be paid manually instead of through direct debit from a bank account or via payroll deduction.

Streamlined Installment Agreements

The second type of installment agreement is a "streamlined" installment agreement, which is available to taxpayers who owe $50,000 or less. A streamlined installment agreement allows a taxpayer to pay the total balance over a 72 month period (unless the collections statute expiration date is before the end of 72 months, in which case it must be paid before the limitations period ends).

One major advantage to a streamlined installment agreement is that it does not require a taxpayer to give the IRS a collections information statement, which is a set of financial disclosures. It is always dangerous to give the IRS financial information because then it knows exactly where to send the garnishment or a bank seizure if the installment agreement does not work out.

The taxpayer can pay the debt however he or she chooses so long as the debt is $25,000 or less. If the taxpayer owes between $25,001 and $50,000 the IRS generally requires payment to be made through direct debit or payroll deduction. As an added incentive, the IRS will not file a tax lien against the taxpayer who owes $50,000 or less and enters into a streamlined installment agreement.

Non-Streamlined Installment Agreements

Taxpayers who owe more than $50,000 to the IRS can apply for a non-streamlined installment agreement. Non-stream installment agreements require disclosure of financial information and have to go through a review process within the IRS. With a non-streamlined installment agreement, the IRS reviews the financial information to ensure that the taxpayer is contributing as much as possible toward the tax liability each month.

A major downside to a non-stream installment agreement is that the IRS will file a federal tax lien to protect the government's interest. There is a process for removing the lien once the tax liability is paid in full, but a federal tax lien is a public record and will have a negative effect on the taxpayers credit in the meantime.

We frequently advised taxpayers who owe more than $50,000 to try to pay the debt down to less than $50,000 to qualify for a streamlined installment agreement and avoid the tax lien.

IRS's New Expanded Criteria for Streamlined Installment Agreements

The criteria that the IRS is testing between now and September 2017 will double the amount of tax debt that is eligible for a streamlined installment agreement. The IRS is raising the threshold from $50,000-$100,000 and it is not requiring a collection information statement. The IRS is also expanding the time that a taxpayer has to pay the tax debt. Instead of stretching the balance out over 72 months, a taxpayer with less than $100,000 in debt can now pay the balance over a period of 84 months, assuming that the statute of limitations does not expire in the meantime.

There is one major drawback: the IRS will still file a tax lien on debts greater than $50,000.

For taxpayers who have a lien filed already, this is a fantastic program. But for those trying to avoid the negative effects of a tax lien, this doesn't really change anything.

Still, I applaud the IRS for experimenting with giving taxpayers greater options for coming into compliance. This seems very much in the spirit of the "fresh start initiative" that the IRS launched in 2012.

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