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Installment Agreements

Our staff has extensive experience in negotiating Installment Agreements and assisting taxpayers with the paperwork that is necessary for obtaining an Installment Agreement.  We can assure you that we will NOT set you up for failure by agreeing to monthly payments that you cannot afford.

FREQUENTLY ASKED QUESTIONS

Yes. You must be in compliance with filing, meaning that all tax returns you or your business are required to file must be either filed or on a valid extension. If you cannot quickly get into compliance, contact an experienced tax relief professional to make sure you are not at risk of enforced collections (bank levies, garnishments, asset seizures, etc.).

Maybe. For small, individual tax liabilities, you might not need the assistance of a professional. However, for larger tax liabilities or for business tax liabilities, the assistance of a tax relief professional can make the difference between being “forced” into large monthly payments that can make it impossible for you to make ends meet and being granted affordable monthly payments that will allow you to meet the needs of yourself, your family, or your business.

Absent extraordinary circumstances, the IRS will not levy you while you are on an Installment Agreement.

Yes. Under most circumstances, a Notice of Federal Tax Lien will be filed even though an Installment Agreement is granted unless you qualify for a streamlined, guaranteed, or in-business trust fund express Installment Agreement. Contact an experienced tax relief professional to see if a Notice of Federal Tax Lien can be avoided given your circumstances.

The IRS can send you a Notice of Intent to Terminate your Installment Agreement. Contact an experienced tax relief professional immediately if this happens. Oftentimes, a professional can help you either avoid the default or quickly get your agreement reinstated. This is usually far superior to having to renegotiate a new installment agreement because you will be at an increased risk of enforced collections while your Installment Agreement is in default, and the IRS may be more reluctant to grant you another agreement because you defaulted.

Yes. Your Installment Agreement can default if you fail to file subsequent tax returns, if you accrue a new tax liability, or if the financial information you provided when you applied for your installment agreement was inaccurate. With some Installment Agreements, the IRS can periodically request updated financial information. If you have this type of Installment Agreement and you fail to respond to a request for updated financial information, your Installment Agreement can default.

Yes. With some Installment Agreements, the IRS may periodically request updated financial information. If your financial circumstances have
changed for the better, the IRS may increase your monthly payment. If you fail to respond to the request for updated financial information, the IRS can default your Installment Agreement.

Contact an experienced tax relief professional to see if your change in financial circumstances makes you a candidate for an Offer in Compromise

(tax settlement) or Currently Not Collectible Status (an agreement where you are not required to make any monthly payments). It may also be possible to negotiate lower monthly payments.

After we negotiate a manageable Installment Agreement on your behalf, we will stay by your side and protect you from default.  

We understand that unexpected expenses may “pop up” in the future and that there may be a month or two in which it is difficult or impossible to make your installment payment.  

Rather than defaulting your Installment Agreement and exacerbating your tax problem, simply give us a call before your payment is due.  Chances are, we can negotiate an extension for your payment or even make arrangements for you to “skip a month” without having your Installment Agreement default.

Will the IRS Default My Installment Agreement?

By Artour Safarian

The IRS just approved placing you on an installment agreement and removed your case from collections. Is the worst over? Sort of. The IRS is notorious for defaulting an installment agreement and sending the case back collections no matter if the IRS did so erroneously and no matter if the taxpayer did nothing wrong. If the IRS defaults your installment agreement, you basically start the IRS collection process all over again except the IRS will view your case less favorably because a defaulted installment counts as a strike against you. The more strikes you rack up, the more aggressively the IRS tries to collect.

Logistically, the IRS defaults an installment agreement like so:

  • The IRS mails you a notice usually titled “Intent to Terminate Installment Agreement.” This IRS notice most of the time uses boiler plate language that either fails to help identify exactly why the IRS wants to default the installment agreement or identifies an incorrect reason why the IRS wants to default the installment agreement.

  • The IRS gives you 30 days to file an appeal or respond to its notice of intent to terminate your installment agreement.

  • After 30 days, the IRS defaults the installment agreement and sends your case back to collections.

What issues cause the IRS to default an installment agreement?

Two main issues cause the IRS to default an installment agreement.

1) Taxpayer encounters tax compliance issues. 

2) The IRS’ own error.

Tax Compliance Issues

As one condition to keep an installment agreement from defaulting and going back to collections, the IRS requires the taxpayer to comply with the tax laws.  Complying with the tax laws includes filing all taxes on time and paying all taxes on time such as timely paying the installment agreement’s payments and timely paying any required quarterly estimated tax payments (and employer withholding deposits if you are a business). In regard to filing all taxes on time and paying all taxes on time, let’s say you file an extension for your 2021 personal federal income tax return.  Then, you file your 2021 personal federal income tax return by October 17th, 2022 showing you owed a balance. The IRS should default the installment agreement because filing an extension fails to extend the time to pay: regardless if you immediately pay the 2021 tax balance due, the IRS should still default the installment agreement.  I emphasize “should” because the IRS sometimes fails to follow its own procedures to its own detriment. Thus, you will reduce the risk that the IRS will default your installment agreement by filing and paying your federal income tax return on or before the filing deadline, which is usually April 15th, instead of filing an extension. By filing and paying on or before the filing deadline, assuming you timely paid any required quarterly estimated tax payments, you reduce the risk that the IRS will default the installment agreement.  I emphasis “assuming you timely paid any required quarterly estimated tax payments” because the IRS requires certain taxpayers to send quarterly estimated taxes.  See this IRS link . This website lists the below estimated tax payment deadlines.
Tax Installment Payment Schedule

Careful to NOT over deposit your estimated taxes because the IRS should apply any overpayments toward the back taxes and should disallow you from moving the overpayment elsewhere.  Please consult with a competent accountant if you have any questions regarding quarterly estimated tax deposits.

For instance, let’s say the IRS requires that you deposit $1,000 every quarter toward your estimated taxes but you miss depositing one of the payments or deposit late.   Regardless if circumstances beyond your control caused you to untimely deposit your quarterly estimated taxes, the IRS should default the installment agreement and send the case back to collections.  Again, I emphasize “should” because the IRS sometimes fails to follow its own procedures to its own detriment.  Note, for estimated taxes, most of the time, before defaulting the installment, the IRS waits until you file your tax return showing estimated taxes were due.

IRS’ Own Error

Sometimes the IRS defaults an installment agreement as a result of its own error.  For example, the IRS’ computer software runs on an outdated operating system that for some unknown reason defaults an installment agreement despite the fact that the taxpayer did not do anything wrong.  As another example, an IRS back-office employee may make a key entry error causing the IRS system to default the installment agreement and kick the case back to collections.  Further, the IRS department that processes and posts tax forms may erroneously claim a taxpayer failed to file a tax form causing the installment agreement to default when in reality the taxpayer did file, but the IRS accidentally misplaced or lost the tax form.  In addition, the IRS may accidentally fail to include one or more of the tax periods owed from the installment agreement causing the installment agreement to default.  As one last example, the IRS may misapply an installment payment that the taxpayer mailed causing the installment agreement to default.  I could keep going on and on but you get the idea.

Even when the IRS defaults an installment agreement as a result of its own error, you will likely encounter difficulties getting the IRS to reinstate the installment agreement.  From IRS employees having no idea what they are doing to IRS employees insisting you somehow caused the IRS to err, the IRS will do what it can to make your life difficult.
Oh, did I forget to mention that your first almost unsurmountable task will entail trying to get ahold of the IRS?  The IRS strives to not talk to you by having you hold for hours and hours, by connecting you with an IRS department that cannot help, by dropping the call after you get ahold of someone, and by simply refusing to take your call “due to high call volume.”  My favorite though is when an IRS employee states he or she cannot help you because his or her “tour of duty” is about to end: IRS speak for the employee’s shift is about to end. Why take the call if you are about to get off work?  Right up there with my favorite is when an IRS employee says he or she fixed the issue but the IRS employee did absolutely nothing and when you call the IRS back, there is simply no record of said IRS employee fixing anything.  

How can you to minimize the chances of the IRS defaulting your installment agreement?

Generally, the following guide will minimize the chances of the IRS defaulting an installment agreement:

  1. Verify the installment agreement covers all of the tax liabilities.
  2. Set up automatic bank withdrawals for the installments. Note, for certain cases, manual installment payments may work better.
  3. Keep track of whether the IRS automatically deducts the installments every month.
  4. Determine whether you need to deposit quarterly estimated taxes. Use the IRS Direct Pay website to pay for individual estimated taxes and the IRS EFTPS website to pay for business estimated taxes.  Verify with the IRS that the payment posted.
  5. File your tax forms by the original due date as opposed to filing an extension. Preferably file electronically if you can and verify with the IRS that the tax form posted.
  6. Pay your taxes before the due date preferably using the appropriate IRS website. Verify with the IRS that the payment posted.
  7. If you have a tax relief professional, keep them on board to monitor your installment agreement and receive copies of all mail that the IRS sends you. An experienced tax relief professional can quickly determine whether any written correspondence the IRS sends you is a red flag that your installment agreement is in jeopardy of defaulting, and they can very often take immediate action to nip the problem in the bud and prevent a default.
  8. If you do not have a tax relief professional, it is imperative that you read every single word of every letter the IRS sends you. If anything sounds even remotely like it might be a problem, call the IRS right away (set aside 2 hours for being on hold), and ask for clarification. Or, contact a tax relief professional.

As you can imagine, following the above 1—8 guide to keep an installment agreement from defaulting involves a significant amount of work.  In addition, it may be tricky to understand exactly what to do.  For example, what do you do if the IRS fails to include all of the delinquent tax periods in the installment?  What if you cannot get a hold of the IRS because the IRS just does not pick up?  What if you do get a hold of an IRS employee, but the employee insists on obtaining your income, expenses, and supporting documents all over again?  What if the employee demands you increase your monthly installments?  What if you receive mail from the IRS that makes no sense?

The bottom line is that IRS installment agreements default at a surprisingly high rate, it can be a royal and costly pain to try to secure a new installment agreement if yours defaults, and if you have a tax relief professional who is willing to monitor your installment agreement for a relatively small monthly fee, it will be money wisely spent. The very last thing you want is to go back to square one and go through the costly and stressful process of setting up an installment agreement all over again—but this time with a higher degree of difficulty and a higher chance of being subjected to enforced collections (e.g. bank levies, garnished wages).

Of course you can cross your fingers, attempt to monitor your installment agreement on your own, and risk the possibility of major headaches down the road. However, when it comes to your installment agreement, to quote the movie Dirty Harry starring Clint Eastwood, “You’ve got to ask yourself one question: ‘Do I feel lucky?’”

If you have questions about a tax liability or you would like to see whether you qualify for tax relief, call Fortress Tax Relief at 877-777-7430.  We have caring and knowledgeable professionals on staff who would be happy to answer any questions you might have, and to outline a solution tailored to your specific needs and circumstances. There is no charge for a telephone consultation, so pick up the phone and give us a call!

Ed Phillips
Ed Phillips
Cerritos, CA
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"I thought I would be better off with local representation, but I couldn’t have been more wrong. After trying multiple ‘reputable’ local attorneys, I had gotten nowhere. This changed immediately when I engaged Fortress. Their professionalism was superior and they got the job done far more quickly than I expected. If you have state or federal back tax issues, you can’t go wrong with Fortress"

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Eligibility Requirements for an IRS Payment Plan

In order to enter into a formal Installment Agreement, the taxpayer must satisfy the relatively basic threshold requirements of filing compliance and deposit compliance.  Filing compliance requires that the taxpayer be up-to-date with filing all required tax returns (or be on a valid extension).  To be in deposit compliance, the taxpayer must be making all required Federal Tax Deposits in full and on time (if applicable).  If, for whatever reason, the taxpayer cannot get into filing or deposit compliance immediately, he or she is ineligible for an Installment Agreement and may be at an enhanced risk of enforcement.  An experienced tax attorney can oftentimes reduce or eliminate the risk of enforcement for a period of time until the taxpayer becomes eligible for an Installment Agreement.

Once a taxpayer meets the eligibility requirements for an Installment Agreement, negotiations toward a formal Installment Agreement, if performed properly, can protect the taxpayer from enforced collections until such time as the Installment Agreement is approved.

Assuming a taxpayer can attain filing and deposit compliance, he may be eligible for a Guaranteed, or Streamlined Installment Agreement.  Those types of agreements do not require extensive financial review, but they do require a relatively low balance due.  In many instances, the IRS will not notify a taxpayer that he qualifies for a Guaranteed or Streamlined Installment Agreement.  This is another area where a tax professional can be of great assistance.

But what if the taxpayer does not qualify for a Guaranteed or Streamlined Installment Agreement?  The Internal Revenue Manual requires that the IRS tailor any plan for resolution of a liability to the taxpayer’s “ability to pay.”  “Ability to pay” generally means “gross monthly income” minus “allowable expenses,” with the caveat that the IRS will also consider equity in assets when determining ability to pay.  This opens the door to the IRS demanding that the taxpayer take out a second mortgage, downgrade to a more modest home, liquidate retirement accounts, close a business location, scale back business operations, or any of several other uncomfortable and financially harmful demands.  A qualified representative can often negotiate an Installment Agreement without the taxpayer being required to make such drastic changes to the lifestyle he or she has worked so hard to attain.

In order to determine the ability to pay, the IRS requires significant financial disclosure and review (unless the taxpayer is eligible for a Streamlined or Guaranteed Installment Agreement).  The IRS will generally request a Form 433-A, 433-F, and/or 433B Collection Information Statement, along with verifying documentation like bank statements, cancelled checks, bills and invoices, etc.  At this stage, it is extremely important to have a representative who specializes in this type of negotiation.  A good representative will be able to review the financial documents with the eye of an IRS collection employee, and can advise on the best way to characterize the financials to truly reflect the taxpayer’s financial circumstances.

IRS Revenue Officers and collection employees have many strategies for finding every last penny to extract from a taxpayer on a monthly basis.  Using techniques such as challenging expenses as illegitimate, disallowing expenses deemed unnecessary, holding taxpayers to National Allowable Standards for Living Expenses, overvaluing assets, and disregarding revenue consequences from cutting business expenses, to name a few, the IRS fosters a culture of maximum extraction from a delinquent taxpayer.

An experienced and competent tax professional should be able to negotiate reasonable terms notwithstanding the IRS culture of maximum extraction.  On the other hand, taxpayers who try to negotiate non-streamlined Installment Agreements on their own or with the help of an incompetent professional can easily wind up paying hundreds or thousands of dollars more per month.  Agreeing to a monthly payment that the taxpayer cannot afford can prevent the taxpayer from making ends meet and can lead to the default of the Installment Agreement.  Default of an Installment Agreement should be avoided at all costs, as this tends to increase the chances of enforcement and decrease the IRS’s willingness to grant another repayment plan.  It is much better to get affordable monthly payments approved the first time around than to enter into an agreement with non affordable terms.

Upon receipt of all requested financial documentation, and any additional clarifying information, the IRS will make a determination whether to accept or reject a proposed Installment Agreement.  The IRS has to follow Independent Review and Appeals procedures when rejecting a properly prepared Installment Agreement proposal.  This is another instance where a qualified tax professional can be the difference between success and disaster.  You need someone who knows the rules that govern the IRS, has the experience to know which battles are worth fighting, and the know-how to exercise your rights on your behalf.

If the IRS accepts the proposed Installment Agreement, its terms will require that the taxpayer make his monthly payment in full and on time every month, as well as maintain deposit and filing compliance.  A formalized Installment Agreement removes the taxpayer’s case from Active IRS Collections, and allows the taxpayer to resolve the liability, free from the threat of unexpected and harmful levies, garnishments and seizures.

The above is but a brief and simplified explanation of Installment Agreements.  As a professional who represents taxpayers in collections, throughout any negotiation, I must constantly anticipate the IRS’s next move and outflank their collection efforts.  A successful negotiation takes a significant amount of time, attention, follow up, and knowledge.

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