An installment agreement is a contract with the IRS, authorized by Internal Revenue Code §6159, under which you pay a liability over time rather than at once. For many taxpayers it is the most practical resolution available — but the terms you agree to, and the financial information you disclose to get them, have consequences that last for years.
The types of installment agreements
A guaranteed installment agreement is available as a matter of right to individuals who owe $10,000 or less (excluding penalties and interest), have filed and paid on time for the past five years, and can pay in full within three years. A streamlined installment agreement is available to individuals who owe up to $50,000 and businesses that owe up to $25,000, with payment in full within 72 months or before the collection statute expires, whichever is sooner. Streamlined agreements do not require a financial statement, which is their principal advantage: the IRS does not examine your income and assets as a condition of approval.
Above those thresholds, or where the taxpayer cannot pay within the streamlined period, the IRS requires a non-streamlined agreement supported by a full financial statement on Form 433-A or 433-F (for individuals) or 433-B (for businesses). The IRS then calculates what it believes you can pay each month using its National and Local Standards for allowable expenses, and the negotiation is over how your actual circumstances compare to those standards.
A Partial Payment Installment Agreement is a non-streamlined agreement in which the monthly amount, carried to the end of the collection statute, will not pay the liability in full. The remaining balance becomes uncollectible when the statute expires. The IRS reviews these agreements every two years and may increase the payment if your finances improve. For taxpayers whose collection statute is approaching, a partial payment agreement can be a more realistic path than an Offer in Compromise, and we evaluate both.
What an installment agreement does, and does not do
Once an agreement is in place, the IRS will not levy. That protection also applies while a request for an agreement is pending, and for 30 days after a request is rejected. An agreement does not stop penalties and interest from accruing on the unpaid balance, and it does not prevent the IRS from filing a Notice of Federal Tax Lien, although a direct-debit agreement for a liability under $25,000 may support a lien withdrawal request. The IRS will apply any refund you are owed to the balance. And an agreement is conditioned on staying current: a missed payment, or a new liability on a future return, defaults the agreement and reopens collection.
What the firm does on an installment agreement engagement
- Review of all balances and collection statute dates to determine which type of agreement you qualify for
- Preparation of Form 9465 and, where required, Form 433-A, 433-B, or 433-F with supporting documentation
- Analysis of your allowable expenses under the IRS standards, and substantiation of expenses above the standards where the facts justify it
- Negotiation of the monthly amount with the Revenue Officer or Automated Collection System
- Evaluation of whether a partial payment agreement or Currently Not Collectible status is the better fit
- Requests for penalty abatement filed alongside the agreement where grounds exist
- Lien withdrawal requests where a direct-debit agreement makes you eligible
- Guidance on maintaining the agreement, and on modification if your finances change
The practical point
The IRS will generally accept a payment plan. The question is on what terms. An agreement set at a payment you cannot sustain will default, and a defaulted agreement puts you in a worse position than you started in. The purpose of representation here is to arrive at terms that are defensible to the IRS and workable for you — once.