More often than not, when you owe the IRS you will be put into a payment plan. This sounds simple, but it's not, since there are various plans you may or may not qualify for. Below is the "down and dirty", nuts & bolts list. As always, I recommend having someone negotiate these for you if you owe a significant amount, that is, over $10,000.
Streamline Installment Agreement
This agreement spreads your payments over 6o months.
To qualify for this installment plan agreement, you must...
- Be fully compliant. This means that all your returns are fully filed for the last 3-4 yrs.
- Your liability's CSED, or tax expiration date, cannot expire within 5 years and 7 months. So, if your liability expires in 5 years and 6 months, you won't qualify.
- You cannot owe more than $25,000.
These agreements are generally more complex and are for tax debtors owing over than $25,00. They are termed "negotiated" because the IRS requires full financial disclosure, whereas with streamline agreements they don't.
1. "Ability to Pay" Installment Agreement
This agreement will fully pay off your liability. Payments are based on your monthly disposable income. The IRS will also make sure that before you enter into this agreement, you have liquidated all assets in order to lower your liability.
2. Conditional Installment Agreement
This agreement uses your actual expenses, if they are necessary living expenses, when trying to determine income and expenses. However, you must pay off your liability both before the CSED expires and within 5 years.
3. Partial Pay Installment Agreement
This payment agreement is the Holy Grail of installment agreements and is very rare. This is because the amount you pay monthly will not pay the tax in full before it expires. This agreement uses the IRS' allowable living expenses in calculating your agreement. This means that the expenses included are the ones the IRS says are OK for you to include, which may differ greatly from your actual expenses.
4. Lifestyle Adjustment Installment Agreement
This installment agreement allows for payment with actual expenses for a determined period of time (usually a year) in order for you to change your lifestyle. In essence, the IRS is giving you time here to decrease your expenses to an acceptable level, as determined by the IRS' allowable living expenses. Then, your IRS payment goes up to your "ability to pay" amount.
If you wish to read more on payment plans with the IRS, I recommend these posts...
Installment Plan Agreements
More on the Partial Pay Installment Agreement
When You Owe Over $100,000
The Streamline Payment Plan
Installment Agreement Alternatives