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INSTALLMENT AGREEMENT RULES

An installment agreement (IA) is a written agreement used to satisfy prior year tax liabilities by allowing the taxpayer to make monthly payments for a specified period of time.  For an IA to be legal the following criteria must be met:

  • The liability must be paid in full prior to the expiration of the statute of limitations (SOL) or 60 months, whichever is less.
  • The taxpayer must be in full compliance during the entire term of the agreement.
  • The taxpayer must provide updated financial information when called upon to do so by any IRS employee.
  • The taxpayer must pay a service charge of $105.00.

The taxpayer is always bound by the terms of the agreement; however, the IRS is not.  The IRS can terminate and/or change the terms of the agreement for the following reasons:

  • The taxpayer fails to make his payments on time.
  • The taxpayer fails to file on time and/or fully pay the tax due on subsequent year tax returns.
  • The taxpayer fails to have the proper amount of tax withheld by his employer.  Or, if self-employed, he fails to send quarterly estimated payments to the IRS.
  • The taxpayer fails to provide updated financial information to IRS employees.
  • The IRS determines the taxpayer failed to provide complete and accurate information at the time he requested the IA.
  • The IRS determines that collection of the tax is in jeopardy and must take immediate action to seize assets.
  • The IRS determines the taxpayer's financial situation has changed and the taxpayer is able to make larger payments.

The Internal Revenue Code allows IA's only if the payments liquidate the entire tax liability within the SOL or 60 months, whichever is less.  For example, if you owe $50,000 and can only afford to pay $200 per month you can quickly determine you are not going to be eligible for an installment agreement because your monthly payments will not liquidate the amount you owe in 60 months or less.  If you don't qualify for an IA the Revenue Officer (R.O.) is authorized to seize your assets.

Generally speaking, the R.O. assigned to your case has heard every excuse in the world and quite frankly he does not like "low-life tax cheats."  The mere fact he has been assigned to your case indicates to him you are not a good citizen and he assumes you are totally untrustworthy.  He will act nice at first because you probably did not read all the paperwork that he sent to you and he hopes you did not request a due process hearing.  Once the 30 day period for requesting a hearing has passed, you will notice a sudden change in the R.O.'s attitude.  You will have given him the power he needs to bring you to your knees!  And he will threaten to seize your bank accounts, automobiles, and wages if you don't do exactly what he tells you to do.

This is where planning comes in.  If you have not retained an advisor familiar with the internal procedures of the IRS and you do not understand how their employees think you will be at a severe disadvantage.  You must make a pre-emptive strike by providing the R.O. with every document he needs to close your case.  This includes all the financial records, questionnaires, exhibits and other memoranda needed to support the amount you can pay on a monthly basis.  If you let the R.O. do it, you are going to be miserable for a very long time.

There is a little-known provision that taxpayers can use when they can afford only a very small payment and it is known as Partial IA (PIA).  Most Revenue Officers don't even know it exists and if they do know about it they also know it is much more difficult to set up.

The PIA works like this: the R.O. must investigate each tax year and determine which ones can be paid off by the small payment you proposed; then the IRS writes off the other tax years as uncollectible.  Now this is the deal of a lifetime!  You won't see this procedure advertised in the IRS literature on IA's.  But as I have mentioned throughout this website, your key to success in getting the results you want is directly proportionate to the amount of knowledge you and your advisors have about the internal procedures at the IRS.

Conclusion:  Your advisors must know more about the R.O.'s job than he does, and they must prepare all the documents needed to support your position for the PIA.  The documents should be prepared in accordance with the Internal Revenue Manual guidelines so the R.O. does not have to do any work (mental or physical).  All he has to do is add a few comments and turn it in.  Case closed!