Proposing an IRS Installment Agreement: How and How Much

Contrary to the popular myth of the Internal Revenue Service as a monster that shows no mercy, the IRS does offer a plan for you if you cannot pay your tax debt all at once. If your tax debt is less than $10,000, you can apply for an Installment Agreement on IRS Form 9465.

The Installment Agreement is a proposal crafted by the taxpayer (or the taxpayer's representative), and there is a right and wrong way to fill out the form. Before applying for an Installment Agreement, consider the following factors to ensure its acceptance:

File Back Tax Returns

If you (and your spouse, if the tax debt comes from a joint return) have not filed all necessary tax returns for the last five years, take care of that before applying for an Installment Agreement. Having "blank spaces" in your tax filing record is the quickest way to get your Form 9465 rejected. Meanwhile, interest and penalties keep piling up.

Make Sure You Qualify for Debt Relief

Be prepared to show that you cannot pay the tax debt immediately, or don't bother applying for an Installment Agreement. For example, if you owe $5,000 and have $10,000 in your personal checking account, Form 9465 won't get you anywhere.

Divide Your Tax Debt By 36

Try this formula: total up your tax debt and divide that total by 36. The result is the amount that the IRS will expect you to pay monthly. If your tax debt is $10,000, then, your Installment Agreement target should be a monthly payment of $277, or something close to that.

A Form 9465 that proposes to pay the entire tax debt within three years will nearly always be accepted. But if you're trying to propose a $20 monthly payment on a $7,000 tax debt, chances of acceptance are slim. And again, that means interest and penalties keep piling up.

Do the math, because the IRS will.

Honor the Installment Agreement or Lose It

Last but not least, pay according to the Installment Agreement. Missing a payment will start a 30-day grace period during which the IRS will still honor the Installment Agreement. But after that, the Installment Agreement can be canceled.

It costs $43 to have Form 9465 evaluated by the IRS. So if you have to do it again, you're $43 more in the hole. If you really can't make a payment that month, call the IRS directly and explain the situation. They may be able to put the agreement on temporary hold.

Source
IRS.gov

About the Author:
Andrew Freiburghouse is a freelance writer and editor living in Brooklyn, NY. He has worked in a variety of fields including magazine journalism, tax preparation, screenwriting, copywriting, and real estate. He graduated from Santa Clara University in 1999 with a B.A. in English. A regular contributor at tech blog Edgelings.com, Andrew was born and raised in the City of Los Angeles. He hopes he will survive the New York winter.