Under current IRS administrative procedures, all IRS offices, not just the Collection Division, can approve an installment agreement up to $25,000 when the taxpayer agrees to pay the amount due in five (5) years or less. In addition, for accounts up to $25,000, the IRS will not require the taxpayer to submit a Collection Information Statement.
There are two excellent advantages to this streamlined procedure. First, the taxpayer does not need to disclose personal and/or business income, expenses, assets, or liabilities to the IRS. Second, as long as the taxpayer adheres to the payment schedule, then the IRS will not file a Federal Tax Lien.
Here is an excellent strategy if the taxpayer is filing a tax return, but knows it cannot submit payment in full at the time of filing the tax return. Although Form 9465 (Installment Agreement Request) is typically filed in response to a bill from the IRS, it can also be submitted with a balance-due tax return. A decision by the IRS to accept the request can be expected within thirty (30) days of filing the tax return and Form 9465. Therefore, if the taxpayer owes tax at the time the tax return is filed, Form 9465 should be completed and filed with the tax return. As long as the assessed amount is $25,000 or less and the payment schedule can be paid in five (5) years or less, the IRS will be flexible concerning the monthly payment amount.
The advantages of obtaining an installment agreement at the Examination Division level through the streamlined procedures are that the taxpayer does not have to submit a CIS, no tax lien will be filed, and the Collection Division is avoided. If the taxpayer owes more than $25,000 the Examiner cannot enter into an installment agreement with the taxpayer. If the taxpayer can pay the amount of tax debt that exceeds $25,000 first, then the Examiner may proceed to enter in an Installment Agreement with the taxpayer.
The $25,000 figure stated above refers to the entire tax amount due, not just the tax liability. This means that the taxpayer’s account must be $25,000 or less, which includes penalties and interest, in order for the taxpayer to enter into an installment agreement with the IRS. This is an important distinction because the IRS is required by IRC Section 6159(c) to enter into an installment agreement with a taxpayer if the tax liability alone is $10,000 or less, excluding penalties and interest.
IRC Section 6159(c) also provides that the IRS is required to enter into an installment agreement (for up to three years) with a taxpayer if:
- within the previous five (5) years, the taxpayer has not failed to file or to pay, nor entered into an installment agreement
- the installment agreement provides for full payment of the tax liability within three (3) years)
- the taxpayer complies with any request by the IRS for financial statements in order for the IRS to determine that the taxpayer cannot pay the tax due in full, and
- the taxpayer agrees to continue to comply with tax laws and the terms of the installment agreement while the installment agreement is in place.