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Tax Installment Agreements – Payment Plans

January.31.2010

If you are unable to pay the Internal Revenue Service for taxes you owe, you may be able to qualify for a tax payment plan.  The IRS calls such payment plans an Installment Agreement.   Your state, including Maryland, also may offer similar tax payment plans.

While most would prefer to obtain an offer in compromise, which reduces the total tax debt, many will not qualify because either their income is too high (by IRS standards) or the taxpayer has too many assets, which includes home equity.  Thus, that taxpayer’s only option may only be to request a payment plan.

To qualify for an installment agreement, the taxpayer will need to be current with their ongoing tax obligations.  In addition, the taxpayer will need to ensure that all required tax returns have been filed.  In many situations the taxpayer may be required to file financial reports showing their income, expenses and available assets.  Depending upon the amount due and time required to pay the amount, the IRS may require documentation of your income and expenses.

If the taxpayer owes a substantial amount to the IRS, then the payment may be in excess of what the taxpayer may be comfortable paying.  Unfortunately, the IRS may require you to make certain lifestyle changes in order to make the payments.  Further, the IRS may require you to include the income of your significant other, even if you are not married, as an available resource.  When IRS required payments are excessive, the taxpayer may be eligible for an offer in compromise or may want to consider filing for bankruptcy to reduce the tax debt.  Further a tax attorney may assist you by appealing unreasonable payment requirements or rejected installment agreements.

A benefit of an installment agreement is that the IRS will no longer be able to pursue most collection actions against the taxpayer, such as a levy against wages or property.  Thus, if you agree to make a $300.00 payment, the IRS will not be able to seize your wages to collect additional amounts.  The IRS payments will be in equal amounts over the designated payment period.  The installment agreement will not stop penalties or interest from accruing in addition to a nominal fee to establish the agreement, so a taxpayer should also consider bank financing in the alternative.

Once the taxpayer has an installment agreement in place, the taxpayer will need to continue making all required current tax payments and file all tax returns.  If the taxpayer becomes further indebted to the IRS, the IRS may cancel the installment agreement for the older debts and resume collection actions.  In addition, the taxpayer’s future tax refunds will be seized and applied toward the debt.  Such additional payments will, however, reduce the installment agreements duration.

A tax professional is often needed to ensure your installment agreement is properly established and to ensure the payments are as reasonable as possible for you and your family.

For further information, please contact Jeff Rogyom at (410)929-4578.  Please review the Disclaimer page regarding use of this website and its information.

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