How to Reach an Installment Agreement with the IRS

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If you owe the Internal Revenue Service a great deal of money and are full of despair as to how you will ever get it paid off, you might want to consider a plan where you will make a monthly  disbursement or installment agreement in order to gradually get your outstanding balance paid down. The IRS has various forms of installment agreements and it’s important that you understand which type you might qualify for prior to speaking with an IRS representative.

Types of IRS Installment Agreements

If you have a balance due of less than $10,000 and you have not filed late for the past sixty months you may qualify for a guaranteed installment agreement so long as you have filed your tax returns in a timely manner. If an installment agreement will allow you to repay the entire balance owed within three years or less then you could qualify so long as you have not had an installment agreement with the IRS in the past sixty months. You must also agree that in the future you will meet all tax deadlines and pay the IRS what you owe aside from the amount of the installment agreement.  The minimum amount the IRS will agree to when negotiating an installment agreement will be the total amount you owe divided by 30. The primary benefit to entering into an installment agreement with the IRS is that you will not be subject to an IRS lien against your property. A tax lien can have an extremely negative impact on your creditworthiness in the future therefore it can be extremely beneficial to work out an agreement with the IRS.

A streamlined installment agreement could be an option for you if the total amount you owe the IRS is less than $50,000 and you can commit to paying off the entire balance in six years or less. The IRS calls this installment agreement the “Fresh Start Initiative.” Because the IRS has a ten-year statute of limitations regarding collections, if your amount owed with expire during your five-year installment period you will be required to pay the full amount before the statute expires. You must also agree to file all tax returns on time and pay future taxes before the IRS will agree to a streamlined agreement.

A third type of installment agreement is known as a partial payment installment agreement. If you cannot manage the lowest payments for the other types of installment agreements the IRS might consider this type of agreement which bases the minimum payment on what you are actually able to afford after you have paid all your necessary living expenses each month. An extended term of repayment will likely be required and you could be subject to a tax lien; you will be required to fill out a financial statement and provide all supporting documentation. In the case of a partial payment installment agreement the IRS can re-evaluate your ability to pay every couple of years.

Finally, an option known as a “non-streamlined” installment agreement could be a possibility for those who owe more than $25,000 and need longer than five years to pay off the amount owed. You will be required to provide financial statements and will be subject to an IRS lien. The IRS may ask you to sell certain assets, take out a bank loan or even a second mortgage in order to pay them in full.

Reaching an Installment Agreement

You must know how much you owe in unpaid taxes either through your own tax returns or by calling the IRS. The IRS will charge a fee for setting up your installment plan ranging from $45-$105. You will file a request for an installment agreement with the IRS and will choose your monthly payment amount. Expect to wait at least 30 days before the IRS responds to your request, then when your request is approved you must make payments each and every month without fail. It is a good idea to consult with a tax attorney prior to attempting to reach an installment agreement with the IRS. There may be issues you are unaware of which could make a significant difference in the outcome of your past due taxes.

 

What is an Innocent Spouse Claim?

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The purpose of the innocent spouse rule so far as the IRS is concerned is to effectively limit the joint liability which results when a couple files a joint income tax return. Be aware, however, that filing an innocent spouse claim is both difficult and time-consuming particularly in community property states.  There is one form of relief for any person filing jointly and another form those who may be separated or divorced from their spouse or widowed. The IRS may also—if they choose—make the determination to relieve the taxpayer of liability because they find it unfair to do so. The spouse making the innocent spouse claim may be relieved of joint tax liability if they meet certain criteria. First of all, a joint tax return must have been filed, and on that return one spouse must have made an underpayment of the taxes owed or an understatement of income.

Criteria for Innocent Spouse Claim

The spouse claiming innocent spouse exemption must not have known about the tax understatement and must be seeking relief in an IRS-approved manner within two years of collection actions against him or her. Generally speaking it is easier to obtain innocent spouse relief in the event of a separation, divorce or death of a spouse. In these cases the innocent spouse may ask for a separation of liability for the tax deficiency on a proportional basis, acting as though separate tax returns had been filed from the very beginning. Issues which resulted in tax deficiencies will be portioned to the spouse who incurred those deficiencies. Such relief must be requested within two years of collection action against the innocent spouse.

In order to determine whether or not you will qualify for an innocent spouse claim you must be able to prove that the taxes owed definitively belong to your ex-spouse. This could be because you were not working at the time the taxes were incurred or perhaps from your spouse’s self-employment activities. You may have also been under the impression that your spouse paid the taxes at the time they were due. You will have to prove you will suffer a serious financial hardship if the IRS insists you pay the taxes owed. In other words, you must be left with enough money to be able to pay your basic living expenses such as a roof over your head, food, utilities and clothing.

No assets may have been transferred between spouses or any other fraudulent activity taken place and the requesting spouse must not have filed the return in question with any sort of fraudulent intent. You must prove you did not gain any sort of significant benefits from the unpaid taxes or that you suffered abuse during the course of your marriage. When there was abuse in the marriage, the spouse claiming innocent spouse relief might not have been able to successfully question anything on the joint return. If you feel you meet the criteria for innocent spouse relief you should consult a tax attorney in order to get a more comprehensive look at the overall tax situation. You want to make sure your interests are completely protected and that can be accomplished through having a qualified tax attorney on your side.