When you or someone else prepares your returns, you may find that you owe a balance to the IRS that you are unable to pay in full. Even if you can’t pay the balance by April 15th (the due date for payment – remember that an extension of time to file does NOT extend the due date for payment), you still should file your return with as much of a payment as you can afford. If you do not file your return on time, you will likely end up paying a “failure-to-file” penalty in addition to a “failure-to-pay” penalty and interest.
If you are going to file your return without full payment, then be sure to attach Form 9465, Installment Agreement Request, or a written request for a payment plan. Be sure to state the amount you can pay and the day you wish to make your payment for each month. Remember to pay as much as possible when filing the return to reduce the interest and penalty amounts.
Should you receive a notice or bill after having filed a return, you can respond by attaching Form 9465 or your own letter requesting a payment plan. You should mail the form or your letter in the envelope provided, and attach a copy of the notice or bill you received. Usually within 30 days, the IRS will let you know if your request is approved or denied, or if they need further information. If your request is approved, you will be charged a one-time user fee of up to $105. The fee is based on your income level and whether your payments will or will not be taken directly out of your bank account. The IRS changed their fee structure effective 1/1/2007. I have reprinted their November 13, 2006 Notice at the end of this page.
The intent of the IRS is to collect your back taxes (along with the accrual of penalty and interest) within the statutory period of collection (generally 10 years or less). Assuming you do not have a prior tax delinquency history, have filed all of your required returns (at least back 6 years), have made your current-year estimated payments (if required) or are having the proper amount of taxes withheld if you are an employee, then you may request and be approved for an online installment agreement if you owe $25,000 or less – and are able to pay off your debt within 5 years.
Before you can get one of these payment plans, the IRS will insist on the following minimum conditions:
- That you have filed all income tax returns,
- That you have filed all employment tax returns (if required to file them),
- That you have paid all payroll taxes for the most recent quarter,
- That you file a Financial Statement if the amount of tax is over $25,000, and
- If you are self-employed, you have made estimated tax payments for the current year.
Installment Agreements are divided into two categories: (1) owing in total more than $25,000 in tax liability, and (2) owing $25,000 or less.
For an amount over $25,000 the IRS. will insist on the completion of a Financial Statement (typically Form 433-A or 433-B). The downside of this is that if you give the IRS a Financial Statement, that information becomes a road map to your assets in the event they later decide to levy on your assets if you default on your agreement.
Following is an excerpt from the IRS regarding Installment Agreements:
“Installment agreements allow you to pay your full debt in smaller, more manageable amounts. Installment agreements generally require equal monthly payments. The amount of your installment payments and the number you make will be based on the amount you owe and your ability to pay that amount within the time we can legally collect payment from you.
You should be aware, however, that an installment agreement is more costly than paying all the taxes you owe now. As with most revolving credit arrangements, we charge interest and penalties on the unpaid portion of the debt.
Note: We can’t take any collection actions affecting your property while we consider your request for an installment agreement, while your agreement is in effect, for 30 days after we reject your request for an agreement, or for any period while you appeal the rejection.
If you arrange for an installment agreement, you can pay with:
- Personal or business checks, money orders, or certified funds (all made payable to the U.S. Treasury)
- Payroll deductions your employer takes from your salary and regularly sends to IRS
- Electronic transfers from your bank account or other similar means..”
Below is a reprint of the IRS news release that discusses the changes in the user fees effective 1/1/2007.
IRS Announces Installment Agreement User Fee Increases for Some Taxpayers