An installment agreement is generally the first route taxpayers should consider when they cannot pay their taxes. The IRS has several options for installment agreements.  Taxpayers must be current on all tax filings, and in many circumstances prove current taxes are being paid in order to qualify for an installment agreement.  Payments are typically monthly, for a fixed amount, and full payment is generally expected.

  1. The Guaranteed Agreement.  For one-time account delinquency. If an individual owes $10,000 or less in income taxes, the IRS will grant a three (3) year installment agreement upon submitting the one page Form 9465-Installment Agreement Request.  
  2. The Streamlined Agreement for up to $25,000.  This agreement is for: (a) individuals, (b) operating businesses owing income taxes (not payroll taxes), and (c) defunct businesses for any type of tax.  A taxpayer has up to 72 months to pay.  It is referred to as a “Streamline” agreement because it can be filed online.    
  3. The Streamlined Agreement from $25,001 to $50,000.  This agreement is for individuals, and defunct sole proprietors.  A taxpayer has up to 72 months to pay.  The IRS will verify ability to make the payments if taxpayer has missed any installment agreement payments within the last year.  It is a streamline agreement and thus can be filed online.
  4. The “In Business” Express Trust Fund Agreement for $10,000 or less. This agreement is for payroll taxes for operating businesses.  The taxpayer has up to 24 months to pay.  This agreement is not automatic and requires “management approval.”  In addition the IRS will protect its ability to collect the trust fund penalty tax from the responsible person.
  5. The “In Business” Express Trust Fund Agreement for $10,001 to $25,000. This agreement is for payroll taxes for operating businesses.  The taxpayer has up to 24 months to pay and payments must be made by auto withdraw. This agreement is not automatic and requires “management approval.” In addition the IRS will protect its ability to collect the trust fund penalty tax from the responsible person.
  6. The Six Year Rule. This agreement is for individuals only.  If a taxpayer does not qualify for any of the above, but can prove they have the ability to pay their taxes off in the lesser of six years or within the “statute or collections” and keep their taxes current, the IRS can grant the Six Year Agreement.  In addition, the IRS can allow a taxpayer up to a year to modify or eliminate expenses to qualify for the Six Year Agreement.
  7. The $50,001 to $100,000 Test Period Agreement. The IRS is testing expanded streamline agreements. The test is scheduled to run through September 30, 2017 and does have some procedural limitations.  It is for individuals and defunct sole proprietorships owing over $50,000 and less than $100,000. A taxpayer will have up to 84 months to pay, limited by the statute of collections. Verification of assets and income is not required if payments are by direct withdraw or a payroll deduction.  The IRS may file a lien though.   

If a taxpayer qualifies under Methods #1 to #5, the IRS typically refrains from a federal tax lien. The IRS is more likely to file a lien under Method #6 or #7 though.  If a taxpayer does not qualify for any of the above, the installment agreement process is more difficult, including requiring taxpayers to sell assets and live within IRS expense guidelines to make payments. The more difficult agreements are #8 to #10.

  1. The “In Business” Trust Fund Agreement for any Amount. This agreement is for payroll taxes for operating businesses.  The taxes, penalties, and interest have to be paid in full prior by the time the “collection statute expires.”  Verification of assets and income is required, the IRS will make a trust fund penalty determination, most likely a lien will be filed, and a manger has to approve it.   
  2. The Any Amount Agreement. This agreement is for any amount and any type of taxes. The taxes, penalties, and interest have to be paid in full prior to the time the “collection statute expires.”  Verification of assets and income is required, and if applicable the IRS will make a trust fund penalty determination, most likely file a lien, and management approval is required.   
  3. The Partial Payment Agreement. This agreement is when a taxpayer does not have the ability to fully pay their taxes by the time the “collection statute expires.” In granting partial payment agreements, the IRS can extend the statute of collections, review current income and asset information, docket to review income and assets every two years, file a tax lien, determine trust fund liability, required auto withdraw from bank account, and management approval is required.   

In conclusion, taxpayers who do not have the money to pay their taxes in full, should timely file their returns and request an installment agreement. If a taxpayer can’t fully pay their taxes utilizing a #1 through #7 method, in exchange for an agreement under methods #8 to #10, the IRS can force a Taxpayer to live on a budget to meet payments, sell assets, liquidate bank or brokerage accounts, and borrow against home equity or other assets.