Sam Brotman, JD, LLM, MBA October 2, 2020 10 min read

Requirements and Benefits of a Streamlined IRS Payment Plan

Overview

The streamlined installment agreement, which is part of the Fresh Start Initiative, helps taxpayers catch up on their back taxes. The initiative offers benefits to the taxpayer. These benefits are specific to the maximum dollar criteria and the maximum term for the agreement. For example, “the maximum dollar criteria for streamlined installment agreements has been raised from $25,000 to $50,000 and the maximum term has been raised from 60 months to 72 months” (IRS.gov, “Fresh Start Installment Agreements,” 8/20/2013).

In addition, the streamlined installment agreement is divided into two categories[1] and both are based upon the balance due. To qualify under either category, you must meet the minimum requirements. Otherwise, it will be difficult to enter into an agreement that aligns with IRS standards. 

For example, to qualify for the first category, you must not owe more than the $25,000. “If you owe more than $25,000, you may pay down the liability before entering into the agreement in order to qualify” (IRS.gov, “Fresh Start Installment Agreements,” 8/20/2013). Under the first category, the debt must be paid within 72 months and prior to the Collection Statute Expiration Date (CSED). Individuals owing tax will be able to use the streamlined agreement under this category. Exceptions apply.

To qualify under the second category, the balance due must be within a range of $25,001 and $50,000. Similar to the first category, if you owe more than $50,000, then you will need to pay down the balance before initiating the agreement. The debt under this category must also be paid within 72 months. All taxpayers must be compliant with both filing and payment requirements.

Under each category, taxpayers must file Form 1040 and may be subject to the Trust Fund Recovery penalty. Defunct businesses under each category must also submit one or more of the following forms: 940, 941, or 943. An operating business with income tax liabilities must file Form 1120 under the first category. Lastly, under category two, taxpayers must enroll in a Direct Debit Installment Agreement.[2]

IRS Requirements and Benefits of a Streamlined IRS Payment Plan

There are a few basic requirements to qualify for this type of tax relief. First, as is a requirement with any of the IRS payment plans, the taxpayer must be current on all tax filings and be up-to-date on all estimated tax payments over the course of the year. Part of the incentive for the IRS in setting up payment plans is that the taxpayer abides by the terms of this agreement. The IRS will not set up a payment plan in an instance where they feel that the amount owed to the government could actually increase. 

Second, the taxpayer must be able to satisfy their liability in full including all applicable penalties and interest[1] before the expiration of the collection expiration statute date (CESD)[2] or a five-year time period (72 months or less), whichever is shorter. 

Third, a taxpayer must have a balance due (including interest and penalties) of $50,000 or less to qualify for a streamlined payment plan. Finally, the taxpayer must agree to have the installment payments set up on a direct debit system so that it is automatically deducted from their checking account.

However, as I mentioned previously, setting up a streamlined payment plan will alleviate the necessity of having to fill out a collection information statement to qualify, although the IRS still may request limited financial information to ensure that you cannot pay the balance in full. In addition, if the IRS has not filed a lien against the taxpayer, they will generally agree not to file one and no independent lien determination will be made. 

The IRS will also charge you a small fee to complete the setup of your payment plan ($105 for new agreements, $45 for reinstated agreement, and $52 for direct debit agreements). [3]

In closing, if you meet the requirements for one of the streamlined IRS payment plans then they are a great way to alleviate your balance due without too much effort expended. They can be set up quickly and easily by calling Automated Collections Systems[4] or by visiting your local IRS service center. If you have any further questions or if I can do anything else to assist you, please feel free to get in touch with me by using the contact information on my website. However, I hope by using the information contained in this article that you will be able to resolve your IRS liability.

IRS Streamlined Payment Plan Requests: Form 9465-FS

There are numerous options available to a taxpayer trying to resolve a balance due with the IRS.[1] One of the more prevalent options is to work out an IRS payment plan to pay down the liability in installment payments. When a taxpayer sets up a payment plan, they agree to make a specified monthly payment over a set period of time based on their ability to pay (as calculated by the IRS).

In exchange for the taxpayer entering into their IRS payment plan, the IRS agrees to hold off on any adverse collection activity, including wage garnishments or bank levies, for the life of the installment agreement. Taxpayers can make a request for a IRS payment plan by filing IRS Form 9465-FS with the IRS.

Guidelines for Setting up a Streamlined IRS Payment Plan Using Form 9465-FS

Form 9465-FS is only appropriate in certain circumstances and I have some practical advice for you in filling out the form that will maximize success in obtaining a successful IRS payment plan. First, Form 9465-FS is only suitable for tax liabilities of $50,000 or less for all years in question. Therefore, it is a good idea to obtain an updated balance of your account before attempting to set up an IRS payment plan. 

However, if you discover that your liability exceeds this threshold by only a little bit, it might be a smart idea to pay down your liability to below $50,000 and then set up an IRS payment plan using Form 9465-FS. The alternative is providing detailed financial information to the IRS and potentially paying more than you would have by going the 9465-FS route.

Second, for your own planning purposes, it is a good idea to have an idea of what an acceptable IRS payment plan proposal is. One of the disadvantages of going the paper route in setting up an payment plan is that if your payment plan proposal is rejected and, if the proper pre-levy steps have already been taken,[2] you can immediately be subject to collection activity including bank levies and wage garnishments.

It should go without saying then that your payment plan proposal should build in a high likelihood that it is going to be accepted. Generally, the hard and fast rule is that the IRS is going to ask that your IRS payment plan be completed in less than five years (60 months). Although the IRS sometimes will accept payment plans outside of this timeframe (Form 9465 is not appropriate for requesting those types of plans), you maximize your chances of streamlining your payment plan if you follow this guideline.[3] 

It is also important after submitting your payment plan request to call the IRS and follow up on its status. This will ensure that you know when your payment plan has been finished processing and you can either receive the terms as quickly as possible or submit another payment plan request to avoid being subjected to a bank levy or garnishment.[4]

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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