There are numerous options available to a taxpayer trying to resolve a balance due with the IRS. 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.
Form 9465-FS is only appropriate in certain circumstances and I have some practical advice for you in filing 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. 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 (under $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, it is a good idea to have an idea of what an acceptable IRS payment plan proposal is for your own planning purposes. 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, 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 5 years (70 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. 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 and quickly as possible or submit another payment plan request to avoid being subjected to a bank levy or garnishment.
In conclusion, setting up a payment plan is a decision that should be considered carefully by the taxpayer. You want to make sure that you are setting up the tax resolution that is going to help you best achieve your short term and long term financial goals. Just keep in mind that there are multiple tax resolution options to consider before setting up an IRS payment plan (currently non collectible status, offer in compromise, etc…). However, if you are interested in going forward with it, here is a copy of IRS Form 9645-FS. Also, the IRS Form 9645-FS instructions can be found on the IRS website in the link attached.
I hope this article was helpful in explaining a little more about IRS payment plans. If you have any questions, or if I can assist you further, please contact me through the contact information contained on this site.
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IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this website is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter contained in this website.