Sam Brotman, JD, LLM, MBA October 16, 2013 9 min read

Tax Payment Plan Criteria: How to Get Approved

Introduction to Tax Payment Plans

When an individual cannot pay the full balance owed to the IRS, one of the most common solutions is to get that taxpayer set up on a tax payment plan. However, payment plans are not a matter of right, and taxpayers must meet several requirements in order to get their tax payment plan approved. It is important that to be aware of these criteria, as making sure you have met all of the requirements in advance will help expedite the approval of your IRS payment plan.

Requirements for a Tax Payment Plan

First, the IRS does not prefer that taxpayers finance their tax obligations. When calling to establish a tax payment plan or when filling out a tax payment plan request form, the IRS will ask you a series of questions designed to determine whether or not you have the ability to pay the liability in full. If you have the means to pay the liability in full, then the IRS will not accept a payment arrangement (unless you can document a hardship) and will insist on the full payment of the liability. Also, the IRS will want the liability paid off in its entirety (including all applicable penalties and interest) within a six-year (seventy month) time frame.[1] If a taxpayer cannot pay off their liability within seventy months, they will likely have to fill out a financial statement in order to document their hardship. However, the IRS may request that the liability be paid off sooner, depending on when the Collection Statute Expiration Date (CESD) is. Generally, if you calculate ten years from the date the tax was first assessed (not the year of the return), you can get a sense of when the CESD is or the IRS will tell you if you call them.[2]

These time frames can also vary based on the size of your liability. Taxpayers that owe more than fifty thousand dollars may not be eligible for this streamlined treatment of their installment agreements and will need to present a financial statement so that the IRS can accurate gauge their ability to pay. One way to get around this requirement would be to pay down your liability to the under fifty thousand dollar mark and try to streamline your tax payment plan from there. Doing so will save you the time and aggravation of having to prepare an IRS financial statement.

Furthermore, the IRS will require that the taxpayer is up to date on all current year payments and has filed all outstanding returns. The IRS does not like unknown liabilities, so they will insist on determining the full scope of what the taxpayer owes before they agree to finance the taxpayer’s balance due. It should also be noted that the taxpayer can set up a taxpayer plan while a year is under review or in audit. However, if that year does create an additional liability down the road and the taxpayer’s balance increases, they will have to pay that additional balance in full or will risk default on their current tax payment plan. The IRS charges a fee for setting up tax payment plans, which it adds into the amount of the liability.[3] Finally, it is advisable in most situations that the taxpayer set up a direct debit method for making payments. This method is preferred by the IRS and will ensure that payments come directly out of the taxpayer’s bank account, rather than having the taxpayer having to worry about manually submitting payments to the IRS.[4] As a warning, however, if the taxpayer ends up defaulting on their installment plan and becomes subject to collection activity, this is probably one of the first places that the IRS will hit with a levy action.

In conclusion, tax payment plans are a fairly easy to navigate if you follow all of the IRS’s requirements. Generally, it is better that taxpayers try to meet all of these requirements before trying to set up a tax payment plan with the IRS because it will minimize the time that they may be exposed to active IRS collections and adverse collection activity. Doing so will also expedite the process and will minimize the headache involved in dealing with the IRS. I have coached many taxpayers through setting up their own tax payment plans using these very steps. However, if you have any questions regarding these criteria or if I can assist you further, please get in touch with me using the contact information contained on this website.

Need help with an IRS tax payment plan? Please visit any of the following for more information.

Tax resolution services for small businesses and mid-size businesses (business tax resolution)

Tax resolution services for self-employed individuals and independent contractors (individual tax resolution)

Tax resolution services for individuals and families (individual tax resolution- W2 and wage earners)

Legal representation before IRS collections

Brotman Law request consultation

 

[2] Here is more information on the CESD and How Long Does the IRS Have to Collect on a Balance Due?

[3] The fee schedule for setting up a tax payment plan can be found here: http://www.irs.gov/Individuals/Payment-Plans,-Installment-Agreements

[4] Form 433-D for setting up direct debit can be found here: http://www.irs.gov/pub/irs-pdf/f433d.pdf

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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