Part of a Larger Guide: Full Offer In Compromise Guide
Receiving a rejection letter from the IRS on an Offer in Compromise application you submitted may fill you with a little anxiety, but don’t fret — you still have the option of paying your balance in installments.
The IRS offers several installment agreement options including full-payment installment plans and a partial-payment installment plan. Full-pay plans include the guaranteed installment agreement, the streamlined installment agreement, and the financially verified installment agreement. The payment plan you qualify for is based on financial information you supply to the IRS, but monthly payments for these programs are calculated a little differently than Offer in Compromise settlement amounts.
In this article, we’ll discuss these payment plans and help you determine which payment plan is appropriate for you.
Guaranteed Installment Agreement
The guaranteed installment agreement is available only if your balance due is less than $10,000 and your monthly payments will full-pay your total IRS balance within 36 months. The IRS is required to agree to this plan if you meet their requirements.
Streamlined Installment Agreement
A streamlined installment agreement is available if your balance due is $25,000 or less and you agree to full-pay your total IRS balance within 60 months. Your total balance includes your principal tax liability, plus interest and penalty accruals for each tax year you have a balance on.
Calculating Your Monthly Payment
To calculate the minimum amount the IRS is willing to accept each month, divide the total amount you owe, including interest and penalties, by 50. The result is the minimum amount you must pay. The remaining 10 months of the 60-month payment plan is set aside for interest. If you do not have sufficient disposable monthly income to support a 60-month payment plan, you may qualify for a partial payment plan instead.
Partial Payment Installment Agreement
A partial payment installment agreement is a plan that allows you to pay only what you can afford to pay on a monthly basis, even if the amount is less than what the IRS normally accepts on an installment agreement. You must make payments for the remainder of the period the IRS can legally collect your debt, which may be longer than 60 months. When the collection statute of limitations expires, any balance remaining is essentially written off by the IRS. This plan is called a partial payment installment agreement because you will never fully pay the balance you owe.
Collection Statute of Limitations
A collection statute exists for each tax year you have a balance on. The collection statute begins on the date your tax return is filed, or the date a principal tax balance is assessed to your account, whichever occurs most recently. In general, the statute ends 10 years after it begins, but certain processes can cause the collection statute to be longer than 10 years. Either you, or your Power of Attorney, may contact the IRS and request the Collection Statute Expiration Date (CSED) for each balance-due period.
Your partial payment installment agreement is based on your disposable monthly income, which is the amount of money you have left each month after your expenses are paid. Calculate your disposable monthly income by the number of months you have remaining on your collection statute to determine the total amount you will pay the IRS over time. For example, if your disposable income is $100 and the time remaining on your collection statute is 24 months, you pay $2,400 total towards your tax liability. The rest is uncollectable by the IRS. However, you must make the payments in installments – you can’t offer the amount in a lump sum.
Financially Verified Installment Agreement
The financially verified or “Non-Streamlined” installment agreement is available where your balance due is over $25,000 or where the repayment period exceeds 60 months. This agreement must be negotiated with the IRS. Full financial disclosures are to be provided to the IRS. Your monthly payment amount is based on your complete financial situation, and the IRS may require that you liquidate assets to reduce the total balance due.
Rules Applicable to all Installment Agreement Plans
Regardless of the type of payment plan you request, some basic rules apply for obtaining and retaining your installment agreement.
Rejection of Offer In Compromise Waiting Period
In most cases, you must wait at least 60 days from the date of your Offer in Compromise rejection letter to request an installment agreement. During this 60 day period, your file is coded as an Offer case in the IRS system to allow for your legal right to appeal the rejection. IRS agents are unable to pull your case out of this status to establish an installment agreement.
Staying Current and Compliant
Once you are on an installment agreement, you must stay current and compliant with the payment arrangements and your future tax obligations. This means while you’re on the installment agreement, you must make all installment payments in full and on time, file all future tax returns on time, and pay any new tax balances in full and on time.
Failure to comply with these stipulations will cause your payment plan to default and open you up to additional IRS collection measures.
Change in Financial Circumstance
If you experience a change in financial circumstance that hinders your ability to make your scheduled payments, you may request a modification of your monthly installment amount.
The change in your financial situation should be considered permanent, or expected to last longer than one month. Examples of acceptable financial changes include loss of income, a reduction in income, divorce, the addition of a dependent or an increase in regular living expenses. The IRS will request an updated financial statement and proof of new expenses to process the modification request.
Modifications may result in your full-pay installment agreement being converted to a partial payment plan.
Installment agreements are typically much easier to establish with the IRS and require less paperwork than an Offer In Compromise application. The installment agreement option offers a solution to your Offer In Compromise rejection.