A taxpayer who is not financially able to pay a tax debt immediately may make monthly payments through an installment agreement. The IRS generally will not take collection actions while an installment agreement is being considered, in effect, or on appeal.

The minimum monthly payment on an installment agreement is $25. The time period for installment agreements varies. Generally, the installment agreement should not extend beyond the time remaining on the collection statute of limitation. Low-income taxpayers who pay a small monthly payment may not be reducing their principal tax debt given the interest rates charged on the taxes owed. The fees for setting up installment agreements also vary. Most low-income taxpayers will qualify for a reduced $43 set-up fee; apply for this reduced fee using Form 13844.

Taxpayers who owe less than $50,000 may apply for a guaranteed or streamlined installment agreement by several methods: (1) apply online (2) call the phone number on the IRS notice or bill or (3) complete and mail a Form 9465, Installment Agreement Request. A taxpayer who owes more than $50,000 will have provide additional financial information on a Form 433-F.

A taxpayer who can pay the full amount owed within 120 days may want to apply for a 120-day suspension of collection activity to provide time to gather the funds.1 In cases of financial hardship, a longer suspension of collection activity may be possible.2 This procedure allows the taxpayer to avoid the fees for setting up an installment agreement.

• 1I.R.M. 5.14.5.5.
• 2I.R.C. § 6161(a)(1); 26 C.F.R. § 1.6161-1(a).

The IRS will always want the liability to be paid off before the Collection Statute Expiration Date (CSED). If the CSED is near, the monthly payments needed to pay the liability may be higher than the taxpayer can afford. Partial installment agreements are now authorized.1 This is appropriate when the taxpayer can afford to make a monthly payment, but the amount will not pay off the entire liability before the CSED. Taxpayers who request partial installment agreements will have to show that they cannot pay more each month after paying basic expenses and that they do not have any assets that can be liquidated to pay off the entire liability. If the partial installment agreement is accepted, the taxpayer will make the required payments until the CSED at which point the liability will be extinguished. The advantage of a partial installment agreement is that the IRS will not take other collection actions while the monthly payments are being made.

• 1I.R.C. § 6159; I.R.M. 5.14.2.1.

A taxpayer will qualify for a “guaranteed” installment agreement without a financial analysis if the taxpayer owes less than $10,000, has been in tax compliance for the 5 prior years, and can fully pay the tax within 3 years.

An individual taxpayer may apply for a streamlined installment agreement if the aggregate unpaid balance is less than $50,000 and can be fully paid within 72 months.1 Full compliance (including filing of tax returns) is required for a streamlined installment agreement. A streamlined installment agreement can be granted without submission of a collection information statement or financial documents to the IRS. Most installment agreements obtained for taxpayers fall in this category.

• 1Memorandum SBSE 05-0112-013 (Jan. 20, 2012); see also I.R.M. 5.14.5, .10 (providing I.R.M. implementation rules).

A taxpayer who does not qualify for a guaranteed or streamlined installment agreement will have to apply for a regular installment agreement. This procedure requires completion of a Form 9465-FS and a Form 433-F collection information statement. Form 433-F is used to analyze the taxpayer’s ability to pay based on IRS collection financial standards. The IRS generally does not grant regular installment agreements if the taxpayer can fully pay the liability from assets and disposable income. In general, the IRS will usually grant an installment agreement if the liability will be paid within 6 years or before the CSED, even without financial documentation.

Taxpayers may pay installment agreements by check, money order, direct debit from a checking account (Form 433-D), payroll deduction (Form 2159), Electronic Federal Tax Payment system, or credit card. A direct debit installment agreement may qualify a taxpayer for withdrawal of a lien after 3 months of probation.1 The set-up fee for the installment agreement will also be lower for those who choose direct debit.

• 1I.R.C. § 6323(j)(2)(B); Memorandum No. SBSE-05-0411-036 (April 7, 2011).

Once the installment agreement is approved, the IRS and the taxpayer are bound by the agreement unless the taxpayer misses a payment, fails to file tax returns, provided inaccurate information during the negotiations, or has a changed financial condition. Denials or terminations of installment agreements may be appealed using Form 9423 and later reviewed in Tax Court under the abuse of discretion standard. The IRS will reinstate an installment agreement one time upon payment of a reinstatement fee. A taxpayer who is in danger of default on an installment agreement should contact the IRS. It is possible to get a temporary hold on payments.