It is always encouraged by the Internal Revenue Service that taxpayers file in a timely manner and pay as much of any tax debts owed as possible. Unfortunately, this is not always possible. In 2010, the IRS began a Fresh Start IRS initiative which has made it easier for taxpayers to qualify for tax payment programs through a federal tax payment plan.
The Fresh Start IRS Installment Agreement is an incentive for taxpayers who have back taxes owed but are unable to pay them in full. Tax law allows for the IRS to enter into a monthly payment plan, known as an installment agreement, with the taxpayer. The IRS changed the rules for tax installment agreements making it easier for taxpayers who owe $50,000 or less.
In order to qualify for a Fresh Start IRS tax installment agreement, a taxpayer must meet the many requirements. The taxpayer must have all of their tax returns filed and their current year tax debts are paid. Once an agreement between the IRS and the taxpayer is established, the taxpayer must stay in compliance.
For taxpayers seeking an installment agreement with a tax debt of more than $50,000, they will have to fill out a Collection Information Statement, either Form 433-A or Form 433-F. Or taxpayers have the option to pay down their balance to $50,000 and be able to qualify for the streamlined Fresh Start IRS installment agreement.
Small businesses can qualify for an In-Business Trust Fund Express Installment Agreement. This agreement is for businesses that owe $25,000 or less, or can pay down the liability to $25,000 before entering into the agreement. The business must be compliant with all filing and payment requirements, and the debt must be paid in which ever is earlier: within 24 months or prior to the end of the Collection Statute Expiration date. For this agreement, the business must enroll into the Direct Debit installment agreement if the amount is more than $10,000, but less than $25,000.
For small business, there is also the option of a streamlined installment agreement under the Fresh State IRS initiative. The Fresh Start initiative has raised the maximum amount to $50,000 and the tax liability can be paid off monthly up to 72 months.
An installment agreement is a smart option for taxpayers who cannot pay their tax bill in its entirety by the due date. Though installment agreements reduce penalties, interest continues to accrue on the balance. Usually, taxpayers must agree to monthly direct debit payments to qualify for this agreement.
As always, it is the most beneficial to the taxpayer to pay any liabilities owed as soon as possible. If that is not an option, you should consult with an experienced tax attorney to find the best option for you. Generally the IRS will accept an offer if they believe it is the most the agency will be able to collect and it meets the IRS Collection Financial Standards. We can help you decide on the correct federal tax payment plan for you.