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WHEN SHOULD I USE AN IRS "FULL PAY" INSTALLMENT AGREEMENT TO DEAL WITH MY TAX DEBT?

Posted by Michael S. Anderson | Sep 22, 2021 | 0 Comments

WHAT IS AN IRS "FULL PAY" INSTALLMENT AGREEMENT?

The IRS has several types of payment plans that a taxpayer can use to pay their IRS debt in full over time.

EXTENSION TO PAY

When a taxpayer is attempting to pay the debt in full but needs some more time to gather the funds and possibly to conduct some additional analysis of options, an IRS extension to pay can be requested.  If the IRS agrees, it will place a hold on IRS levy activity for a period of up to six months allowing the taxpayer this time to pay the debt off. 

GUARANTEED INSTALLMENT AGREEMENT

If the taxpayer's debt is less than $10,000.00, a full pay installment agreement can be requested.  If the taxpayer is "compliant" this arrangement is guaranteed if the proposal is to pay over 36 months.    

STREAMLINED INSTALLMENT AGREEMENT

If the IRS debt is less than $50,000.00 based on the amount owed on the date of original assessment, and the taxpayer is "compliant", the IRS will usually agree to a payment plan that allows for full payment over 72 months or time remaining until the collection statute expiration date runs out...whichever time-frame is shorter.  

NON-STREAMLINED INSTALLMENT AGREEMENT

If the IRS debt is more than $50,000.00 but less than $250,000.00. the taxpayer can ask for a payment plan that divides the debt up over the time the IRS has remaining to collect the debt.

"SIX YEAR RULE" INSTALLMENT AGREEMENT

Where the taxpayer doesn't meet requirements for other full pay agreements and the IRS is attempting to use the taxpayer's actual income and budget information to determine the amount of the payment plan, most "actual" finances may be used to determine the amount of the payment plan per month if the taxpayer can pay the debt within the remaining time on the IRS' collection statute period or six years, whichever is less.  Actual finances are those that may exceed the IRS' collection financial standards.

WHAT ARE THE BENEFITS OF A "FULL PAY" INSTALLMENT AGREEMENT?

AVOID FINANCIAL DISCLOSURE

If income and budget numbers will result in a monthly installment payment that's higher than what the full pay installment payment would be, it usually doesn't make sense for the taxpayer to provide income and budget numbers to the IRS ACS unit.  

AVOID LOSS OF ASSET

If the taxpayer attempts to arrange an "ability to pay" agreement or as it's otherwise commonly known, "partial pay agreement", the taxpayer is proposing to pay an amount per month that won't pay the IRS debt in full before the statute period for collection runs out.  When this type of arrangement is proposed the IRS can and sometimes will demand that certain assets be liquidated in exchange.  A full pay plan will help the taxpayer avoid this outcome.

AVOID IRS LIEN NOTICE FILING

When the IRS debt is $50,000.00 or less based on the amount that existed on the date of assessment, a full pay installment agreement with payments debited from an account, will prevent the IRS' filing of a lien notice with the county where the taxpayer resides or taxpayer's assets are located.  The "assessed" balance is often much less than the current balance as the assessed balance contains the original principal and just the penalty and interest on that initial date added to the original principal  As an example:

If the taxpayer's original assessed balance were $48,000.00 and the current balance, $62,000.00, and the IRS still had more than 72 months to collect the debt, the taxpayer would qualify to pay the $62,000.00 over 72 months and avoid the lien notice filing.

OBTAIN IRS WITHDRAWAL OF LIEN NOTICE

If the IRS has already recorded a "notice of federal tax lien", and the taxpayer's debt is already below $25,000.00 "assessed" or can be paid to $25,000.00 "assessed", the IRS will agree to "withdraw" the recorded lien notice after 3 payments if those payments are auto deducted.  This avoids the need to attempt a lien release/withdrawal request.

SIMPLER TO ARRANGE

Full pay plans, even those where the debt is as high as $250,000.00 are relatively simple to arrange if the debt is with the IRS' automated collection unit.  A IRS 433d form will be necessary If the IRS debt is more than $50,000.00 (assessed) but less than $250,000.00.   

CAN DO WITHOUT LEGAL HELP

The IRS automated collection service, though difficult to reach, is often helpful in arranging full pay agreements if the taxpayer is "compliant" (all returns filed and assessed and required estimated payments are being made).   It's often beneficial for the taxpayer to pay for an experienced attorney to review financials to determine if the full pay agreement option is the best, but paying that counsel to arrange it isn't usually necessary.

WHAT OTHER OPTIONS SHOULD BE CONSIDERED BEFORE AGREEING TO A FULL PAY INSTALLMENT AGREEMENT?

IRS OFFER IN COMPROMISE

An IRS Offer in Compromise is the "Lamborghini" of direct IRS debt options.  It's the fastest in terms of moving on from the debt if successful and it's the most difficult to obtain when viewed from the standpoint of success vs. number of taxpayer's with IRS debt in the United States.  If the taxpayer qualifies and can make it work, the Offer in Compromise can result in tremendous savings. It must be fully reviewed as an option before the taxpayer commits to a full pay plan if possible.

IRS PARTIAL PAY INSTALLMENT/ABILITY TO PAY AGREEMENT

The IRS partial pay installment or agreement or as it's often called, the "ability to pay" agreement is the most common, long term way taxpayers reduce IRS debt.  It's often considered a long-term offer in compromise as a result.  It is usually reviewed as an option before the full pay payment plan is used in order to determine whether the taxpayer could pay less per month and use the combination of the smaller payment and the collection statute expiration date to remove some of the debt.

IRS NON-COLLECTIBLE STATUS AGREEMENT

The IRS' non-collectible status arrangement is a payment plan as well, but one where the payment is zero per month...at least for a short period of time.   Many taxpayers qualify for IRS non-collectible status.  Many stay in the status for years with the collection statute period runs, and many use them short term when necessary only.

BANKRUPTCY

A bankruptcy filing does actually make sense in certain limited situations.  The most common is when the taxpayer is struggling with other debt that the IRS isn't counting as a monthly budget item (consumer debt).  The taxpayer can often remove the consumer debt obligation and some or all of the tax debt obligation making it easier to survive month to month.  Bankruptcy use for IRS debt purposes isn't for the "faint of heart" and discussion with and analysis by an experienced attorney is necessary before embarking.  

IF I'M IN A "FULL PAY" INSTALLMENT AGREEMENT WITH THE IRS, CAN I CHANGE IT LATER?

Yes.  A taxpayer currently in an IRS full pay installment agreement can file an offer in compromise or bankruptcy later.  The taxpayer can also switch to IRS non-collectible status or arrange an ability to pay agreement if those make sense and are available.

The taxpayer isn't "stuck" in the full pay arrangement and shouldn't stay in it if the situation changes enough that the full pay plan is causing serious stress.

However, it's strongly encouraged to have experienced help analyze the situation to ensure what the other option(s) may look like, good or bad, before deciding to halt payments.

About the Author

Michael S. Anderson

Michael Anderson has been representing Arizona clients with tax debt problems for two decades and has helped his clients eliminate millions of dollars in tax debt. His tax debt practice is limited to helping individuals and the self-employed who have serious IRS problems.

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