You qualify to use the Online Payment Agreement application if:
You must submit IRS F. 9465 Installment Agreement Request together with a supporting IRS F. 433-A Collection Information Statement disclosing your monthly income, living expenses, and assets if you owe $50,000 or more.
Full-Pay Payment Plan
Simply divide the balance due (including penalties and interest) by the number of months you wish to make payments to obtain your monthly payment amount.
Partial-Pay Payment Plan
The starting point for any “partial-pay” agreement is the preparation of an IRS F. 433-A Collection Information Statement (hereafter “CIS”). Essentially, the CIS proves (through supporting documentation) your true ability to pay. The formula to calculate your monthly payment amount is below:
Monthly Income – (IRS Allowable Expenses + Negotiated Deviations) = Monthly Payment Amount
The first component to the payment plan formula is income. Your income includes wages for both you and your spouse, interest income, net business income, net rental income, distributions from an IRS or Corporation, social security income, child support and alimony received, and any other income.
The second component to the monthly payment formula is less straightforward. The IRS sets national and regional standards for what are considered “allowable” expenses for the purpose of calculating your ability to pay.
For example, the 2020 IRS allowable housing and utilities expense for a family of two living in Maricopa County, Arizona is $1,813 per month, whereas the allowable housing expense for the same family living in San Francisco County, California is $3,808. As you can see, the allowable expenses are in part based on the cost of living of the county where you reside. In addition to setting a standard allowable expense for housing and utilities, the IRS also sets standards for other expense categories on the CIS (Internal Revenue Service, 2020), including:
The CIS also includes the expenses listed below, but the IRS does not provide allowable standards for these items and will likely require documentation proving such expenses prior to approving an installment agreement:
From the IRS’ point of view, any income not used to pay your personal living expenses as defined above should be used to pay your delinquent taxes. The problem is the “allowable” expense amounts are often too low to support even the most frugal of lifestyles. The IRS may agree to deviate from the standard allowable amounts in certain circumstances. Such deviations are the third component to the monthly payment formula above.
For example, a taxpayer with a recent cancer diagnosis can argue for a deviation regarding out-of-pocket healthcare costs and higher health insurance payments. If your child has a learning disability, then higher childcare costs and the cost for tutors may be included in your monthly allowable expenses. A thorough review of your situation with a tax attorney may reveal room for these and other deviations depending on your specific circumstances.
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The IRS charges a $31 setup fee if you enroll in direct-debit where the IRS automatically pulls the payment from your account each month or $149 if you opt to make the payments manually each month by mailing a check or paying online. Penalties and interest will continue to accrue until the balance is paid in full or the Collection Statute Expiration Date.
The legal fees for an attorney to represent you in the installment agreement negotiations will vary depending on the complexity of the issues presented, the amount due, and the forms required to reach your desired result. For instance, a business owner will need to submit a separate IRS F. 433-B Collection Information Statement form specific to their business, which will increase the legal fees charged to assist with their case.
Obviously hiring an attorney will increase the total cost to enter into an installment agreement, but doing so will help you avoid:
You must file tax returns and pay the amount due on time each year to avoid termination of your installment agreement. Missing a payment will also result in termination.
Internal Revenue Service. (2020, November 25). Additional Information on Payment Plans. Retrieved from IRS: https://www.irs.gov/payments/payment-plans-installment-agreements
Internal Revenue Service. (2020, March 30). Collection Financial Standards. Retrieved from IRS: https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards
"I've seen time and time again how the IRS takes advantage of unrepresented taxpayers. Your financial freedom is something I take personally and am committed to fighting for."
Whitney L. Sorrell, JD, CPA, MBA
As a former IRS Revenue Agent turned tax attorney, Whitney L. Sorrell has a long and proven track record of using his inside knowledge of IRS rules and procedures to represent his clients and creatively finessing solutions that relieve his clients from the burden of outstanding tax debt.
When the stakes are high, Whitney's aggressive representation consistently helps his clients settle their tax debt for less than they owe, protect their most important assets, and put the nagging stress of the IRS in the rear view mirror.