How to Get a Tax Agreement With the IRS
Navigate the requirements for establishing a formal payment arrangement with the IRS to resolve your tax liability in a structured and manageable way.
A tax agreement with the Internal Revenue Service provides a formal path for resolving outstanding tax liabilities. When immediate full payment is not feasible, these arrangements allow for a structured resolution, preventing escalating collection actions. Such agreements are designed to accommodate taxpayers facing financial difficulties, offering a way to meet tax obligations over time or for a reduced amount.
Types of IRS Tax Payment Agreements
An Installment Agreement (IA) permits taxpayers to make monthly payments. A Short-Term Payment Plan allows up to 180 days to pay the full amount, while a Long-Term Installment Agreement is available for those needing more time. A streamlined agreement is available for combined tax, penalty, and interest balances under $50,000, which simplifies the process by not requiring extensive financial disclosures. Agreements for higher debt amounts necessitate a more detailed financial review.
An Offer in Compromise (OIC) enables certain taxpayers to resolve their tax liability for less than the amount owed. An OIC is considered when a taxpayer’s income and assets demonstrate an inability to pay the full amount. The IRS evaluates the taxpayer’s ability to pay, income, expenses, and asset equity to determine eligibility. A different basis for an OIC is “Doubt as to Liability,” used when a legitimate dispute exists over the tax owed, which has unique application requirements using Form 656-L and does not require an application fee.
For individuals with severe economic hardship, the IRS may grant Currently Not Collectible (CNC) status, which temporarily suspends collection activities. A taxpayer must demonstrate that paying the tax debt would prevent them from affording basic living expenses. While in CNC status, the IRS will not pursue collection actions like levies, but the tax debt remains and continues to accrue interest and penalties. The IRS periodically reviews the taxpayer’s financial situation to determine if their ability to pay has improved.
Required Information and Forms for an Agreement
Applying for a tax agreement requires a complete picture of your financial standing. You will need to gather several documents, including:
- Recent pay stubs or profit and loss statements to substantiate your income.
- A list of average monthly living expenses, such as housing, food, and transportation.
- Current statements for all bank accounts, retirement accounts, and other investments.
- A list of all physical assets, like vehicles and real estate, with their market values and loan balances.
- Documentation for all outstanding debts, including mortgages, auto loans, and credit card balances.
This financial data is reported to the IRS on a Collection Information Statement. Form 433-F is used by wage earners, while Form 433-A is for more complex situations, such as for self-employed individuals. Businesses must use Form 433-B to detail their financial situation.
After organizing your financial data, you can complete the specific application. To request an Installment Agreement, you will use Form 9465, Installment Agreement Request. This form asks for your personal information, the total tax liability you owe, and the monthly payment amount you propose to make. For an Offer in Compromise, the application is centered around Form 656, Offer in Compromise, which is contained within the Form 656-B booklet and uses the financial data from your Form 433 to calculate a minimum offer amount.
The Application Process for an Agreement
The most efficient method for many payment plans is the IRS’s Online Payment Agreement (OPA) tool. To apply for a short-term plan online, an individual’s total debt must be less than $100,000. For a long-term installment agreement, the online threshold for individuals is $50,000, and for businesses, it is $25,000 or less.
Applications can also be submitted by mail. A completed Form 9465 for an Installment Agreement should be mailed to the address in the form’s instructions. An Offer in Compromise, including Form 656 and Form 433, can be filed by mail or online through an individual IRS Online Account. Most OIC applications require a non-refundable $205 application fee, which must be submitted with the forms unless the taxpayer meets low-income certification guidelines.
After submission, the IRS will acknowledge receipt of your application. The timeline for a final decision varies; online applications for streamlined agreements may be approved instantly, while OIC applications can take six months or longer to be evaluated. During the review, an IRS employee may contact you for clarification or additional documentation to support your financial claims.
Maintaining Compliance with Your Agreement
Once an agreement is approved, you must make all scheduled payments on time and for the full amount. Missing payments or paying less than the required installment can lead to a default. Setting up automatic payments through a direct debit from a bank account is a reliable way to ensure timeliness and may be required for certain agreements.
A condition of any IRS payment agreement is staying current with all future tax obligations. You must file all subsequent tax returns on or before their due dates, including any extensions, and pay any new tax liability in full. Incurring a new tax debt while an agreement is active is a violation of its terms and can trigger a default.
If you default on your agreement, the IRS can terminate it and immediately resume collection activities. This can include filing a Notice of Federal Tax Lien against your property or issuing levies on your bank accounts and wages. The original tax debt, along with all accrued penalties and interest, becomes due, and the protection offered by the agreement is lost.