Is the IRS sending you notices for back taxes? Did this year’s tax filing lead you to end up with a hefty tax bill? When you have a large tax debt, it may seem as if you are a modern-day slave to the government.
However, don’t get yourself carried away with a momentary regret. Luckily for you, the IRS provides several opportunities through which you can finance your tax debts. This is done through an IRS installment agreement that splits up your debt over several months. An IRS installment agreement is beneficial because it allows you to escape harsh collection tactics such as garnishments, liens, and property seizures.
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Types of Installment Agreement
There are five types of installment agreements, which are listed below.
1. Guaranteed Installment Agreement
If you have a tax debt amount that is less than or equal to $10,000, the guaranteed installment agreement suits you the best. It is fairly easy to qualify for it. You just need a proof of the following.
- Show prior tax returns.
- Show that the tax returns in the last five years are filed and paid on time.
- Show that this is your first time using this plan in the last five years.
- Demonstrate that you can pay the complete amount within three years.
For this plan, the IRS does not need a complete financial statement. The term ‘guaranteed’ refers to the IRS’s frequent acceptance of taxpayers into this program; all you need to do is fulfill the above-mentioned criteria.
2. Streamlined Installment Agreement
If you have a tax debt amount that is around $50,000, the streamlined installment agreement is your best bet. The qualification criteria for this level are quite low.
Practically, the streamlined agreements plan is almost the same as the guaranteed plan—the difference is that this scheme is availed by people having larger debts. After you finalize this plan, you need to complete your debt payment within 72 months. Also, the IRS does not require a complete financial statement in this plan as well. Generally, people prefer it when they need an extended period of time to pay off their tax debts.
3. Installment Agreement for $50,000+ Debt
Opt for this plan if you have a tax debt that is more than $50,000. Unlike the above-mentioned agreements, it is difficult to get clearance for this agreement type. This is because in case of this agreement, the IRS conducts a detailed review that assesses your financial status to ensure that you can pay off your debt as soon as possible. You must submit a complete financial statement. This plan is primarily chosen by those who need quite some time to pay off a tax debt.
Due to the complex nature of this agreement, you must avail the services of a tax preparation company. Such a company can submit all the required financial details on a Collection Information Statement (Form 433-A and Form 433-F) available at https://www.irs.gov/pub/irs-pdf/f433f.pdf.
4. Partial Payment Installment Agreement
This agreement is leveraged when your tax debt varies. Qualifying for this debt is quite hard. So, when is this agreement your best option?
Those who currently struggle with their finances and thus cannot use the above-mentioned costly agreements should opt for a partial payment agreement because it provides a longer time for repayment. Every time a two-year interval passes, the IRS performs an evaluation on your financial status to detect any changes in your wealth.
In order to protect their interests, the IRS files a federal tax lien to collect the debt. In this plan, the IRS may allow for strict measures like sale of a property and other assets for debt collection. Therefore, make sure that you take up the services of a reliable tax preparation company that can oversee all the documentation.
5. Settlement Agreement
This plan is popularly known as the offer-in-compromise. If your current debt is unaffordable and you can’t pay large amounts of money, do look into this agreement. With this agreement, you can shorten up your outstanding tax bills. Most likely, you are going to need a tax preparation company so they can determine whether or not the IRS will grant you an offer-in-compromise.