Payment Installment Plans

Requesting an Installment Agreement after IRS Rejection of Offer In Compromise (or OIC)

getting a rejection from the Internal Revenue Service on an Offer in compromise application you’ve submitted might posture you with a little uneasiness, but don’t agonize — you’ve still got the option of sending payments toward the amount owed in installments.

The Internal Revenue Service allows for a couple of installment agreement options such as full-payment installment plans or partial-payment installment plans . Full-payment plans might be the streamlined installment agreement, the promised installment agreement, and the financially verified installment agreement. The payment plan you qualify for is dependent upon financial info you offer to the Irs, but monthly repayments for these types programs are established differently than OIC settlement amounts.

In this conversation we will talk about the payment plan options and guide you define which option of settlement is best suited for you.

The Guaranteed Installment Agreeement Option

The guaranteed installment agreement is available only if your owed balance is under $10,000 and your payments will full-pay your total Internal Revenue Service owed balance within 3 years. The Irs must consent to this type of plan if you conform with the requirements.

The Streamlined Installment Agreement

A streamlined installment agreement is an option if your due balance is not in excess of $25,000 and you promise to full-pay your full IRS balance within the period of 60 months. Your full balance is comprised of your principal tax liability, plus penalty accruals and interest for each tax year you have a balance on.

Calculating Your Monthly Payment

To determine the bottom amount the Internal Revenue Service will agree to each month, divide the total amount owed, including the interests and penalities, by fifty. The end result will show the base amount that will have to be paid. The last 10 months of the 60-month payment plan is set aside for interest. If you have insufficient disposable monthly income to allow for a 5-year payment plan, you just might meet the criteria for a partial pay plan in lieu.

The Partial Payment Installment Agreement

A partial payment installment agreement plan is an option that will permit you to pay only what you can afford to pay on a per month basis, even if the amount is under what the Irs typically accepts in an installment agreement plan. You must make payments for the remainder of the period the Internal Revenue Service can by law collect your debt, this could be for a period longer than five years. When the collection statute of limitations comes to its expiration date, any balance remaining is then written off by the Irs. The payment option is called a partial payment installment agreement plan as you never will pay the full debt balance that you owe.

Statute of Limitations on Collection

A statute for collection exists in each tax year you have a tax debt balance. The statute begins when you file your tax return, or the date in which a principal tax balance is assessed, whatever is more recent. The statue will usually end within 10 years, though there are certain instances when a collection statute can extend passed 10 years. You or your power of Attorney may contact the IRS and request the Collection Statue Expiration Date (CSED) for each balance-due period.

Calculating Payments

The partial payment installment agreement is assessed in terms of your disposable income on a monthly basis, or the amount of money you have left each month after your expenses are paid. Calculate your disposable monthly income by the number of months that remain on your collection statute to figure the total amount you will need to pay the Internal Revenue Service over time. For example, if your disposable income is one hundred dollars and the amount of time left on the collection statute is two years, you will pay $2,400 towards your tax liability. The rest is not collectable by the Internal Revenue Service. However, you must make the payments in set installments and you can’t offer the total amount in a single lump sum payment.

Financially Verified Installment Agreement

The financially verified or “Non-Streamlined” installment agreement is attainable if your balance owed is over $25,000 or where the repayment period exceeds 5 years. This agreement needs to be negotiated with the Internal Revenue Service. Full financial disclosures must be imparted to the Internal Revenue Service. Your monthly payment amount is based on your full-picture financial situation, and the Internal Revenue Service may require you liquidate assets so as to reduce the balance due.

Applicable Rules to all Installment Agreement Plan Options

No matter the type of payment plan you request, a few basic rules apply for retaining and obtaining an installment agreement contract.

Offer In Compromise Rejection Period

Most of the time, you will have to wait at the least a period of sixty days post the date marked on your OIC rejection letter for you to request an installment agreement option. During this 60 day period, your file is marked as an Offer case in the Irs system to allow for your right to appeal the rejected OIC. Internal Revenue Service officers are unable to change the status of your case to mark it as an installment agreement.

Staying Current and Compliant

If you are in an installment agreement, then you must stay compliant and up to date with the payment arrangements and new tax obligations. This means that while you’re in this contract, then you have to make all installment payments in full and on time, file all future tax returns on time, and pay any new balances in full and on time.

If you do not comply with the stipulations, you will default on your payment plan, and therefore be opened up to various IRS Collection Measures

When Financial Circumstances Change

A change in your financial situation that will interrupt your ability to meet scheduled payments, may warrent that you make a modification to your monthly installment payments.

If this change to your finances is anticipated to endure over a months time, you can proceed. Examples of qualifying financial changes are: divorce, a reduction in income, loss of income, the new addition of a dependent, or an increase in your regular living expenses. The Irs requires documentation of this change in your financial statements.

A full-pay installment agreement could convert to a a partial pay plan if changes to your finances warrant such a change. Installment agreements are in most cases easier to set up with the Irs and require less paperwork than an OIC application. This installment agreement option is a solution to your OIC rejection.

Explore the Guide to OIC at Seattle Offer in Compromise

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.