Requesting an IRS Installment Agreement is certainly a positive action towards resolving a tax liability. Yet, there can be definite drawbacks to an Installment Agreement and the biggest drawback is: Interest and penalties continue to accrual. It is possible to pay your tax bill for months and end up owing more than when you started
It's easy to become discourage and wonder if you will ever get the tax bill paid off. Not to worry, there are options. First things first. Taxpayers can not request an Installment Agreement until all past due returns have been filed.
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Once all your tax returns have been filed, you can contact a Tax Attorney or Enrolled Agent to discuss the possibility of filing bankruptcy or an Offer in compromise (OIC - this is when you settle with the IRS for pennies on the dollar)
Do you own a home? What is your annual income? Do you have a 401K? Do you have assets that you could sell to pay off the IRS? These are questions you can address with your Tax Attorney or Enrolled Agent to see if you qualify for a Offer in Compromise
If you decide to pursue the Installment Agreement option and the IRS request a 433-A or 433-B, you still might want to seek out professional help. A 433-A is a Collection Information Statement for Individuals, and helps the IRS determine how much "you" should pay "them" each month.
The form look harmless, but should not be taken lightly. It is easy to make irreversible mistakes that could affect the quality of your life. Example: A taxpayer list expenses for his/her child's private school -- this is not a valid expense! The IRS may fully expect for you to forward that amount to pay your tax liability. Another irreversible error: A taxpayer list his/her monthly cable bill as a utility expense. Cable bills in American can run anywhere from $12.99 to $150 a month. This is not a valid or acceptable expense as far as the IRS is concerned.
The IRS charges taxpayers a fee to set up an Installment Agreement. The fee for new Installment Agreements is around $100 (this could change) and around $50 for agreements where payments are deducted directly from the taxpayers bank account. Taxpayers with extremely low incomes, can apply to pay a lower fee. Visit irs.gov for updated tax codes.
Summary: Before you can request an IRS Installment Agreement, you must file all past due tax returns. It is more cost effective to have a Tax Preparer or Tax Accountant to complete the past due returns, before employing a Tax Attorney or Enrolled Agent to file a bankruptcy or Offer in Compromise.
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