We recently wrote a blog post discussing the Internal Revenue Service's offer in compromise program. A delinquent taxpayer's acceptance into the program affords an individual the opportunity to repay tax debt based upon one’s current financial situation and ability to pay. The IRS' offer in compromise program is just one option for individuals with back taxes. Another option is to enter into a formal payment plan or installment agreement with the IRS.
While an offer in compromise allows taxpayers with financial hardships the ability to repay only a portion of tax debt, taxpayers who qualify for the installment agreement repayment plan must repay the full amount of tax debt owed. In order to qualify to participate in this debt repayment plan, an individual taxpayer's debts must not exceed $50,000. Additionally, an individual must be current with all tax returns.
Much like making a monthly mortgage or credit card payment, an IRS installment agreement allows taxpayers who are unable to pay the full amount of a tax debt outright, the ability to do so via monthly payments. It's important to note, however, that the IRS continues to impose late penalties and fines until the entire amount of debt is paid off.
In cases where an individual suffers a job loss or some other financial problem that interferes with his or her ability to make a payment, it's critical to contact the IRS as soon as possible. Missing an installment payment may not only result in an individual incurring additional fines and penalties, but also being booted from the program.
In cases where an individual has questions or concerns about their taxes and tax debt, it may be wise to seek the advice and assistance of a tax attorney. This is especially important in cases where an individual learns that he or she is the subject of an IRS audit or investigation.
Source: IRS.gov, "Payment Plans, Installment Agreements," March 25, 2015