An installment agreement is a written agreement between a taxpayer and the IRS under which a tax liability is paid over time instead of at once. It is a collection arrangement rather than a reduction of the debt, so the liability, the interest and most of the late-payment charge survive it.
The authorising sentence is short and it contains one word most summaries drop. The Secretary is authorized to enter into written agreements with any taxpayer under which such taxpayer is allowed to make payment on any tax in installment payments if the Secretary determines that such agreement will facilitate full or partial collection of such liability (26 U.S.C. 6159(a)). Partial is doing real work there: an agreement does not have to be sized to pay the debt off.
The Guaranteed Agreement Has Five Conditions and All of Them Bind
Most agreements are discretionary. One kind is not, and the provision that makes it mandatory opens with its own scope. In the case of a liability for tax of an individual under subtitle A, the Secretary shall enter into an agreement to accept the full payment of such tax in installments if, as of the date the individual offers to enter into the agreement, every condition on a five-part list holds (26 U.S.C. 6159(c)).
The aggregate amount of the liability, determined without regard to interest, penalties, additions to the tax, and additional amounts, does not exceed $10,000 (26 U.S.C. 6159(c)(1)). The measure excludes exactly the amounts that make a balance look larger than it is.
The taxpayer, and the spouse if the liability relates to a joint return, has not during any of the preceding 5 taxable years failed to file any return of tax imposed by subtitle A, failed to pay any tax required to be shown on any such return, or entered into an installment agreement under this section for payment of any tax imposed by subtitle A (26 U.S.C. 6159(c)(2)). A previous agreement disqualifies on its own, without any failure attached to it.
The Secretary determines that the taxpayer is financially unable to pay the liability in full when due, and the taxpayer submits such information as the Secretary may require to make that determination (26 U.S.C. 6159(c)(3)). The agreement requires full payment of the liability within 3 years (26 U.S.C. 6159(c)(4)). And the taxpayer agrees to comply with the provisions of this title for the period the agreement is in effect (26 U.S.C. 6159(c)(5)).
When the IRS Can End One
The default is stability. Except as otherwise provided in this subsection, any agreement entered into by the Secretary under subsection (a) shall remain in effect for the term of the agreement (26 U.S.C. 6159(b)(1)).
Three exceptions sit under it and they do different things. The Secretary may terminate an agreement if information which the taxpayer provided prior to the date the agreement was entered into was inaccurate or incomplete, or if the Secretary believes that collection of any tax to which the agreement relates is in jeopardy (26 U.S.C. 6159(b)(2)). Where the Secretary determines that the financial condition of a taxpayer has significantly changed, the Secretary may alter, modify, or terminate the agreement (26 U.S.C. 6159(b)(3)). And the same three powers apply on a failure of the taxpayer to pay any installment at the time it is due, to pay any other tax liability at the time that liability is due, or to provide a financial condition update as requested by the Secretary (26 U.S.C. 6159(b)(4)).
The middle limb of that last one catches people. A new unpaid liability elsewhere is a ground to act on the agreement even where every installment under it has been paid on time.
Notice Is Required, With One Exception
The Secretary may not take any action under paragraph (2), (3), or (4) unless a notice of such action is provided to the taxpayer not later than the day 30 days before the date of such action, and such notice includes an explanation why the Secretary intends to take such action (26 U.S.C. 6159(b)(5)). The requirement drops away in one case: the preceding sentence shall not apply in any case in which the Secretary believes that collection of any tax to which an agreement under this section relates is in jeopardy (26 U.S.C. 6159(b)(5)).
Interest Keeps Running
An agreement changes when the money is paid, not when it was due. For purposes of the interest section, the last date prescribed for payment of the tax is determined under chapter 62 with a stated rule applied to it: the last date prescribed for payment shall be determined without regard to any extension of time for payment or any installment agreement entered into under section 6159 (26 U.S.C. 6601(b)(1)). Interest then runs from that last date to the date paid (26 U.S.C. 6601(a)).
The Late-Payment Charge Halves, but Only If the Return Was Filed on Time
The one real price break is conditional on filing. In the case of an individual who files a return of tax on or before the due date for the return, including extensions, paragraphs (2) and (3) of subsection (a) shall each be applied by substituting 0.25 for 0.5 each place it appears for purposes of determining the addition to tax for any month during which an installment agreement under section 6159 is in effect for the payment of such tax (26 U.S.C. 6651(h)). A late filer gets no reduction at all, which is one more reason to file without the money. The charges that reduction applies to are set out in tax penalty, and the timing question around an extended deadline is in the extended October filing deadline.
Levy Is Suspended, in Four Windows
The protection is wider than the period the agreement is running. No levy may be made under subsection (a) on the property or rights to property of any person with respect to any unpaid tax during the period that an offer by such person for an installment agreement under section 6159 for payment of such unpaid tax is pending with the Secretary, and, if such offer is rejected by the Secretary, during the 30 days thereafter, and if an appeal of such rejection is filed within such 30 days, during the period that such appeal is pending (26 U.S.C. 6331(k)(2)).
Two more windows follow. No levy may be made during the period that such an installment agreement for payment of such unpaid tax is in effect, and, if such agreement is terminated by the Secretary, during the 30 days thereafter, and if an appeal of such termination is filed within such 30 days, during the period that such appeal is pending (26 U.S.C. 6331(k)(2)). A rejected request and a terminated agreement therefore both leave the taxpayer protected while an appeal runs.
Fees, and When They Are Not Charged
The amount of any fee imposed on an installment agreement under this section may not exceed the amount of such fee as in effect on the date of the enactment of this subsection (26 U.S.C. 6159(f)(1)).
A low-income rule turns the fee off or gives it back, and which of the two depends on how the taxpayer pays. In the case of any taxpayer with an adjusted gross income, as determined for the most recent year for which such information is available, which does not exceed 250 percent of the applicable poverty level, no fee shall be imposed if the taxpayer has agreed to make payments by electronic payment through a debit instrument, and if the taxpayer is unable to make payments that way, the Secretary shall, upon completion of the installment agreement, pay the taxpayer an amount equal to any such fees imposed (26 U.S.C. 6159(f)(2)). The income figure the threshold runs against is defined in adjusted gross income.
Two Review Duties
In the case of an agreement entered into for partial collection of a tax liability, the Secretary shall review the agreement at least once every 2 years (26 U.S.C. 6159(d)). Separately, the Secretary shall establish procedures for an independent administrative review of terminations of installment agreements under this section for taxpayers who request such a review (26 U.S.C. 6159(e)).
Common Questions
No. Interest runs from the last date prescribed for payment, and that date is determined without regard to any installment agreement (26 U.S.C. 6601(b)(1)). The failure to pay addition continues too, at a halved rate for months during which the agreement is in effect, and only for an individual who filed on or before the due date including extensions (26 U.S.C. 6651(h)).
For most liabilities, yes, because the authorising provision is permissive and keyed to whether the Secretary determines the agreement will facilitate full or partial collection (26 U.S.C. 6159(a)). The exception is the guaranteed agreement, where the Secretary shall enter into an agreement if all five listed conditions hold (26 U.S.C. 6159(c)).
Not automatically. A failure to pay an installment when due is one of three grounds on which the Secretary may alter, modify, or terminate the agreement (26 U.S.C. 6159(b)(4)), and the action requires notice not later than the day 30 days before it is taken, with an explanation (26 U.S.C. 6159(b)(5)).
Accountably places offshore accountants and tax preparers inside US CPA and EA firms, working in the firm’s own systems and under the firm’s own review. Collection work runs on transcripts, balance reconciliations and compliance checks across several years, and that is preparation work a reviewed offshore team can carry while the partner keeps the conversation with the client.
