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Will the IRS Take Payments?

The IRS will take payments, and an installment agreement is the most common resolution for unpaid federal taxes. It is not always the best option, but for most people with a balance they cannot pay in full, a payment plan is realistic and available.

The most common type is the streamlined installment agreement. If you owe $50,000 or less in combined tax, penalties, and interest, you can generally get a 72-month payment plan without submitting a detailed financial statement. If you set it up as a Direct Debit Installment Agreement (DDIA), you avoid the additional user fee and become eligible to request a lien withdrawal after three consecutive payments — which matters if the lien has affected your credit.

For larger balances or cases where streamlined terms do not work, the IRS offers a Partially Paying Installment Agreement (PPIA). With a PPIA, your monthly payment is based on what the financial analysis says you can actually pay — not what it takes to pay the balance in full. The IRS agrees to accept less than full payment over the collection statute period, knowing the balance may not be fully paid before the Collection Statute Expiration Date (CSED). To qualify, you submit a full financial statement — Form 433-A or 433-B — and the IRS reviews your income, expenses, and assets.

One thing an installment agreement does not do: it does not prevent the IRS from filing a Notice of Federal Tax Lien. For balances over $10,000, the IRS will generally still file a lien even once you are on a payment plan. The lien is a public record and affects your credit. A payment plan keeps levies and wage garnishments from starting, but the lien is a separate issue.

Interest and the failure-to-pay penalty continue to accrue during an installment agreement. The failure-to-pay penalty drops from 0.5% to 0.25% per month while a valid agreement is in place, but it does not stop. This is worth factoring into the math when comparing an installment agreement to other options.

If you default — miss a payment, incur a new tax balance, or fail to file a required return �� the IRS can terminate the agreement and resume collection. Getting reinstated is possible but requires going through the process again.

Book a free 15-minute call or call (619) 378-3138 to understand your options.

So there’s a calculation and there’s a formula the IRS uses. The IRS is a lot like the post office. They have procedures and they have formulas and they have ways that they do things so with respect to how much they’re going to ask you to pay, what they look at is, assuming that you don’t have enough to pay them in full, that you just don’t have the cash sitting in your bank account. Then they’ll look at a payment plan and the payment plan is based on how much income you’re earning and what the IRS considers to be ordinary and necessary expenses so if you pull out an IRS financial statement, you can look at the expenses and the expenses are things like food and clothing and transportation cost and a couple of other different things. So the IRS is looking at your income. They’re subtracting out what they consider to be necessary expenses, not luxuries, and then they come up with a residual and if you run that calculation and you get to your residual then you’ll understand how much they’re going to request. Keep in mind the residual that you’re showing based on that limited analysis is what the government’s going to work out. Not to say that you’re going to have to pay that amount but it’s at least a good starting point for figuring out how much the IRS is going to ask you for at the outset of this.

So an IRS payment plan and negotiating one is both an art and a science. Let’s talk about the science side of things. So IRS payment plans start based on a formula and the formula looks at the available assets that a taxpayer has and the IRS determines whether the taxpayer could full pay or substantially pay the liability based on the value of those assets. So for example if you owe the government $50,000 and you have $50,000 sitting in your bank account, the IRS is going to want that absent some good reason. So they go through your expenses, they look at your house, in certain cases they look at the equity in your house, can you borrow against any assets, things like that. If they determine that you don’t have sufficient equity in your assets, then it becomes an income and expense analysis they look at your various sources of income they usually average it over a three-month period and then they’ll look at your ordinary and necessary living expenses. So the real kicker with this is the term ordinary and necessary. The IRS has standards and they’re based on both national standards and local living standards on how much things should cost. So like for example, with your housing the IRS has an average based on where you live of how much housing is in your area. If you go to.

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If I Owe Money to the IRS How Do They Look at Credit Cards? So this is a topic of conversation we have a lot of clients and let me give you the position from the IRS side of things the IRS takes the position that they are not a bank so if you owe tax debt they consider themselves to be the supreme creditor so anything that is an unsecured debt including a credit card debt the IRS considers itself to be more of a priority than that debt so the practical effect of that is that when negotiating an IRS payment plan they will not allow you to write off your credit card expenses and this is a big shock for taxpayers because what happens isn’t going through a financial analysis income minus necessary expenses a lot of people will list their credit card debt and unless that credit card debt was incurred for let’s say business expenses or for something else that. The IRS considers necessary they won’t write in minimum credit card payments and will require you to pay a monthly installment agreement pay a payment that’s much higher because they’re not including the credit card down that so just keep in mind that credit card debt is not a saving grace if you have a substantial amount of credit card debt and it’s affecting your cash flow you’re going to want to speak with an attorney or qualified representative to help.

For college-age children and private educational expenses, here’s the bad news. When factoring in an IRS payment plan or when negotiating a collection resolution, the IRS does not include any expenses that you have for your college-age children or any private educational expenses. The reason for this is that the government views those expenses as luxury items even though most taxpayers in the system in that situation would disagree. A lot of the pushback that we get from taxpayers is well if it’s a choice between paying for taxes and sending my kids to college, I’m going to send my kids to college and while I understand that sentiment as a parent myself, you have to understand that the IRS employees that you’re negotiating with often make a salary that’s a lot less than yours. So you’re dealing with somebody who would also view that expense as a luxury item. This is particularly true for kids who are over the age of 18. The IRS considers those children to be adults and therefore kicks them out of the nest. Now with that said, it does not mean that you cannot get an allowance for educational expenses or for supporting college-age children but there’s some tricks and tips to doing that and you’re going to have to be very careful on how you put those expenses in the file. So rather than go into that, what I recommend that you do is contact a qualified representative or tax attorney and have us walk you through how to best include those expenses and how to get your resolution.

If I Owe Money to the IRS Are They Going to Take My House? So let’s start by saying that yes the IRS can take your house if you are living in a house and you own that house free and clear and you owe money to the government the IRS is either gonna want you to borrow against that asset or they could potentially seize that asset now that’s a scary thought but for example if you’re living in a multi-million dollar home and owe the government a million dollars they’re not going to want you to continue to live in your multi-million dollar home and oh the government a million dollars so there’s gonna be a little bit of give and take there however the good news from the perspective of most taxpayers is number one it’s not very popular for the IRS to kick people out of their primary residences so seizing primary residence and kicking people out of their homes does it play out very well in the media so the IRS doesn’t usually seize principal residences at alas there are extreme or extenuating circumstances number two is there’s a lot of paperwork involved in seizing a house the IRS agents have to fill out a whole bunch of forms those forms have to get multiple signatures on them they have to go through an attorney and they have to get go through a court process and order through. The IRS to foreclose in your home so that’s a lot of work the IRS agents much prefer to go after low-hanging fruit they go after cash assets they go after bank accounts they go after stock accounts they go after wages to go after things that they can very easily seize so while they can take your house that’s not the first play in the IRS is playbook so generally speaking if you’re proactive in resolving your tax liability your house is generally safe.