IRS Law Blog

Resolving your IRS debt can feel overwhelming: is an offer in compromise right for you? How about currently not collectible status? Or maybe your best path is entering into an installment agreement?

Each road with the IRS is different, and what works in one case may not work in another. 

Let’s take an installment agreement, for example. On the surface, an installment agreement may seem like a good choice for you. It appears so promising – it allows you to start repaying the IRS. However, an installment agreement is more nuanced than simply cold-calling the IRS Automated Collection Service. 

The IRS does not want you to know that calling them for an installment agreement could make your situation worse. 

Think twice before telling the IRS you need an installment agreement. In the meantime, here are some of the nuances to help you decide if an installment agreement is right for you: 

1. Will the IRS file a tax lien against you

Be careful: if you owe more than $50,000 and decide to enter into an installment agreement, IRS guidelines require them to file a federal tax lien against you. The IRS will file the lien on your home, tying your house up with them. Now, the IRS has a claim to your home; you cannot sell or refinance unless you have a resolution with the IRS. 

However, if you owe less than $50,000, we can avoid a federal tax lien by entering into a streamlined installment agreement. In this case, the IRS approves a payment plan over 72 months. No federal tax liens are filed against your home. 

An installment agreement may not be the best choice when owing more than $50,000 – it comes with the fine print of a federal tax lien on your home.

2. Has the IRS sent you a Final Notice of Intent to Levy?

The IRS cannot take your wages and bank accounts or seize your house without first sending you a Final Notice of Intent to Levy. Tax laws require the IRS to provide you with notice and the right to representation before they take your property. In other words, the IRS can’t surprise you with a levy. 

You may want an installment agreement if the IRS has sent you a Final Notice of Intent to Levy. Here, an installment agreement would protect you against any IRS levy action. By law, the IRS cannot take your property when you are paying them back through an installment agreement. 

But what if we determine that the IRS has not issued its Final Notice of Intent to Levy? In this case, they cannot take your property, and we would not need an installment agreement to protect you. We may select a path other than an installment agreement.

Bottom line: if your goal is to protect yourself from the IRS taking your wages, bank accounts, or house, an installment agreement would be ideal if you have already received the IRS Notice of Final Intent to Levy. 

3. Does your passport need protection from the IRS?

An installment agreement protects your passport from the IRS.  

By entering into an installment agreement, you will prevent the IRS from taking your passport. Even more, if the IRS has previously acquired your passport, an installment agreement will force the IRS to return it to you. 

With an installment agreement, the IRS sees you are in the process of repayment and will allow you to resume the use of your passport.  

4. How will the IRS Collection Financial Standards impact your installment agreement?

In most installment agreements, you will have to tell the IRS all about your finances and budget. The IRS will then review your monthly spending and calculate the amount of your installment agreement.

The IRS determines how much they think you can pay through internal guidelines known as Collection Financial Standards. The Collection Financial Standards have the effect of putting you on an IRS-mandated budget for living expenses, placing ceilings on the amount you spend every month on expenses such as food, entertainment, rent, utilities, car payments, auto operating expenses, and credit cards.

In other words, your financial reality can be flipped upside down by the IRS Collection Financial Standards – the IRS may demand a payment that is more than what you can actually afford. 

Before you call the IRS for an installment agreement, it’s best to know how the IRS Collection Financial Standards affect you and what you’re in for. Be prepared for them to look into your finances and possibly ask more of you than you had in mind. 

5. How close is your IRS collection end date? 

Your tax debt has an expiration date – which is something the IRS doesn’t tell you. However, we can access your collection end date by calling the Practitioner Priority Line, a phone line exclusively for tax professionals. The IRS is limited to collecting your taxes for 10 years, starting when the IRS first places your debt on their records. 

You may have already reached your collection end date and do not need an installment agreement. Before beginning an installment agreement, we can check if your tax liability has expired.

If there is only a year or two left on your collection period and you chose to enter into an installment agreement, then your agreement would only need to be over those one or two years.

If there is an amount left over after your collection expires and the installment agreement ends, the IRS will forgive everything you have not paid. We can secure records from the IRS that your installment agreement has ended and your debt is cleared.

At first glance, entering into an installment agreement seems like a “sure thing” – it sets you up to start repaying the IRS. However, you may want to think twice and confirm whether an installment agreement is best for you. An installment agreement can be a smart choice if you owe less than $50,000 and want to avoid a tax lien, have received an IRS Final Notice of Intent to Levy, or need to protect your passport. You might want to be careful with an installment agreement if you are uncertain about the IRS placing ceilings on your finances or have reached your collection end date. Whichever path we choose, we can rest easy knowing there are many ways to move towards the resolution of your tax debt.