People often discover that they owe the IRS a large amount of tax only after the annual tax return is filed. The problem is, they have inadequate funds to pay for the entire tax dues. Good thing that this kind of IRS problem is made much more manageable because of the availability of a number of options for the taxpayers. One of these is the setting up of an installment agreement.
The IRS actually permits you to establish your monthly due and the date that it has to be settled in your request for an installment plan. In fact, the IRS is more likely to approve your request if your tax bill doesn't go beyond $10,000, have filed your returns and paid your taxes in a timely manner and have justified that you don't have that much money available. Among the major considerations of this set-up is the assurance that your terms will allow you to fully pay your debts within a 3-year period. To apply for one, you must accomplish Form 9465 (Installment Agreement Request Form) and attach this in your tax return.
The IRS may offer the option to make partial payments of tax liability in instances when the taxpayer is really financially incapacitated. Those who avail of this option are obliged to provide specific financial details regarding their equity assets. It is important that the pieces of information provided are consistent and correct as these will be verified by the IRS. Also, every two years, the IRS will check if the taxpayer is already in a better financial position. If so, then there is a probability that the monthly payment will be increased or the arrangement will be terminated, altogether. This type of deal is still considered an installment plan although this is slightly different from the one mentioned in the previous paragraph.
Whether or not you decide or are unable to pay your tax bill in one complete payment or you choose to use any of the installment agreement options available, the fact is, you will be paying more money to the IRS the longer you extend your payment agreement. You are essentially buying time from the IRS to pay them money. There are also applicable charges associated with this option. You will be charged with a one-time fee of $105 by the IRS unless you set up a direct debit for each monthly payment from your bank account. If you set up a direct debit agreement, the fee actually decreases to $52. The fee even goes as low as $43 if you qualify for the requirements of being in the lower income tax bracket.
Although many people find that making installment payments is a viable option that enables them to pay off their tax debt within the three year period, there are others who will not be able to do this. In fact, they rather make use of the OIC or Offer in Compromise. Basically, this is offering a one-time payment to the IRS in the hope that they will accept that lesser amount and agree to forgive the remaining debt. Again, the need to seek professional assistance on IRS matters requiring any of the methods discussed above should not be underestimated.