New IRS Test Criteria for Streamlined Installment Agreements: Liabilities Up to $100,000 Eligible for Streamlined Installment Agreement
The IRS recently extended its test program for streamlined installment agreements to allow individual taxpayers with up to $100,000 in assessed tax, penalties, and interest to apply for streamlined installment agreements. This article addresses some of the benefits of a streamlined installment agreement versus a traditional installment agreement and provides information related to the expanded streamlined installment agreement program, including the circumstances in which a collection information statement is not required and circumstances in which the IRS will forgo a determination as to whether to issue a notice of federal tax lien.
What is an installment agreement?
The IRS allows some taxpayers to pay their federal tax liabilities over time through a long term payment plan called an installment agreement.
How do I apply for an installment agreement?
Depending on the amount of the liability, an individual taxpayer may apply for an installment agreement over the telephone, online, or in-person or by mail using Form 9465, Installment Agreement Request. Find more information regarding applying for an installment agreement here.
As detailed below, the IRS may require the taxpayer to provide extensive financial information and documentation before the IRS will agree to a traditional installment agreement. A taxpayer may avoid the time and expense of gathering and providing this financial information and documentation and negotiating the amount of their monthly payment if the taxpayer qualifies for a streamlined installment agreement.
What information must I provide to the IRS to obtain an installment agreement?
Before agreeing to an installment agreement, the IRS may require a taxpayer to provide the IRS with a completed collection information statement, for example, a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or a Form 433-F, Collection Information Statement. Find a copy of these forms here and here.
The information and documentation requested by the IRS through its collection information statements may be quite extensive. The information and documentation requested by the IRS generally includes:
– account numbers and balances for all bank accounts, lines of credit, and investment accounts
– information related to all personal and real property including the taxpayer’s vehicles and home
– information regarding the taxpayer’s and the taxpayer’s spouse’s employment, wages, and other income
– information related to all of the taxpayer’s monthly expenses, including estimates for food, housekeeping supplies, clothing, personal care, car insurance, utilities, taxes, insurance, and health care costs
The IRS also requires documentation to verify the figures reported on the collection information statement. This documentation includes bank statements, investment account statements, utility and cell phone bills, insurance statements, copies of tax returns, and documentation to verify court-ordered payments.
The IRS may also require various other information, including information related to recent lawsuits, inheritances, bankruptcies, and travel out of the country.
If the taxpayer is self-employed, the IRS will also expect a collection information statement and similar information and documentation from the business, as well as a copy of the business’s profit and loss statement. Find a copy of the IRS collection information statement for businesses here.
Why does the IRS need my financial information and documentation before it will agree to an installment agreement?
The IRS collects this extensive financial information and documentation so that it understands the taxpayer’s overall financial picture, including the taxpayer’s available equity in assets and excess monthly income.
The IRS may require the taxpayer to liquidate assets and pay over the proceeds to reduce the taxpayer’s overall tax debt before the IRS will accept an installment agreement.
The IRS will also consider the taxpayer’s excess monthly income to determine the minimum monthly payments the IRS will accept in the installment agreement.
The IRS generally expects that all of the taxpayer’s excess monthly income should be paid toward the outstanding federal tax debts. What is worse, the IRS may not consider all of the taxpayer’s actual expenses, which reduce the taxpayer’s monthly excess income. Instead the IRS may substitute the IRS’s federal national expense allowances. Here are the IRS national expense allowances,
Using the national standard expense allowances rather than the taxpayer’s actual monthly expenses can result in significantly higher excess monthly income, at least on paper, and an expectation that the taxpayer will make monthly payments which may be much higher than the taxpayer can actually afford to pay without making substantial spending and lifestyle changes.
The taxpayer may negotiate with the IRS to try to reduce the minimum acceptable monthly payment. The IRS will generally require the taxpayer to prove that the taxpayer is not able to afford the minimum monthly payment recommended by the IRS. This can require an extensive exchange of information and documentation and communications between the taxpayer and the IRS, and may result in a tiered installment agreement in which the taxpayer is allowed to temporarily make lower monthly payments based on the taxpayer’s actual monthly expenses, generally for a period of six or twelve months, but the IRS will expect the taxpayer to make significant lifestyle and spending changes over that period.
At the end of the temporary lower payment period, the IRS may require the taxpayer to provide a new collection information statement to prove ability to pay and require the taxpayer make larger monthly payments based on the taxpayer’s excess monthly income according to the national standard expense allowances.
In short, preparing a collection information statement, gathering the supporting documentation, and negotiating a monthly payment that will enable to taxpayer to successfully comply with the terms of the installment agreement can be a lot of work. The IRS provides an attractive alternative to the traditional installment agreement process, called a “streamlined installment agreement,” as detailed below.
What is a streamlined installment agreement?
The streamlined installment agreement allows a taxpayer to enroll in a long term payment plan with the IRS without providing a collection information statement or the accompanying financial information and documentation to verify assets, income, expenses, and debts. Previously, the IRS only allowed streamlined installment agreements for individuals with liabilities totaling up to $50,000 in assessed balance of tax, penalties, and interest. However, the IRS recently raised this liability cap to include liabilities up to $100,000 in assessed balance of tax, penalties, and interest. Currently, the IRS is only “testing” this new $100,000 cap through September 30, 2018. However, the IRS may choose to continue the $100,000 cap permanently if this new cap demonstrably improves IRS customer service, reduces taxpayer burden, and increases agency efficiency.
What are the terms of a streamlined installment agreement?
Under the old streamlined installment agreement criteria, a taxpayer was allowed up 72 months to pay their federal tax liabilities totaling up to $50,000 in assessed tax, penalties, and interest, depending on the assessment date of the debt. Under the new streamlined installment agreement criteria, a taxpayer may have up to 84 months, depending on the assessment date of the debt, to pay federal tax debts totaling up to $100,000 in assessed balance of tax, penalties, and interest (i.e. monthly payments of the total assessed tax, penalties, and interest divided by 84 approximately equal the monthly payment).
Under the new program, subject to the circumstances listed in the table below, if the taxpayer’s assessed balance of tax, penalties, and interest are less than $50,000, no collection information statement is required. If these liabilities total between $50,001 – $100,000, no collection information statement is required, so long as the taxpayer agrees to pay monthly installments via direct debit or payroll deduction.
Below is a chart of the current test criteria for IRS streamlined installment agreements for liabilities totaling up to $100,000 in assessed balance of tax, penalties, and interest:
| CURRENT Streamlined CRITERIA | TEST CRITERIA |
|---|---|
| Payment Terms Up to 72 months – or – the number of months necessary to satisfy the liability in full by the Collection Statute Expiration date, whichever is less | Payment Terms None. This criteria is unchanged. |
| Collection Information Statement Verification of ability to pay required in event of an earlier default for assessed balances of $25,001 to $50,000 | Collection Information Statement Not required. |
| Payment Method Direct debit payments or payroll deduction required for assessed balances of $25,001 to $50,000 | Payment Method Direct debit payments or payroll deduction is preferred, but not required. |
| Notice of Federal Tax Lien Determination not required for assessed balances up to $25,000. Determination is not required for assessed balances of $25,001 - $50,000 with mandatory use of direct debit or payroll deduction agreement. Note: If taxpayer does not agree to direct debit or payroll deduction, then they do not qualify for Streamlined IA over $25,000. | Notice of Federal Tax Lien No change in criteria for assessed balances up to $25,000. Determination is not required for assessed balances of $25,001 - $50,000 with the use of direct debit or payroll deduction agreement. Note: If taxpayer does not agree to direct debit or payroll deduction, then they do qualify for Streamlined IA over $25,000, but a Notice of Federal Tax Lien determination will be made. |
The test criteria discussed above also applies to all out of business debts up to $25,000 and all out of business sole-proprietorship debts up to $50,000. For in-business taxpayers, test criteria apply to income tax only debts up to $25,000.
For individual taxpayers who have filed all required returns and have an assessed balance of tax, penalties and interest between $50,001 and $100,000,
| CURRENT CRITERIA | TEST CRITERIA CHANGES |
|---|---|
| None - Streamlined processing criteria currently does not apply to assessed balances of tax between $50,001 and $100,000 | Payment Terms Up to 84 months – or – the number of months necessary to satisfy the liability in full by the Collection Statute Expiration date, whichever is less Collection Information Statement Not required if the taxpayer agrees to make payment by direct debit or payroll deduction Payment Method Direct debit payments or payroll deduction is not required; however, if one of these methods is not used, then a Collection Information Statement is required. Notice of Federal Tax Lien Determination is required. |
The test criteria discussed above also applies to all out of business sole-proprietorship debts between $50,001 and $100,000.
For operating businesses with a trust fund tax liability, criteria for streamlined processing of installment agreement requests has not changed, see Internal Revenue Manual Part 5, section 5.14.5
Conclusion
The new streamlined test criteria may benefit many taxpayers by significantly reducing the time and expense of enrolling in a long-term payment plan to full-pay outstanding federal tax liabilities. Taxpayers may arrange for a traditional or streamlined installment agreement themselves, or depending on the circumstances, taxpayers may benefit from working with a tax professional to ensure that the taxpayer and IRS agree to installment agreement terms that position the taxpayer for success in resolving their federal tax debts.