When a business (or individual) falls behind in paying its IRS taxes, it can be an overwhelming experience. What’s a business owner to do? Should he or she stroke a check and pay off the liability? Possibly. This can be a good option assuming (a) the money is available and (b) making the payment won’t hurt cash flow. However, sending a large check to the IRS frequently makes the situation worse by creating new cash flow problems. Fortunately, an affordable repayment arrangement, which the IRS refers to as an installment agreement, solves most IRS issues. And it doesn’t have to take years. Here’s how it works:
IRS Installment Agreement – what is it?
An installment agreement is a payment plan whereby the IRS allows the business (or individual) to repay the back taxes on a monthly basis, over an extended amount of time. The payment should be based on what the business can afford. There are a few different types of installment agreements. Unfortunately, the IRS frequently fails to disclose these options to business owners and their representatives. A good representative understands the various options and communicates them to the business owner.
Requirements for an Installment Agreement
Before the IRS can consider a proposal for an installment agreement, a business must become “compliant.” There are two requirements. First, the business must file any missing tax returns. When filing the missing returns, there’s no requirement to pay them as well (that’s the point of the installment agreement). However, the IRS requires that businesses file any missing returns so they know the extent of the liability or amount owed.
Second, businesses with employees must “stop the bleeding” and begin making federal tax deposits in full and on time. For more information on how to make federal tax deposits, check out our blog post on the subject. If a business has just begun making deposits but is not compliant for the entire quarter, the IRS will not accept the agreement during the current quarter. Installment agreements must include all periods of liability. Otherwise, the IRS cannot accept them.
[Expert Insight] Contrary to what our clients frequently hear from the IRS, there’s no requirement that a business must be current and compliant with returns and deposits for two consecutive quarters before the IRS will consider an installment agreement.
433-A or 433-B Documentation for an IRS Installment Agreement
For liabilities greater than $25,000, businesses should be prepared to provide some documentation to the IRS. Typically, the IRS requires businesses to complete two financial statements:
- Form 433-B Collection Information Statement for Businesses and
- One or more Forms 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals for the owner(s).
Additionally, the IRS typically requests six months of bank statements and proof of payments, such as mortgages, utilities, loans, etc. A good representative will review the documents to ensure correct and accurate completion, not just “push paper” and forward them directly to the IRS.
Timeline for an IRS Installment Agreement
Some people struggle for months, if not years, to negotiate a resolution with the IRS. An experienced tax representative can secure an agreement much quicker. Tax Guard can secure an installment agreement in approximately 30 days, assuming:
- The business has filed all its returns and is current and compliant with its federal tax deposits in the current quarter.
- A revenue officer has been assigned to the case.
While Tax Guard can secure payment terms, the IRS will not formally accept the agreement until the current quarter’s return is filed and the additional liability assessed. In short, the time frame for securing an agreement largely depends upon the business’s compliance with returns and deposits. It’s critical to have representation from an experienced professional that frequently negotiates with the IRS. Taxpayers who attempt to resolve an IRS liability on their own or are working with a local attorney or accountant are at a disadvantage. Assuming they have the experience and knowledge to secure you the best resolution is a mistake. Fill out the form below to speak with a tax specialist about how we can help.