I owe too much and need an installment agreement.
IRS enforces collection by issuing wage and bank levies, potential property seizures and filing federal tax liens.
Obtain an installment agreement to pay over time. One of the top ten reasons citizens contact the IRS' Taxpayer Advocate is for help in establishing installment agreements. The IRS is notorious for providing misinformation regarding the right to and procedure for obtaining installment agreements. In the meantime, it enforces collection with wage and bank levies, often putting people into a situation where they must choose between paying their taxes and feeding their families.
The right of an installment agreement exists when the citizen can demonstrate that he does not have the cash or liquid assets available to pay the bill. It is the citizen's duty to seek the agreement, however. The IRS need not present the opportunity though it sometimes may suggest that the right is available.
Use Form 9465, Installment Agreement Request, to seek an installment agreement. As IRS forms go, this one is about as easy as they get. You simply include your name, address, social security number and other identifying information. State the tax year in question and how much you owe. Finally, state how much you are able to pay each month.
There are two ways to use Form 9465. The first is if you cannot pay a current tax, which is the tax for the return you are about to file. Rather than failing to file the return (a mistake made by too many each year), file the tax return on time--thus avoiding the failure to file penalty--but include Form 9465 as an attachment to the return. Put it right on top, in plain view, so the IRS can readily see it. This forestalls enforced collection action and sets the wheels in motion to formalize the installment agreement.
Before the IRS formalizes the agreement, it often seeks financial data from the citizen. Remember, you must prove you do not have the income or assets to pay on time. Provide proof in the form of a financial statement. The IRS uses Form 433-A as a financial statement for individuals and Form 433-B as the financial statement for businesses.
The financial statement provides a listing of all one's income and monthly expenses, as well as assets and liabilities. From this data, IRS determines the amount of the monthly payment. The payment amount is fixed by subtracting your monthly living expenses from your net take home pay. The difference, referred to as "disposable income," becomes the amount of the payment. While the agency tries to impose arbitrary expense guidelines upon citizens, the reality is you have the right to fix your monthly expenses based upon your family's needs, not the IRS' whim.
Once an installment agreement is in place, the IRS can neither enforce collection nor modify or terminate the agreement unless,
you provided false or incomplete information in Form 433-A or B,
your financial circumstances have significantly changed,
you fail to make a payment on time,
you fail to pay another tax on time,
you fail to provide updated financial data when asked, or
the IRS believes that collection of the tax is in jeopardy; that is, you are taking affirmative steps to defeat payment of the tax, such as hiding assets or preparing to leave the country.
Now that the installment agreement is in place, you avoid the potential disaster of enforced collection action. However, because interest and penalties continue to build even while you pay on time, it is in your best interest to either pay the tax as quickly as possible or explore other avenues for settling the debt. The latter should include consideration of the so-called Tax Amnesty programs. These are programs that allow you to reduce or eliminate your tax debt based upon your ability to pay. They are especially helpful for those who have substantial back tax debts and are making just minimum payments. In that case, the interest and penalties often outstrip the payment and you actually end up going backwards