installment agreement

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Installment agreement allows a taxpayer to pay the unpaid federal taxes to the Internal Revenue Service (IRS) on a monthly basis. The authority to enter into an installment agreement is statutorily defined in the Internal Revenue Code Section 6159.

The IRS is allowed, but not required, to enter into an installment agreement, except in the case of tax amounts that are $10,000 or less. Such a mandated installment agreement, also known as “guaranteed installment agreements,” takes into consideration the fact that the taxpayer is unable to fulfill one’s tax liability in full based on the provided financial information. The statutorily required mandate nevertheless leaves some room for IRS’s discretion.

The second category of installments known as “streamlined installment agreements” applies to taxpayers with a tax liability of $50,000 or under. Individual taxpayers who do not qualify for this type of agreement may enter into an agreement that allows payments to be made over six years or seventy-two months upon provision of financial statement.

Beginning in 2004, the IRS can enter into partial installment agreements that allow a taxpayer to make payment on any tax in installment if the IRS decides that such an agreement will promote “full or partial collection of liability.” The IRS is required to review existing partial payment agreements every two years.

An installment agreement should be submitted to the IRS following the manner and procedure required by the Service. IRS may ignore the submitted agreement if the taxpayer fails to conform to the rules. Generally, a rigid adherence to the procedure mostly applies to the agreements involving high amounts.

[Last updated in June of 2020 by the Wex Definitions Team]