Requesting an Installement Agreement after the IRS Rejects an Offer in Compromise (or OIC)

Receiving a rejection letter from the Internal Revenue Service on an OIC application could pose you with a bit of anxiety and panic, however don’t stress — you’re still eligible the option of making payments toward the balance in payment installments.

The Internal Revenue Service offers a couple of installment agreement payment options for instance full-payment installment plans and a partial-payment installment plan. Full-payment plans include the guaranteed installment agreement, the streamlined installment agreement, and the financially verified installment agreement. The payment plan you qualify for is based upon financial details you offer to the Internal Revenue Service, but each monthly repayments for the various options are assessed a little differently than Offer in compromise settlement amounts.

In this article, we’ll discuss these payment plan options and assist you determine which plan of repayment is best suited for you.

The Guaranteed Installment Agreement

The guaranteed installment agreement plan is available only if your balance is below $10,000 and your monthly installments will full-pay your full Irs owed balance inside a period of 3 years. The Internal Revenue Service must agree to this option if you conform to the requirements.

Streamlined Installment Agreement

A streamlined installment agreement option is a possibility if your balance due is less than $25,000 and you agree to pay in full your full debt balance in the period of 5 years or 60 months. Your total balance takes into consideration your principal tax liability, plus penalty accruals and interest for each tax year you have a balance.

Calculating The Monthly Payment Installments

In order to calculate the bottom amount the Internal Revenue Service will permit each month, divide the total amount owed, including the interests and penalities, by fifty. The resulting amount will be the lowest amount that will have to be paid. The left-over 10 months of the 60-month payment plan is set aside for interest. If you do not have sufficient disposable monthly income to grant a 60-month payment plan, you just might qualify for a partial pay plan instead.

Installment Agreement Partial Payment Plans

A partial payment installment agreement option is an option that will allow you to pay only what you can afford to pay on a month by month basis, even if the amount is less than what the Internal Revenue Service typically accepts in an installment agreement plan. You must make payments for the remainder of the period in which the Irs can by law collect debt, which might be a period of time extending more than 60 months. When the collection statute of limitations comes to its expiration date, any balance remaining is then written off . The repayment plan is a partial pay installment agreement plan as you never will pay the total balance that you owe.

Statute of Limitations on Collection

A collection statute exists for each tax year you have a balance on. The collection statute begins the date your tax return is filed, or the actual date a principal tax balance is assessed to your account, whichever occurs most recently. In general, the statute ends 10 years after it begins, but certain processes can cause the collection statute to be longer than 10 years. Either you, or your Power of Attorney, may contact the IRS and request the Collection Statute Expiration Date (CSED) for each balance-due period.

Calculating Payments

The partial payment installment agreement is determined by your disposable monthly income, which is the amount left each month after your expenses are paid. Calculate your monthly disposable income by the number of months which remain on your collection statute to determine the total amount you will pay the Internal Revenue Service over time. That is, if disposable income is $100 and the time remaining on the collection statute is two years, or 24 months, you pay $2,400 toward your tax liability. The rest is not collectable by the Irs. Though, you need to make the payments in installments – you can’t offer the full amount in a single lump sum payment.

Non-Streamlined Installment Agreements or Financially Verified Installment Agreement

The non-streamlined or financially verfied agreement is assessible when your owed balance is over $25,000 or where the repayment period exceeds 5 years or 60 months. This agreement must be negotiated with the Internal Revenue Service. Full financial disclosures must be imparted to the Internal Revenue Service. Your monthly payment amount is arrived at by reviewing your full-picture financial situation, and the Internal Revenue Service could potentially require you liquidate assets so as to reduce the remaining debt balance.

The Rules that Apply to the Installment Agreement Plan Options

Whatever the type of payment plan you request, some basic rules are applied for retaining and obtaining your installment contract.

Offer In Compromise Rejection Period

Generally, you are going to have to wait at the least a period of 60 days after the date specified on your OIC rejection letter to request an installment agreement. During this 60-day period, your file is coded as an “Offer” case in the Internal Revenue Service system to allow for your legal right to appeal the rejection. Internal Revenue Service officers are unable to pull your case out of this status to establish an installment agreement contract.

Staying Compliant and Current

Once you are locked into an installment contract, you must stay compliant and current with the determined payment calendar and your forthcoming tax obligations. Meaning that if you’re bound by this contract, you will have to meet all installment pay dates on time and in full, file all future tax returns as scheduled, and pay any new balances on time and in full.

If you do not comply with the stipulations, you will default on your payment plan, and therefore be opened up to various IRS Collection Measures

A Change in Financial Circumstance

A change in your financial situation that will interrupt your ability to meet set pay dates, might warrent that you request a modification to your monthly installment payments.

The change in your financial situation should be considered permanent, or expected to last longer than one month. Examples of acceptable financial changes include loss of income, a reduction in income, divorce, the addition of a dependent or an increase in regular living expenses. The IRS will request an updated financial statement and proof of new expenses to process the modification request.

Modifications may result in your full-pay installment agreement being changed to a partial payment plan. Installment agreements are typically more simple to arrange with the Internal Revenue Service and demand less desk work than an OIC application. The installment agreement option is a an alternative to your Offer In Compromise rejection.

Have a look at the Offer In Compromise Guide at Los Angeles Accountants & Tax Preparers

Burien CPAAbout Burien CPA
Burien CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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  • Huddleston Tax CPAs / Huddleston Tax CPAs – Burien
    Certified Public Accountants Focused on Small Business
    14900 Interurban Avenue S, Suite 271 / Tukwila, WA 98168
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    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
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    We serve: Tukwila, SeaTac, Renton. We have a few meeting locations. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.