Tax Law Insights

If an individual or business owes federal taxes and does not have the current ability to pay these taxes, the IRS can "seller-finance" and offer a payment plan with the taxpayer. The primary benefit of a payment plan is that it provides a clear agreement with the IRS on how much is to be paid and over what time period. Also, and as an inducement to enter into a payment plan with the IRS, the IRS will reduce the amount of penalties that will be due. The IRS will not "levy" or "garnish" wages or seize bank accounts while a payment plan is in effect.

Before the IRS will consider a payment plan for back taxes, the individual or business must be up-to-date or "current" with the filing of their required tax returns, and, for individuals, must also be having withholdings taken from their paychecks or be making quarterly estimated payments towards their current-year taxes.

If the taxpayer owes less than $50,000, a payment plan can literally be requested over the phone with the IRS and without the submission of financial information. The length or term for these types of payment plans cannot exceed 5 years, however.

For individuals and businesses that owe more than $50,000, the IRS will require the submission of financial information showing all assets and income. The IRS will review this information, and there is often a negotiation on what the IRS will require for a monthly payment. If $100,000 or more is owed, the IRS will also routinely assign the matter first to an IRS field agent (a "Revenue Officer") for investigation. The Revenue Officer will often request to personally interview the taxpayer and financial information is subject to a higher level of scrutiny.

For most payments plans, the IRS now requires that taxpayer to enter into a "direct-debit" payment plan, where payments are directly withdrawn each month by the IRS from the taxpayer's bank account.

There are other payment plans and collection options as well, depending on the amount and type of taxes owed.