Requesting an Installment Agreement after IRS Rejection of Offer In Compromise (or OIC)

getting a rejection letter from the Internal Revenue Service on an OIC application you’ve submitted very well might stuff you with a bit of anxiety and panic, but don’t fret — you could still pursue the choice of repaying the amount owed in payment installments.

The Irs allows for a couple of installment agreement options for instance full-payment installment plans or partial-payment installment plans . Full-pay plans include the promised installment agreement, the streamlined installment agreement, and the financially verified installment agreement. The plan you are eligible for is dependent on fiscal details you provide to the Irs, but each monthly payment installments for these various programs are calculated a bit differently than OIC settlement amounts.

In this dialogue we will talk about the repayment plans and guide you decide which design is best suited for you.

Guaranteed Installment Agreement

The guaranteed installment agreement plan is available only if your owed balance is less than $10,000 and your installments will pay in full your total Internal Revenue Service debt within three years. The Irs has to consent to this type of plan if you fit the requirements.

The Streamlined Installment Agreement Option

The streamlined installment agreement option is available if your balance owed is not greater than $25,000 and you consent to pay in full your total debt balance within the period of 60 months. The total balance takes into consideration your principal tax liability, plus interest and penalty accruals for each tax year you have a balance.

Calculating The Monthly Payment Installments

To determine the lowest amount the Irs will permit per month, divide the full amount you owe, including the interests and penalities, by 50. The result will show the base amount that must be paid. The last 10 months of the 60-month payment plan is set aside for interest. If you do not have sufficient disposable monthly income to allow for a 5-year payment plan, you could qualify for a partial pay plan instead.

Installment Agreement Partial Payment Plans

A partial pay installment agreement is a plan that makes concessions for you to pay only what you can afford to pay on a per month basis, even if the amount is under what the Internal Revenue Service typically accepts on an installment agreement. You must make payments for the remainder of the period the Internal Revenue Service can legally collect debt, which may be a period of time extending more than five years. And when the collection statute of limitations arrives at its expiration date, any balance which remains is essentially written off by the Irs. This plan is a partial payment installment agreement as you will never pay the full of the debt balance you owe.

Collection Statute of Limitations

You or your power of Attorney may contact the IRS and request the Collection Statue Expiration Date (CSED) for each balance-due period. A statute for collection exists in each tax year you have a tax debt balance. The statute begins when you file your tax return, or upon the date in which a principal tax balance is assessed, whichever is the more recent. The statue will usually end within 10 years, however, there are certain instances when a collection statute can extend passed 10 years.

Determining Payments

The partial pay installment agreement is determined by your disposable income on a monthly basis, which is the amount of money you have left each month after your expenses are paid. Determine your disposable monthly income by the number of months that remain on your collection statute to calculate the full amount you are going to be responsible to pay the Irs over time. For example, if disposable income is $100 and the duration of time remaining on the collection statute is two years, you will pay $2,400 in total towards the tax liability. The remainder is uncollectable by the Irs. Though, you have to make these payments in set installments so you cannot offer the total amount in a single payment.

Financial Verified Installment Agreements or Non-Streamlined Installment Agreements

The financially verified or “Non-Streamlined” installment agreement is available when your balance due is over $25,000 or where the repayment period exceeds 60 months. This agreement must be negotiated with the Irs. Full financial disclosures must be provided to the Irs. Your monthly payment amount is determined by your full-picture financial situation, and the Irs could potentially require you to liquidate assets in order to reduce the balance due.

Rules that Apply to the Installment Agreement Plans

Whichever type of payment you request, some general rules apply for retaining and obtaining an installment contract.

Oic Rejection Period

Usually, you are going to have to wait at least a period of 60 days after the date stamped on your OIC rejection letter to be able to request an installment agreement. During this 60-day period, your file is coded as an Offer case in the Irs system to allow for your legal right to repeal the OIC rejection. Internal Revenue Service agents are not able to change the status of your case to mark it as an installment agreement.

Staying Compliant and Current

Once you are on an installment agreement, then you must remain current and compliant with the determined payment calendar and new tax obligations. This means that if you are on the installment agreement, you have to meet all installment pay dates in full and on time, file all future tax returns according to the schedule, and pay any new balances on time and in full.

Failure to comply with these stipulations will cause your payment plan to default and open you up to additional IRS collection measures.

A Change in Financial Circumstance

If your financial circumstances change and this change stymies you from meeting your scheduled installments. Request a corresponding adjustment to your monthly installment payment.

If this change to your finances is anticipated to endure over a months period, you can proceed. Such examples of qualifying financial changes are: divorce, a reduction in income, a loss of income, the addition of a dependent, or an increase in regular living expenses. The Internal Revenue Service requires documented proof of this change in your financial statements.

A full-pay installment agreement may convert to a a partial pay plan if changes to your finances warrant such a change. Installment agreements are generally easier to arrange with the Internal Revenue Service and demand less desk work than an OIC application procedure. This installment agreement option offers a an alternative to an Offer In Compromise rejection.

View the OIC Guide at Seattle Business Valuation

Redmond CPAAbout Redmond CPA
Redmond 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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