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IRS Payment Plan Guidelines

There are some instances where the IRS is willing to accept a payment arrangement from taxpayers who owe IRS back taxes. However, there are guidelines to follow before payments are accepted. For instance, you:

  • Should file all tax returns even if you owe money
  • Must disclose assets such as bank accounts and cash on hand
  • Cannot have enough cash in various accounts such as a checking, savings, brokerage or money market that could satisfy the tax debt
  • Cannot have borrowing capacity from other sources such as taking out a second mortgage
  • Cannot have IRAs, 401(k)s or any other retirement account with equity that you can either liquidate or borrow

Generally, the amount of IRS back taxes that you owe will dictate how payment negotiations are handled. For example, if you owe less than $25,000 an IRS revenue officer will not handle your case. To determine your eligibility for an acceptable payment plan, you will need to complete a personal financial statement and a business financial statement if you own a business that is included in your tax debt.

Your monthly expenses are usually separated from your financial capacity to pay the past due tax debt. The IRS has an allowable amount for individuals, which is matched against your monthly living expenses. Generally, your monthly payment to the IRS, which continues until the debt is satisfied, represents the difference between your monthly earnings and allowable expenses.

Note that penalties and interests will continue to accrue as you make monthly payments. As a result, your outstanding balance increases.

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