Most tax debt is not settled. It is paid over time. A payment plan, which the IRS calls an installment agreement, is the arrangement under which the government agrees to accept monthly payments and, in exchange, stops levying wages and bank accounts.
Plans sound simple, and the smallest ones are. Larger balances, business taxes, and balances that cannot realistically be paid in full involve choices about the kind of plan, whether to disclose finances, whether a lien will be filed, and how the plan interacts with the government’s deadline to collect. Those choices are where representation earns its fee.
This article follows a payment plan in the order it progresses, for both the IRS and the Franchise Tax Board.
The Kinds of Plans
- Streamlined plans. For balances under the agency’s threshold, a plan that pays the balance within a set number of years is granted without a financial statement. The IRS and the FTB each set their own thresholds.
- Plans based on ability to pay. Above the threshold, or when the balance cannot be paid within the time allowed, the government reviews a financial statement and sets the payment based on your ability to pay.
- Partial payment plans. When the payment you can afford will not pay the balance before the IRS’s time to collect expires, the IRS can accept a plan that pays less than the full amount, reviewed periodically.
- Business plans. An operating business with payroll tax debt has its own, stricter rules, including proof that current deposits are being made.
- Currently not collectible. Not a plan, but an alternative. If you cannot pay anything, the IRS can place the account on hold, with no payments. Penalties and interest continue to run, but so does the statute of limitations on collection. See our collection hold guide.
Evaluation
Matching the balance, the time left to collect, and your budget to the right plan.
The balance and the clock
The IRS generally has ten years from assessment to collect a tax debt, and the FTB has twenty. We confirm the exact dates for each year owed, because they decide whether a full-payment plan is required, whether a partial plan is possible, and whether an offer in compromise would be the better route.
The budget
We work out what you can actually pay each month, using the government’s published expense standards where a financial statement will be required. A plan set higher than the budget allows will default, and a defaulted plan is harder to replace than the first one was to get.
Penalties and interest
Both continue during a plan, though the IRS failure-to-pay penalty is reduced by half while an agreement is in effect. Penalty relief is requested separately, and we request it in every case where the facts support it.
Compliance
Meeting the condition the government imposes before it will agree to anything.
No agency grants a plan to a taxpayer with unfiled returns. The first step in many engagements is preparing and filing the missing years, which also replaces the government’s own estimated assessments with the correct figures. Going forward, withholding or estimated payments must be enough to cover the current year, because a new balance at filing time defaults the plan.
Financials
Presenting your finances when the government requires them.
The financial statement
Above the streamlined thresholds, the agency requires a financial statement: assets, debts, income, and expenses, with bank statements and pay stubs attached. The same expense standards used for offers apply here, and the same care is needed to show why an expense above the standard is necessary.
What the statement decides
The statement sets the monthly payment. It also tells the agency whether you have assets it would expect you to borrow against or sell first. We prepare it knowing that both questions will be asked.
The Request
Negotiating the terms, stopping enforcement, and dealing with the lien.
How the request is made
Small plans are requested online or by phone. Larger ones go through a collection representative or an assigned revenue officer, in writing and with the financial statement. When a revenue officer is assigned, the tone of the case is set in the first exchange, and we handle that exchange.
Levies and garnishments
A pending plan request generally stops new levies, and an approved plan ends an existing wage garnishment or bank levy. When a levy is already in place, our first call is about releasing it, and the plan follows.
A federal tax lien is a public filing against everything you own, and it may affect credit and the sale or refinance of a home. For many plans the IRS will not file one if the plan is set up by direct debit and the balance is within its limits. Where a lien has already been filed, a plan can sometimes be structured to have it withdrawn. We raise the lien in every negotiation, because the agency will not raise it for you.
The FTB
The FTB grants plans on its own terms, usually shorter than the IRS’s, and requires a financial statement sooner. Once the FTB has issued a wage garnishment, it is not released. It can only be modified to the agreed monthly amount, so the plan payment comes out of the paycheck. Only two things stop it entirely: a bankruptcy filing, or an approved hardship finding. A taxpayer who owes both agencies needs two plans that fit inside one budget, with the payments divided in proportion to the balance owed to each agency. We set them up together.
The Plan Years
Keeping the agreement in force until the balance is paid or the clock runs out.
Your obligations
- Make every payment on time. Direct debit removes the most common cause of default.
- File every return on time and pay the current year in full.
- Tell the agency, or us, before a payment will be missed.
When circumstances change
A plan can be modified when income drops, and a payment can be skipped in a genuine emergency if the agency is told in advance. A plan that has defaulted can usually be reinstated once, and the agency sends notice before it terminates. We treat that notice as urgent, because after termination the levies may resume.
The end of the plan
The plan ends when the balance is paid or, in a partial payment plan, when the government’s time to collect expires and the remaining balance is written off. Either way, the lien is released.
Payment Plan, Offer, or Hold?
| Option | Best when | Result |
|---|---|---|
| Payment plan | You can pay the balance, or a meaningful part of it, over time. | Levies stop; balance paid monthly; penalties and interest continue. |
| Offer in compromise | What the government could collect is well below what you owe. | Balance settled for the offer amount; five years of compliance. |
| Currently not collectible | You cannot pay anything now without hardship. | No payments; collection on hold; reviewed periodically. |
Tax debt that qualifies can also be discharged in bankruptcy, which is explained in our Chapter 7 and Chapter 13 guides.
What It Costs
A streamlined plan is a flat-fee engagement. Plans that require a financial statement, a revenue officer, or a levy release are quoted after we have seen the notices and the balance. Both agencies charge a setup fee, lower for direct debit, and the IRS reduces or waives its fee for low-income taxpayers.
- The most recent notices from the IRS and the FTB, including any levy or lien notice
- A list of years for which returns have not been filed
- Three months of bank statements and recent pay stubs
- A list of monthly living expenses
- Any payment plan or correspondence you already have with either agency
Gregory Grigoryants is a California attorney (State Bar No. 286804) who has represented individuals, families, and business owners in bankruptcy, debt collection defense, and tax resolution matters for more than 13 years. He practices from offices in Sherman Oaks and Beverly Hills and speaks English and Russian.