Is an IRS Installment Agreement Worth It?
In many cases, an IRS installment agreement is worth it. The answer depends on the taxpayer’s current and likely future financial status, as well as the amount of money owed. In a nutshell, an installment agreement lets taxpayers reduce their tax debt via monthly payments instead of lump sum payments, making stressful situations more manageable.
However, nothing is free. IRS installment agreements have emotional and financial costs that sometimes exceed the benefits.
Because of these complexities and uncertainties, a Chicago bankruptcy lawyer should always examine installment agreement proposals before taxpayers sign on the dotted line. If an attorney gets involved earlier, that’s even better. Attorneys are good negotiators who know what the IRS wants in terms of monthly payments. This combination often produces results that exceed your expectations.
Installment Plan Advantages
Immediate relief from aggressive IRS collection agencies is one of the biggest advantages of an IRS installment agreement. The IRS collection process is truly brutal. Annoying “Dear Taxpayer” letters and credit or property liens are just the beginning. Next comes wage garnishment and bank account levy. Unlike private debt buyers, the IRS doesn’t need a court order for these things.
Once the agreement is approved and you stay compliant, the IRS generally stops, or at least suspends, these actions. This peace of mind alone makes an installment agreement worthwhile for many people who are already under financial pressure. Peace of mind is in very short supply in these situations.
Furthermore, an IRS installment agreement provides a structured plan, allowing taxpayers to budget more predictably instead of scrambling to come up with a large lump sum.
We should also mention accessibility. As mentioned, a taxpayer usually doesn’t need a Chicago bankruptcy lawyer to get on the installment plan. IRS agents practically rubber-stamp installment agreements for a wide range of taxpayers, including individuals, self-employed workers, and small businesses.
For people who don’t qualify for more comprehensive relief options, such as an Offer in Compromise, an installment agreement, which is there for the asking in most circumstances, could be just what the doctor ordered.
As a bonus, many agreements can be set up online, sometimes without speaking to an IRS representative, reducing stress and saving time.
Disadvantages of an IRS Installment Agreement
Now for the bad news. IRS installment agreements aren’t free. The IRS charges setup fees, which vary depending on how you apply and whether you qualify for a reduced fee. Furthermore, while IRS installment agreements suspend collection activities, these agreements don’t suspend the accrual of interest and penalties.
It may be a good idea to declare bankruptcy on some taxes or accelerate monthly payments, to pay the debt off faster.
Another important drawback is the long-term commitment. You must stay current on all future tax filings and payments while the agreement is in place. Missing a payment or failing to file a return usually puts taxpayers in default, which is a very bad place to be. So, for people with unstable income, this ongoing obligation can become difficult to maintain.
The Bottom Line
An installment agreement is most “worth it” for taxpayers who truly cannot pay their tax bills in full (as opposed to those who don’t want to pay them in full) and have enough consistent income to make monthly payments.
However, an IRS installment agreement usually isn’t worth it if the debt is small, if you can pay it off faster by other means (e.g. liquidating part of an IRA), or if alternative relief programs are available.
Contact a Savvy Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.
Source:
irs.gov/newsroom/what-if-i-have-requested-an-installment-agreement
