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It is always easiest to file your returns on time and pay as much of the balance due as possible, but those that cannot pay in full are not out of options. Changes the IRS has made over the past two years have made it easier for taxpayers to qualify for alternative payment programs. Ignoring a tax bill is never a good option, and options should provide a good incentive for taxpayers to work with the IRS to resolve past due taxes.

The IRS allows you to enter into a monthly payment plan; the IRS also has the authority to settle the tax, penalties, and interest by negotiating an offer in compromise. This is a contract between the taxpayer and the government to settle the tax debt for less than the full amount owed. The IRS changed the rules governing installment agreements, making it easier to qualify for an installment agreement if the taxpayer owes $50,000 or less.

An installment agreement allows the taxpayer to pay the tax debt in monthly payments, if certain prerequisites are met.

  1. All required tax returns must have been filed.
  2. The taxpayer must also be up to date with all current year tax obligations.
  3. To stay in compliance, you must pay on time all other taxes while agreement is in effect.

The amount of money you owe to the IRS determines what form you will need to file to request an installment agreement.

  • If you owe $50,000 or less you will need to file a Form 433-F, Collection Information Statement, to report your financial information to the IRS.
  • If you owe less than $50,000 but more than $25,000, and you can fully pay your debt, you should call the IRS or apply online to request the option to pay in full. If you cannot pay in full in that time from you should file a Form 9465-FS.
  • If you owe less than $25,000, you should file a Form 9465, Installment Agreement Request with the IRS.
  • If you owe $10,000 or less, the IRS cannot reject your request if you meet the requirements to guarantee an installment agreement.
    • During the past five years, you have timely filed all income tax returns and paid all income taxes without entering into an installment agreement.
    • You must agree to pay the full amount owed within three years and comply with all filing requirements and payment of tax while the agreement is in effect.

Keep in mind that you will still have to pay any interest and penalties that the IRS assesses on the past due balance, but these are much better alternatives to ignoring the bill. If you owe the IRS taxes, there are options for ways to pay it back that can most likely meet your needs. For more information on ways to pay past due tax liabilities, contact your accountant today.