Unable to pay? Installment agreements are viable options.

Installment agreements may be viable options for taxpayers who find they cannot pay their tax liabilities, and recent developments should make them more accessible.

Sec. 6159 and Internal Revenue Manual Section 5331.1 authorize and direct the IRS to enter into written installment payment agreements with any taxpayer if the Service believes that such an agreement will facilitate the collection of a taxpayer's liability. To encourage taxpayer compliance through the use of installment agreements, the IRS recently streamlined its installment payment plan process and expanded its authority for granting installment agreements to different IRS functions.

In IR-93-25, the Service announced its adoption of a streamlined monthly payment plan process. Taxpayers who cannot pay their tax bill in full will now be able to request payment agreements when they file their returns. This is a significant policy change; in the past, taxpayers could not request payment agreements until they had filed and received bills from the IRS. Taxpayers who cannot pay in full and desire an installment agreement have been instructed to attach new Form 9465, Installment Agreement Request, to the top of their returns. Form 9465 is available by calling the Service toll-free at 1-800-TAX-FORM. The IRS has stated that it will respond to such a request within 30 days.

Taxpayers who do enter into installment payment plans will still be liable for interest (currently 7%) and possibly late payment penalties (0.5% per month on any unpaid amount) unless reasonable cause can be established (applicable to penalties only). Thus, before requesting an installment agreement, taxpayers should consider other alternatives, such as obtaining funds from other sources.

In Manual Transmittal 7(10)00-180, the Service also expanded the authority to grant installment agreements to all IRS functions, including appeals; collection; employee plans and exempt organizations; examination; problem resolution program; returns processing; and taxpayer service. This expanded authority applies both to assessed and preassessed accounts, including taxpayers who state that they are unable to pay when their returns are filed.

According to the Manual Transmittal, multifunction installment agreement authority is limited to individual accounts, certain corporate accounts and out-of-business sole proprietor accounts with an aggregate unpaid balance of assessment of no more than $100,000. Streamlined procedures have also been adopted for accounts with an aggregate unpaid balance of assessment of up to $10,000 ($25,000 for overseas accounts). For accounts under $10,000, a taxpayer will not be required to complete financial statements and, if the taxpayer adheres to the payment schedule, the IRS will not file a Federal tax lien against the taxpayer.