However, there is one catch: the new “non-streamlined installment agreement” or “NSIA” requires the IRS to file a public Notice of Federal Tax Lien against the taxpayer. (With one exception: NSIAs for 2019 balances only do not require the IRS to file a tax lien.)
IRS payment plan options
A monthly IRS payment plan called an “installment agreement” has always been a popular option for taxpayers who cannot pay their tax bill. According to IRS data from the previous two years, almost 4 million taxpayers obtained IRS installment agreements.
The IRS has simple payment terms for taxpayers who owe less than $50,000 called a “streamlined installment agreement” or “SLIA.” This option will work for most taxpayers. According to IRS statistics, 88% of individual taxpayers owe less than $25,000 to the IRS. SLIA’s have been the most popular IRS payment plan for years. Almost 7 out of 10 payment plans use SLIA terms.1
The SLIA requires the taxpayer to pay their total amount due within 72 months or the balance of the collection statute of limitations, whichever is less. It is available for assessed balances of $50,000 or less and can be easily obtained using the IRS online payment agreement tool or by calling/writing the IRS. Taxpayers must have filed all tax returns that are due before entering into an SLIA. The good news for taxpayers is that they can avoid a Notice of Federal Tax Lien if they execute the SLIA before the IRS files the tax lien. One other important term: a lien determination is not required but may be made at the discretion of the revenue officer.
One other advantage of SLIAs is that taxpayers do not have to make a vigorous financial disclosure to the IRS in order to obtain the terms. Normally, taxpayers who owe more than $50,000 or cannot meet the SLIA terms have to provide detailed financial information to the IRS in order to set up any type of agreement to pay.
Many taxpayers take the SLIA route just to avoid financial disclosure and the tax lien. If a taxpayer owes more than $50,000, they can still get into the SLIA if they can pay their balances down to under $50,000.
For taxpayers who owe more than $50,000, the options get more complicated. In the past, if the taxpayer owed between $50,000 and $100,000, they could pay their debt off in 84 months or the collection statute (whichever is longer) without many questions from the IRS. Taxpayers who owed greater than $100,000 faced financial disclosure of their assets, income, and expenses with the IRS. The taxpayer’s financial information would be used to negotiate their “ability to pay” through asset liquidation and/or monthly payments. These ability to pay agreements often took months to complete, and the financial disclosure and analysis process were a heavy burden on both the taxpayer and the IRS.
In 2017, the IRS conducted a pilot program for individual taxpayers who owed between $50,000 and $100,000 called the “expanded installment agreement” or “84-month payment plan.” The expanded installment agreement (“EIA”) allowed taxpayers who owed the qualifying amount to enter into an 84-month payment plan without financial disclosure. However, the taxpayer had to agree to payments by direct debit. Obtaining an EIA also meant that the taxpayer had a Notice of Federal Tax Lien filed at their locality.
The EIA was good for the IRS and the taxpayer. It allowed more favorable payment terms (pay within 84 months or before the collection statute of limitations- whichever is less) and avoided the back and forth paperwork between the IRS and the taxpayer. This “streamlined” process allowed taxpayers to get into this payment plan quickly and saved the IRS from a considerable amount of hours processing, approving, and accepting payment plans for taxpayers who owed between $50,000 and $100,000.
In March of 2020, the EIA was eliminated. Fortunately, it was replaced with more favorable terms known as the new “non-streamlined installment agreement” or “NSIA.”
The new non-streamlined installment agreement (“NSIA”)
The NSIA is actually more like a “streamlined” agreement in that it now allows taxpayers who owe up to $250,000 to provide no financial disclosure if they can pay the amount owed before the collection statute of limitations expires.
The NSIA broadens both the length to pay as well as the amount that a taxpayer can owe to avoid a detailed financial disclosure process with the IRS. Like the EIA, the NSIA also comes with one disadvantage: the IRS will file a Notice of Federal Tax Lien.
NSIA terms and conditions
The NSIA is simple to execute, but you have to know the terms and conditions. They work in a similar manner to the EIA. NSIA’s have higher dollar limits and potentially longer periods to pay if the collection statute is longer than 84 months (as was the case in the prior 84-month agreement).
- The taxpayer must be an individual: Businesses do not qualify for the NSIA. This was true for the EIA.
- The taxpayer must have an “assessed balance” up to $250,000 owed to the IRS: The assessed balance is the amount at the time the tax return or additional adjustment is calculated, and it does not include accruals of interest and the failure to pay penalties after the original assessment. The total assessed and accrued balance must be paid before the collection statute expires under the terms of the agreement, but the qualification is only based on the assessed amount.
- The taxpayer must not be assigned to the Collection Field function (i.e. Revenue Officers): Taxpayers will have to go through financial disclosure when assigned to a revenue officer. The revenue officer and the taxpayer will determine payment arrangements based on the taxpayer’s ability to pay with assets and monthly payments.
- The taxpayer does not have to use available assets to pay down the balance owed: Similar to the expanded IA and the streamlined IA, the NSIA does not require that the taxpayer liquidate assets because they will fully pay before the statute expires.
- The taxpayer must pay before the collection statute expires: The IRS collection statute is 10 years from the date of assessment (though it can be extended for certain actions). The agreed payment amount will account for full payment before the statute of limitations to collect expires.
- The IRS will help the taxpayer determine the payment amount: IRS collection personnel will determine the payment amount in order to fully pay before the statute expires. IRS representatives have a tool they can use to estimate the required amount to pay that will fully satisfy the liability, including projected accrued interest and penalties.
- The taxpayer must call or write the IRS to get the agreement: This agreement cannot be made online. The taxpayer must contact the IRS directly to set up this agreement. In the future, it may be possible for taxpayers to set up this agreement online, but that is not currently an option.
- The taxpayer may be requested to pay by direct debit to avoid financial disclosure reporting to the IRS: IRS officials have indicated that direct debit payments are not a requirement. However, if the taxpayer has a past history of defaulted agreements (i.e. missed payments or new balances owed and unpaid), the IRS may request that the taxpayer set up their payments to be automatically drafted from their bank account. Taxpayers can use Form 433D to set up these direct debit payments. When setting up the payment on the phone, the taxpayer can fax the signed, completed Form 433D to the IRS representative to set up the agreement.
- An IRS manager must approve the agreement: NSIAs require a manager to approve the agreement.
- Prior payment plan defaults may require more financial disclosure: Taxpayers who have had prior installment agreements and have defaulted on these agreements will likely need to provide some limited financial information before the NSIA is allowed. This limited financial disclosure occurred on the old EIA terms if there was a prior default. In our experience, the IRS did not universally adhere to this procedure and often allowed the EIA with prior defaults without additional financial disclosure.
- The taxpayer will have a Notice of Federal Tax Lien filed: This is a condition of an NSIA. If a taxpayer wants to avoid the tax lien, they should consider paying down the assessed balance to under $50,000 and getting into an SLIA.
One important note to high tax debt individuals: If you have an assessed balance of more than $1,000,000 and are not in a current agreement with the IRS (payment plan, currently not collectible, extension to pay, offer in compromise), IRS procedures require the taxpayer to be assigned to a local field collection officer (revenue officer) for enforcement. In these cases, the taxpayer has no option but to set up an agreement based on their ability to pay. In these cases, the revenue officer will look to have the taxpayer pay the amount owed in the quickest manner. This may include liquidation of assets.
The good news is that individual tax debtors who owe up to $250,000 now have an easier path to an IRS payment plan. If the taxpayer’s financial circumstances change, they can always renegotiate the terms of the IRS collection agreement based on their ability to pay. For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.
1 See IRS, Small Business/Self-Employed Division, Collection Activity Report (CAR) No. 5000-6 for fiscal years (FYs) 2018 and 2019, which shows that streamlined installment agreements accounted for 70 percent of all installment agreements in these two years.