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BACK TAXES AND TAX DEBT

The new IRS payment plan for people who owe large tax debts: non-streamlined installment agreements

Jim Buttonow, CPA, CITP

SVP Post-Filing Tax Services

Updated on: July 11, 2022

During the COVID-19 IRS shutdown, the IRS got kinder to people who owe a lot of tax debt. The IRS announced a new payment plan that now allows people who owe up to $250,000 to pay on easier terms. The best feature of this new payment plan is that it is easy to set up with the IRS.

However, there’s one catch: The new non-streamlined installment agreement (NSIA) requires the IRS to file a public Notice of Federal Tax Lien against the taxpayer. (With one exception: NSIAs for 2019 balances don’t require the IRS to file a tax lien.)

We'll go into more detail later about this new plan for large tax bills. First, let's take a look at other IRS payment plans for different amounts of tax debt.

IRS payment plan options

A monthly IRS payment plan called an installment agreement has always been a popular option for people who can’t pay their tax bills. According to IRS data from the previous two years, almost 3 million taxpayers set up IRS installment agreements.

If you owe $50,000 or less, try for a streamlined installment agreement

The IRS has simple payment terms for taxpayers who owe less than $50,000, called a streamlined installment agreement (SLIA). This option will work for most people. According to IRS statistics, 88% of individual taxpayers owe less than $25,000 to the IRS. SLIAs are a good fit for tax bills under $25,000, and because of that, they’ve been the most popular IRS payment plan for years, traditionally representing almost 7 out of 10 payment plans.

There are a few requirements to set up a SLIA:

  • You must pay your total tax bill within 72 months, or by the collection statute of limitations expiration date, whichever is shorter.
  • Your tax bill can be up to $50,000.
  • You must have filed all required tax returns.
  • You can avoid a tax lien if you set up a SLIA before the IRS files the tax lien. One other important term: The IRS isn’t required to file a lien, but a revenue officer may decide to do so. You can set up a SLIA using the IRS online payment agreement tool or by calling or writing the IRS.

One other advantage of SLIAs is that you don’t have to give the IRS extensive documents disclosing your financial situation. Typically, people who owe more than $50,000, or can’t meet the SLIA terms, have to provide detailed financial information to the IRS to set up any type of agreement to pay.

Many people set up SLIAs just to avoid financial disclosures and the tax lien. If you owe more than $50,000, you can still get into a SLIA if you can pay your balance to under $50,000.

If you owe more than $50,000, there are other options

For people who owe more than $50,000, the options get more complicated. In the past, if you owed between $50,000 and $100,000, and could pay off your debt in 84 months or within the collection statute (whichever is longer), you wouldn’t get many questions from the IRS.

Taxpayers who owed more than $100,000 faced financial disclosure of their assets, income, and expenses to the IRS. The IRS would use the financial information to figure out their ability to pay by selling off or borrowing against assets and/or making monthly payments. These ability-to-pay agreements often took months to complete, and the financial disclosure and analysis were extensive for taxpayers and the IRS.

The new non-streamlined installment agreement

The NSIA, introduced in March 2020, is actually more like a SLIA, because it allows people who owe up to $250,000 to get into an agreement without financial disclosure, if they can pay their full tax bill before the collection statute of limitations expires. The new plan allows more favorable payment terms and avoids the back-and-forth paperwork between the IRS and taxpayers.

The NSIA extends the time to pay and the amount taxpayers can owe, while avoiding detailed financial disclosure. The NSIA comes with one disadvantage: The IRS will file a tax lien.

NSIA terms and conditions

The NSIA is simple to execute, but you must know the terms and conditions. NSIAs have higher dollar limits and potentially longer periods to pay, if the collection statute is farther off than 84 months.

  • You must be an individual taxpayer to set up an NSIA. Businesses do not qualify for the NSIA.
  • Your assessed balance can be up to $250,000. Your assessed balance is the amount you owe when the IRS calculates your tax bill from your tax return or makes another type of adjustment. The assessed balance doesn’t include failure-to-pay penalties or interest accrued after the original assessment. You must be able to pay the total balance, including penalties and interest, before the collection statute expires under the terms of the agreement, but you can qualify based only on your assessed balance.
  • You can’t set up an NSIA if you are assigned to the IRS Collection field function (meaning, you have a revenue officer). When you have a revenue officer, you have to go through financial disclosure. You and your revenue officer would determine payment arrangements based on your ability to pay with assets and/or monthly payments.
  • You don’t have to use your assets to pay down the balance you owe with an NSIA. Like the SLIA, the NSIA doesn’t require you to borrow against or sell your assets, because you will pay your full tax bill before the collection statute expires.
  • You must be able to pay your full tax bill before the collection statute expires. The IRS collection statute is 10 years from the date of assessment (although it can be extended for certain actions). Your monthly payments will be set up to pay off your full tax bill before the collection statute expires.
  • The IRS will help you figure out the payment amount. The IRS will figure out your payment amount, so that you can pay your full tax bill before the collection statute expires.
  • You need to call or write the IRS to get the agreement. You can’t set up an NSIA online. In the future, it may be possible to set it up online, but right now, you’ll need to contact the IRS.
  • You may need to pay by direct debit to avoid financial disclosures. IRS officials have indicated that direct debit payments aren’t required for NSIAs. However, if you have a history of defaulted agreements (missed payments or new balances owed and unpaid), the IRS may ask you to set up automatic draft payments from your bank account. You can use Form 433-D to set up direct debit payments. When setting up the payment by phone, you can fax the signed and completed Form 433-D to the IRS representative to set up the agreement.
  • If you have a history of defaulting on IRS agreements, you may have to provide limited financial information. This limited financial disclosure occurred in an IRS pilot program preceding the new NSIA, for taxpayers who defaulted on prior agreements. In our experience, the IRS did not universally adhere to this procedure, and often allowed the agreement for taxpayers with prior defaults without requiring more financial disclosure.
  • The IRS will likely file a Notice of Federal Tax Lien. This is a condition of the NSIA. If you want to avoid a tax lien, consider paying down your assessed balance to under $50,000 and setting up a SLIA.

One important note to individuals with high amounts of tax debt

If you owe an assessed balance of more than $1,000,000 and don’t have an agreement with the IRS (like a payment plan, currently not collectible status, an extension to pay, or an offer in compromise), procedures require the IRS to assign you a revenue officer to handle your case.

In these cases, you have no option but to set up an agreement based on your ability to pay. Your revenue officer will look at how you can pay your tax bill in the quickest way possible—which may include selling your assets.

The good news is that individual taxpayers who owe up to $250,000 now have an easier path to an IRS payment plan. If your financial circumstances change, you can always renegotiate the terms of the agreement based on your ability to pay.

For help creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

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