An installment agreement allows you to make payments over time, rather than paying in a single sum. The process is similar if you can pay the taxes due within six months. Send a partial payment using Form 1040-V and then wait for the IRS to send you a letter informing you how much you owe, including interest and late fees. The IRS examines the taxpayer's situation on a case-by-case basis and, in some cases, may allow the taxpayer to retain part of the capital of their assets and establish a partial payment plan.
Partial payment plans are difficult to come by because the IRS is basically waiving the full balance due. The agency is likely to approve your payment plan if it pays off your tax debt in six years or less. The IRS will continue to impose penalties and interest for late payments until the date you pay in full. The IRS charges a fee for setting up tax payment plans, which is in addition to the amount of the obligation.
However, the IRS doesn't like to wait long to get the funds and, generally, payment plans are only granted in circumstances where the taxpayer can establish a payment plan to pay the balance due, plus applicable penalties and interest within five years or before the expiration of the Collection Act (CSED) due date, whichever comes first. When you apply for a payment plan (installment agreement), with certain exceptions, the IRS is generally prohibited from charging and the IRS deadline for collecting is suspended or extended while an installment agreement (IA) is pending. Payment options include full payment, a short-term payment plan (payment in 180 days or less), or a long-term payment plan (installment agreement) (monthly payment). It should also be noted that the taxpayer can establish a payment plan while a year is being reviewed or audited.
If the new amount of your monthly payment doesn't meet the requirements, you'll be asked to change the amount of the payment. The IRS prefers this method and will ensure that payments come directly from the taxpayer's bank account, rather than the taxpayer having to worry about sending payments manually to the IRS. The IRS will require that the taxpayer be up to date with all payments for the current year and that they have filed all outstanding returns. If you don't qualify for a payment plan through the online payment agreement tool, you may still be able to pay in installments.
Completing your tax return is already stressful, but it can be even worse to realize that you owe money to the IRS when you don't have the cash available to pay a lump sum. Partial payment plans basically recognize that, sometimes, it is not economically feasible for a taxpayer to pay the full balance due and, instead, they create a method to pay as much of their back tax liability as possible without putting them in financial difficulties and without the IRS resorting to adverse collection activity.