Setting up an Installment Agreement with the IRS can be one of the simplest things to do. It can also be one of the hardest.
If your balance is below $25,000 (and even $50,000, as you will see below), then the formula is basic. This is considered a “Streamline” agreement in IRS speak. The IRS will expect your total balance divided over 6 years (72 months). This is the minimum monthly payment amount. Of course, you can pay it off sooner than 72 months, which is recommended to cut down on penalties and interest. If you can't pay the minimum monthly payment amount, then you will need to provide financials (the 433-F IRS form, plus supporting documentation, which will vary depending on your circumstances).
If you owe less than $50,000, it is pretty much the same. The only difference is that the IRS throws in an incentive under the “Fresh Start” program to get you to debit your monthly payments from your checking account. By meeting the minimum monthly payment amount, you can prevent liens from being filed by the IRS. If you already have liens filed, then the IRS will release them after three direct debit payments out of your account.
Many people do not know what a lien actually does, they often get it confused with a levy or a garnishment. A levy is when the IRS goes in and takes money from your bank account, and a garnishment is when they start taking money from your paycheck. A lien functions much differently. A lien is basically the IRS securing its interest in your property (i.e., real estate). A lien is filed in the public county records where you reside. This gives other creditors notice that the IRS has priority in proceeds from your property. One of the biggest issues is a lien adversely affects your credit. So, not having a lien filed or getting one released is a big deal.
If you owe more than $50,000 to the IRS, then things can get tricky. The IRS will require you to provide financial information to them. The IRS will then look at the information, and deduct your expenses, to see how much you can pay them a month. This number can be $8,000, or it can be $100. The monthly payment amount has nothing to do with how much you owe, it is strictly based on how much you can pay. The IRS will only allow your expenses up to its national standards, which can be found at IRS.gov, except for special circumstances. If you feel that the IRS is asking you to pay more than you can afford, then it is a good idea to consult with a tax professional.
If you owe more than $250,000, then chances are your case will be assigned to a field revenue officer, who will pay you a visit at your home or business. In theory, all cases where the individual taxpayer owes more than $250,000 are supposed to go “in the queue” for a revenue officer to work, but it doesn't always happen. If your case is assigned to a revenue officer, and they are threatening you, you should seek a tax professional to help you out.
The information above is not to be construed as legal advice. If you need legal advice, please contact an attorney. The information above is general information, and may not be specific to your situation.