An installment agreement is a payment plan that allows you to repay outstanding taxes plus penalties and interest to state and federal taxing authorities. You can choose from a number of payment agreements:
You can set up an agreement that will only end up paying part of the bill you have, known as a partial pay agreement. Or select a streamline installment agreement that allows you to pay your bill within either five or six years.
If you have other debt that will be paid off within a few months or a few years, you can set up an agreement that will allow you to pay a smaller monthly amount up front and then increase it when other debts become paid off over time. This is known as a tiered agreement.
Another option is the full pay agreement for taxpayers who are unable to pay the amount in full within five or six years, but can pay an amount that will allow the tax bill to be paid within the collection time period the IRS has by law (usually 10 years).
Offer in Compromise
An offer in compromise is a settlement option with state and federal taxing authorities. This is the option you often hear advertised on the radio or television and is commonly incorrectly referred to as a “pennies on the dollar settlement.” There are rules and regulations in place that govern if a taxpayer qualifies for an offer in compromise and how much you can settle your tax debt for using an equation.
If you qualify for an offer in compromise and one is accepted, you are essentially on tax probation for a period of five years before you are fully clear of the tax bill.