Navigating the murky waters of IRS payment agreements.

• Author: Allen, Susan C.

Many practitioners are likely to have several clients that owe back taxes to the IRS. Increased salary and bonus, a better capital gain year, more self-employment income, and repercussions of the Patient Protection and Affordable Care Act, P.L. 111-148 (e.g., owing a portion of an advance premium tax credit), are some common reasons. Whatever the reason, clients often find themselves owing Uncle Sam and are unable to immediately pay the debt. They need help from their CPA to set up a payment arrangement--often turning to a monthly payment plan.

Installment agreements are the most commonly requested and received IRS payment arrangement. Taxpayers make monthly payments (usually by direct debit or payroll deduction). The IRS charges a setup fee of $120 ($52 if a client makes payments by direct debit and $43 for low-income taxpayers). Interest and late-payment penalties continue to accrue during the installment period, but the late-payment penalty is cut in half for any month an installment agreement is in effect (thus making the installment agreement a viable money-saving option for most clients).

To set up an installment agreement, taxpayers or their representatives may call the IRS, use the IRS's Online Payment Agreement (OPA) tool, or file Form 9465, Installment Agreement Request. (See Internal Revenue Manual (IRM) [section]5.14.1, Exhibit 5.14.1-5, for a table that fists the types of installment agreements and the conditions under which the IRS will generally approve each plan.)

This item outlines the pros and cons of each method as well as other tips for practitioners to navigate the often-murky waters of IRS payment agreements.

OPA Tool

The OPA tool allows qualified taxpayers (and representatives) to request an installment agreement online and receive immediate notification if the agreement is accepted. The process takes about 30 minutes. Using this tool is often quicker than calling the IRS, especially as call-wait times to the Practitioner Priority Service fine can vary from a few minutes to well over an hour.

Taxpayers must meet certain requirements to use the tool. An individual taxpayer must owe $50,000 or less in combined tax, interest, and penalties, and all required returns must be filed. A business taxpayer must owe $25,000 or less in combined tax, penalties, and interest for the current year or previous year's liabilities, and all required returns must be filed. When the OPA tool is not an option, the taxpayer or representative...