Making monthly payments to the IRS is the least beneficial resolution that the IRS offers. However, it is still far better than collections. There are a variety of installment plans available based upon your debt amount and some other factors, but one plan is available regardless of the amount you owe: a payment arrangement based upon affordability that we call a financial based payment plan.
What is it?
So what exactly is a financial based installment plan? It is a payment plan the IRS has where the monthly payments are based upon reasonable disposable income. Defining disposable income is the trick. The IRS provides reasonable and necessary living expenses based upon the quantity of people in your household as well as the county you reside in. By providing proof of your expenses, you can cut down on the amount of disposable income you show to the IRS. However the IRS definition of expenses are not true expenses, but instead reasonable and necessary expenses. Therefore, some true expenses you may have might not be credited towards your disposable income.
For Who?
This type of payment plan is not for the persons that qualify and can afford other resolutions with the IRS. If an offer in compromise, currently not collectible, or streamlined payment plan is available, those might be better choices. However, if you owe more than $250k to the IRS, this is your only choice for a payment plan. If you owe less, and the streamlined or collection expiration date calculations result in a monthly payment you cannot afford, this could be your alternative best payment plan option as it should be determinative based upon your true affordability.
Downsides
There are a lot of negatives with this resolution. It is truly based on affordability. If you owe $300k to the IRS and it shows you can afford $5k a month in payments, then that is your payment plan. It also takes a lot of work to get there in providing all the proof necessary to reduce your disposable income, which generates a lot of deadlines, phone calls, and faxes. You also most likely will not be assigned to one person at the IRS, and therefore will have to repeat a lot of information to the particular agent on the phone at that time.
While the financial based payment plan has its benefits, it should not be the best first choice to make. Be sure to consult a professional to help with that determination, and if necessary, with establishing the right resolution for your situation. Give us a call 800-822-4122 to learn your options.