Q We just filed delinquent 2023 tax returns and we owe the IRS $8,000 that we do not have. Can we make a deal with the IRS to pay them off monthly over time?

A A guaranteed installment agreement is available and must be accepted by the IRS if an individual has a tax liability of $10,000 or less, not including penalties and interest. To get the guaranteed installment agreement, the taxpayer (and spouse, if filing jointly) must have timely filed his or her tax returns. Also, for the previous five years, the taxpayer must have paid their taxes and not have entered into an installment agreement. If qualified, the tax liability must be paid in full within three years or the collection statute expiration date, whichever is earlier. The CSED is normally 10 years but may be suspended or extended for various reasons.

A streamlined installment agreement may be used by an individual or business. To qualify, the taxpayer’s assessed liability must be (1) $25,000 or less for an individual, in-business taxpayer with income tax only or out-of-business taxpayer; or (2) $25,000 to $50,000 for an individual or out-of-business sole proprietorship, but only if the taxpayer agrees to pay by direct debit or payroll deduction. The liability must be paid within 72 months or the CSED, whichever is earlier.

For a taxpayer with $100,000 or less in combined tax liability, interest and penalties, an interactive Online Payment Agreement application is available on the IRS website for requesting an installment agreement.

An individual may qualify for a short-term payment plan up to 180 days. There is no fee for the short-term plan, but interest and penalties continue to accrue until the liability is paid in full. If a taxpayer is unable to use the short-term option, the taxpayer can request the IRS to permit making monthly installment payments using Form 9465, Installment Agreement Request. The IRS may also request various financial information from you (monthly income and expenses, assets and liabilities, etc.) and may charge a user fee for this process.

Before requesting an installment agreement, you should consider other less costly alternatives, such as a bank loan. You will be charged interest and may be charged additional late payment penalties on any tax not paid, even if your request to pay in installments is granted.

Since you indicated that you did not timely file your 2023 tax returns, you will not qualify for a guaranteed installment agreement and may need to file a Form 9465 to request relief. I hope the above helps and good luck!

Barry Dolowich is a certified public accountant and owner of a full service accounting and tax practice with offices in Monterey. He can be reached at (831) 372-7200. Please address any questions to Barry at PO Box 710 Monterey, CA 93942-0710 or email: bdolowich@gmail.com