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Payment Plans for Tax Debts

Both the IRS and Franchise Tax Board (FTB) allow taxpayers to repay their tax obligations through a structured installment agreement over time when a lump sum payment is not financially viable. In order to qualify for a payment plan, taxpayers must disclose personal financial information to the tax authority. Not everybody is approved, however, for those who qualify, installment agreements can help repay the tax debt over time.

What do I Need to Submit in Order to Qualify?

In order to qualify for a payment plan with the IRS, the taxpayer must complete Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals. Form 433-A is a comprehensive document that requires taxpayers to self-report their financial information, including income, assets, expenses, and liabilities. Accurate and complete reporting is imperative as Form 433-A serves as the foundation for the IRS’s assessment of your ability to adhere to the terms of the proposed installment agreement. Often, bank statements and paystubs have to be submitted with the Form 433-A to substantiate the amounts listed. The IRS will review your Form 433-A, and possibly make additional inquiries, and then will either reject your request or approve your request.

Similarly, California taxpayers struggling to repay their tax debt to the Franchise Tax Board can use FTB Form 3561C to apply for an installment agreement. Like Form 433-A, FTB Form 3561C considers your assets, liabilities, monthly income, and expenses to determine whether an installment agreement is necessary and the proposed monthly payment amount. Once the Form 3561C is submitted, the FTB will review the information provided to determine if your proposed plan aligns with their criteria for financial viability and will either approve or deny your payment plan request.

Once the payment plan request is approved, you must not accrue any additional liability as accruing a new debt will default the payment plan and you will need to begin anew. Both the IRS and FTB, will generally file tax liens to secure their interests once the payment plan request is approved unless the repayment period meets certain thresholds.

What Else Should I Know?

Form 433-A and Form 3561C are complex and require a deep dive through your personal finances in order to complete the application accurately. The accuracy and thoroughness of the information provided on these forms directly influences the approval process. To ensure the best possible chance of being approved, it is common to seek professional assistance from a tax attorney. A tax professional can guide you through the nuances of these forms to ensure all necessary details are accurately provided. Additionally, there are standard amounts that are allowed, which a tax professional can maximize to your benefit.

If you are struggling to pay your taxes and believe an installment agreement may help you address your debt with the IRS and/or FTB, the experienced team at Hone Maxwell LLP is here to help. The seasoned tax attorneys at Hone Maxwell can assist you in completing these forms, ensuring their accuracy, and help pave the way for a more secure financial future.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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