Installment agreements and offers in compromise are two of the most common ways for taxpayers to resolve their outstanding tax liabilities. An installment agreement is a written agreement between you and a tax agency (i.e., the IRS, FTB, EDD, or BOE) that allows you to pay a tax liability over time through scheduled periodic payments. An offer in compromise is different in that if it is accepted by the agency, it allows you to pay a specified amount to conclusively settle assessed tax liabilities, plus penalties and interest, for less than the amount owed.

With the exception of partial payment installment agreements, installment agreements are entered into with the understanding that the tax liability, plus penalties and interest, will be paid in full. An installment agreement, unlike an offer in compromise, does not reduce the balance due. On the contrary, an installment agreement actually has the effect of increasing the total amount due, because penalties and interest continue to accrue during the duration of the agreement, until the balance is paid in full.

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Installment agreements and offers in compromise both have significant advantages and disadvantages.  The major advantages to an installment agreement are that it allows you to pay outstanding liabilities in manageable amounts over a period of time and, for many cases, the process of entering into an installment agreement is usually very simple and costs less in legal fees. Some major disadvantages are that penalties and interest continue to accrue until the liability is paid, and the monthly payments necessary to pay the balance due may be burdensome for some taxpayers.  Additionally, in some cases the process of obtaining an installment agreement is somewhat more complex, requiring that you provide a financial statement (either a Form 433-A, Collection Information Statement for IndividualsForm 433-B, Collection Information Statement for Businesses, or Form 433-F, Collection Information Statement) detailing your assets, income and expenses.

While it is important to understand the relative pros and cons of installment agreements and offers in compromise, the decision to proceed with one option instead of the other should be based primarily on a thorough analysis of your outstanding tax liability, your ability to pay that liability, and any special circumstances that may affect the resolution of your case.

What is the IRS Installment Agreement Process?

The process of entering into you into an installment agreement can be relatively simple, or complex, depending on your financial situation and desired payment amount.

Request Process:

Requesting Installment Agreement and Negotiation Period:

Can I Appeal a Rejected Installment Agreement Request?

Most likely. Except for a very small number of cases, the agencies have the discretion to accept or reject any proposed installment agreement. A proposed installment agreement is not rejected until the agency notifies you or our office of the rejection, the reason for rejection, and the right to an appeal. However, before notifying you of the rejection, the agency generally submits the case to an independent administrative reviewer, who makes a separate determination of whether the rejection is appropriate.

If the reviewer sustains the rejection, the agency notifies you of the rejection, the basis for the rejection, and the specific amounts and conditions for acceptance of the installment agreement request.  Once a proposed installment agreement is rejected, you will generally have only a few days to appeal the decision.

What Happens After my Installment Agreement Secured?

Why McLaughlin Legal?

McLaughlin Legal is a boutique San Diego tax law firm who defends taxpayers in all types of civil and criminal tax litigation and controversy matters.  McLaughlin Legal is dedicated to three core principals:

1. Personalized2. Specialized3. Committed

The tax attorneys at McLaughlin Legal are qualified and experienced in all types of tax law matters, including negotiating installment agreements.  The combination of our personalized service, concentrated area of practice, and client commitments separates McLaughlin Legal from other firms.

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If you are interested in learning more about installment agreements, please feel free to contact us today for a free consultation.