It is possible to get an IRS installment agreement to repay your taxes without ever disclosing where you work, what car you drive, what your house is worth, or even what you can actually pay.
No IRS Form 433A, Form 433B or 433F. No application of the IRS Collection Financial Standards that can put a cap on your living expenses.
The IRS calls these payment plans direct debit installment agreements. Sometimes, they are also referred to as streamlined installment agreements.
No managerial approval is required with direct debit installment agreements, and the IRS probably will not even file a tax lien against you and damage your credit if you qualify.
But qualifying for a simple IRS plan of resolution with the direct debit installment agreement is not always so simple.
The IRS bases qualifications for the direct debit installment agreement on a technical term called your “assessed balance.”
An assessed balance is what you originally owed the IRS when you filed your return.
Your assessed balanced has to be under $50,000 to qualify for the direct debit installment agreement. That begs the question: What is my assessed balance?
Here’s how the IRS calculates your assessed balance:
When you filed your return, the IRS made a bookkeeping entry on its books for the amount of tax you owed. This entry is called an assessment.
At the same time, the IRS probably charged you penalties. These penalties could be for not paying your tax on time when you filed the return, for filing the return late, or not making estimated tax deposits.
When you file your return, the IRS will add a bookkeeping entry calculating the amount of penalties you owe at that time. This is also an assessment.
The IRS will also make a calculation of any interest you owe on the unpaid balance when your return is filed, and place that amount on its books as an assessment.
Most penalties are charged over time. For example, the late fling penalty is calculated at 5% for every month the return is filed late, maxing out at 25%. The late payment penalty is 1/2 of 1% per month, maxing out at 25%. Interest also continues to accrue over time after the initial assessment.
Both the penalties and interest will continue to grow in an amount that is more than what was assessed when you filed your return. After assessment, the IRS will continue to charge you for the penalties and interest. The continued compounding of penalties and interest after the initial assessments are made are called accruals.
With our definitions (assessment and accruals) out of the way, let’s pull this all together.