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Arranging a Payment Plan with the IRS for Your Business

Both individuals and small business owners get into situations when they can't pay their tax debt all at once. Fortunately, the Internal Revenue Service (IRS) is willing to set up payment arrangements for cash-strapped taxpayers. Business owners have a few additional criteria that must be met, including:

  • Self-employed individuals must be current on the current year's quarterly estimated tax payments
  • Companies with employees must be current on Form 941 filings and payroll tax deposits

It is important to consider all of your options for paying your outstanding tax bill before entering into a payment arrangement with the IRS. You still accrue interest of eight to 10 percent per year and must pay all penalties associated with the tax debt.

Qualifications Needed to Enter into a Payment Plan with the IRS

Fresh Start, a tax relief program that was instituted in 2011, increased the threshold from $25,000 in unpaid taxes to $50,000 to qualify for a payment plan. Individual and business taxpayers who meet this threshold do not have to provide financial information in order to qualify. The plan also changed the time required to pay from 60 months to 72 months. You can't be delinquent on your current year's taxes and still apply for a payment plan for previous years.

Negotiating a Monthly Payment You Can Afford

Small business owners who owe more than $50,000 and require more than six years to pay it must complete Form 433-A entitled Collection Information Statement. An IRS agent must approve payment plans for delinquent taxes at this threshold. While the final monthly payment amount is at the discretion of the IRS, there are three ways you can influence the decision:

  • Make a list of your expected business income and expenses over the next year and propose a payment that fits into it without straining your company budget. You need to show good faith that you are not spending money on extravagant or unnecessary items for your business.
  • Even though you are anxious to put this debt behind you, never offer to pay more each month than you can truly afford. It is difficult to get payment plans changed after approval by an IRS agent.
  • Start making payments before your payment plan is even approved. This demonstrates your good intentions to the IRS.

It may take several months for the IRS to notify you in writing that your payment plan has been approved.

Make Payments Easier with Direct Debit

It is easy to forget to mail in a payment each month with all that you have to as a business owner. You can avoid this problem by having your monthly tax payment debited directly from your business checking account on the same date each month. You just want to be certain to record the transaction in advance to ensure you have the funds to cover it.

Reasons the IRS Can Revoke Your Payment Arrangement

Both you and the IRS are legally bound by the payment arrangement once it has been approved. However, the arrangement does have a clause guaranteeing cancellation in the following circumstances:

  • You provided incomplete or inaccurate information on your payment plan application
  • You fail to make a scheduled payment for 30 to 60 days
  • You incur new delinquent taxes or fail to file a tax return after entering into a payment arrangement
  • There is a significant change to your financial situation, for either better or worse

Additional Fees for Establishing a Payment Arrangement with the IRS

As of 2013, the IRS charges the following fees to set up a payment plan on your behalf:

  • One-time fee of $52 if you agree to direct debit from a business bank account
  • One-time fee of $105 if you choose to mail you payments
  • You may qualify for a reduced fee if your business income meets a certain level