IRS Installment Agreement for Small Businesses: Payment Plans for Tax Debt

IRS installment agreement options:

1. Guaranteed installment agreement (individuals only):

• Balance owed: $10,000 or less (excluding interest and penalties)
• Requirement: ability to pay within 3 years
• No financial disclosure required
• The IRS must grant this if: all returns are filed, no installment agreement in the prior 5 years, and the taxpayer agrees to timely compliance going forward

2. Streamlined installment agreement:

• Individuals: balance owed $50,000 or less, payable within 72 months
• Businesses: balance owed $25,000 or less (Form 941, 940, 943, 944, 945 liabilities), payable within 24 months. Must enroll in the Electronic Federal Tax Payment System (EFTPS) for direct debit.
• No financial disclosure required (no Form 433-B)
• Apply online (IRS.gov/OPA), by phone, or with Form 9465

3. Non-streamlined installment agreement:

• Balance owed exceeds streamlined thresholds
• Requires Form 433-B (Collection Information Statement for Businesses) or Form 433-A (for individuals)
• The IRS analyzes income, expenses, assets, and equity to determine the payment amount
• Monthly payment = (total income - allowable expenses) / remaining collection statute months
• The collection statute is 10 years from assessment (IRC 6502)

4. Partial payment installment agreement (PPIA):

• The monthly payment is less than needed to pay the full balance within the collection statute
• Used when the taxpayer can’t afford the full payment
• The IRS reviews the agreement every 2 years to determine if the taxpayer’s financial situation has improved
• The remaining balance after the collection statute expires is written off

Key terms:

• Interest: continues to accrue during the installment agreement (currently approximately 7% annually)
• Failure-to-pay penalty: reduced from 0.5% per month to 0.25% per month during an active installment agreement
• Federal tax lien: the IRS may file a Notice of Federal Tax Lien for balances over $25,000, even with an installment agreement. This is a lien on the business’s assets, not a levy (seizure).
• Default: missing a payment, failing to file a required return, or incurring new tax liability can default the agreement. The IRS sends a Notice of Intent to Terminate (30-day cure period).