Have a Tax Question? Ask a Tax Expert
Yes! If you're not financially able to pay your tax debt immediately you can make monthly payments through an installment agreement.(However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full.) You should also call the number shown on your tax bill to communicate with the IRS, telling them that you can't pay and that you would like an installment agreement. (note that they may deny this request if they deem you financially able to pay)
How to apply for the installment agreement:
Complete and mail Form 9465, Installment Agreement Request (PDF). If you owe more than $25,000, you will also need to complete Form 433-F, Collection Information Statement (PDF).
To keep your account in good standing:
Will they put a lien on the house if you are on an installment plan?
Although the IRS will refrain from levy action against bank accounts and wages, or seizing taxpayer property, the IRS may file a federal tax lien to secure compliance with the installment payment arrangement. The IRS views a tax lien as a "passive" collection device because it does not cause the immediate seizure of taxpayer property.
The expert above is absolutely correct regarding the liens but is should be noted that the IRS will probably only file a tax lien on your property if you have defaulted on your installment agreement. See page 2 of Form 9465 instructions - "If you do not make your payments on time or do not pay any balance due on a return you file later, you will be in default on your agreement and we make take enforcement actions, such as the filing of Notice of Federal Tax Lien, or an IRS levy action, to collect the entire amount you owe."
Form 9465 Instructions - http://www.irs.gov/pub/irs-pdf/i9465.pdf
The IRS may file the lien just to secure their interest.(as mentioned by the other expert) "Even if you set up an installment agreement, we may still file a Notice of Federal Tax Lien to secure the government's interest until you make your final payment." See the link here - http://www.irs.gov/taxpros/article/0,,id=99090,00.html
If you can pay the liability off within 120 days there is no need to apply for an installment agreement.
I have not seen the IRS file a federal tax lien when a taxpayer is in good standing on his/her installment agreement. Perhaps the other expert, Robin D, has, and could provide her opinion on this matter.
Good luck and let us know if you have any further questions.
My colleague has provided the following response.
Yes - filing the tax lien is very common. Especially for those with tax debts above $25,000. Regardless of installment agreement.
Installment agreement will prevent the levy or enforcing the tax lien but will not prevent the tax lien itself. The purposes of the lien - to protect the government's interest in taxpayer's assets.
For those with the debt amount above $100,000 - the IRS normally requires to sell some assets.
So it sounds like the IRS will more likely than not file the lien.