If you’ve tried to apply for an Installment Agreement but were denied, you may be scrambling to know why your IRS installment agreement was denied. How can you prevent your installment agreement from being denied in the future? Read on to learn all about this topic.
Why an IRS Installment Agreement Gets Denied
An IRS installment agreement can be denied for a variety of reasons, including failing to file taxes, submitting incomplete or incorrect information, a history of noncompliance, or being currently in an active collection status.
What Is an IRS Installment Agreement?
An IRS installment agreement is a payment plan that allows taxpayers to settle their tax debt over time (in installments) instead of paying it in full. An installment agreement is designed for those who can’t pay tax debts in full, to help manage tax debts more effectively, temporarily pause collection actions, and ease the financial burden.
There are two main types of installment agreements: Short-term and long-term plans.
A short-term plan requires individual taxpayers to pay their debts within 180 days. Furthermore, qualified taxpayers must owe less than $100,000 (including interests and penalties) and have filed all required tax returns.
A long-term installment agreement enables taxpayers to pay the balance owed monthly for more than 180 days. It also requires taxpayers to owe less than $50,000 (including interest and penalties) and to have filed all required tax returns.
Within the long-term agreement, there are two subtypes: a streamlined plan and a non-streamlined agreement.
A streamlined plan is the most common and easiest to qualify for, with no detailed financial statement required and available online. A non-streamlined or partial installment agreement, on the other hand, is eligible for those owing more than $50,000 or when taxpayers can’t pay in full within the collection period.
How the IRS Decides If You Qualify
In deciding whether to approve or deny your application for an installment agreement, the IRS will first look at your compliance history. Those with a history of good compliance are more likely to have their applications approved. For example, having filed all required tax returns and being current on this year’s filings and withholding.
Second, the IRS will assess taxpayers’ ability to pay. This is done by checking the documentation you must submit with your application.
These documents include Form 433-F or Form 433-A for more detailed cases. The IRS calculates taxpayers’ ability to pay by subtracting necessary living expenses from their monthly income. Assets will also be considered.
The result is a determination of a reasonable monthly payment amount that ensures full payment before the collection statute expires.
Top Reasons Your IRS Installment Agreement Was Denied
1) You have unfiled tax returns
Your request for an installment agreement will almost always be denied if you haven’t filed tax returns, as this is the core eligibility requirement under IRS guidelines for payment plans.
These unfiled tax returns can include prior-year returns that haven’t been submitted and returns that were filed but not processed. This can occur right after filing season, when processing backlogs build up.
2) Your payment amount was too low (does not meet IRS minimums)
Upon applying, taxpayers will be instructed to enter the amount of payment to be made during the agreement. If the amount doesn’t meet IRS minimums or your proposed monthly payment is insufficient to pay the full balance (including accruing penalties and interest) within reasonable timeframes, the IRS will be denied as it doesn’t adequately ensure collection.
3) You requested the wrong type of plan for your balance
One of the most essential factors in getting your application successful is fully understanding the different types of installment agreements. Many applications are denied because the agreement taxpayers are trying to apply for isn’t eligible for their situation.
The IRS has strict rules for installment agreements based on the total amount owed. For example, applying for a streamlined plan that requires debt of less than $50,000 and a balance that exceeds the threshold will often result in denial.
4) The IRS could not verify your information
During the application process, the IRS will review and verify your information. If Incorrect or missing information is found, such as incorrect bank details, outdated info, or typos, the IRS can deny your request for an installment application.
5) Your account is not in “good standing” with the IRS
Not in good standing with the IRS means you’re not in full compliance. For example, if you’re not current on all tax obligations, including unfiled returns, failing to make required current-year estimated tax payments, improper withholding, or having ongoing noncompliance issues, your application will be denied based on a core eligibility barrier.
6) You are currently in active collection status
An active collection status means the IRS has already initiated steps such as liens and levies. While a pending installment agreement request pauses collection actions, an existing active collection status may block approval.
7) You owe more than you think due to penalties, interest, or additional balances
When calculating debts, many taxpayers ignore accruing penalties and interest (which can quickly increase the total debt) and instead just focus on the original tax amount shown on their return.
This can lead to an incorrect total owed, resulting in failing to meet eligibility limits and having an installment agreement denied.
8) You did not respond to an IRS request for more information
During an installment agreement application process, such as during a review, the IRS often asks for additional documentation or clarification. Failing to provide the additional information within the specified timeframe (usually 30 days) will result in automatic denial.
What to Do Next If Your Installment Agreement Was Denied
The next step after your installment agreement is denied is critical if you want another chance at approval. Prevent a recurrence by completing all requirements and following best practices:
- Fix compliance issues first
The first step should always be dealing with the root cause. Fix compliance issues, as this is the core eligibility for approving any payment plans. Identify the issue in your denial notice and prepare all required documentation for the specific compliance issue before submitting another request.
- Reapply with a realistic payment plan
After correction, apply for a new payment plan realistically and using the appropriate method.
Propose a higher monthly amount that meets IRS minimums (typically up to 72 months or the remaining time before the CSED expires), recalculate based on your verified total owed (including penalties/interest via IRS online account or transcripts), and choose direct debit to reduce fees and increase approval chances.
- Provide financial documentation if required
If the IRS requests additional documentation, do so within the deadline given. Complete the documentation accurately to prevent incorrect or missing information that could result in another denial.
- Consider alternative IRS resolution options
If you don’t qualify for an installment agreement, explore other resolution options, such as an Offer in Compromise (settle for less), or Currently Not Collectible status (temporary hardship delay if payments would prevent basic living expenses).
These other options can also pause collection actions, provided eligibility is maintained.
- Act quickly to reduce collection risk
Dealing with tax issues requires acting swiftly. Waiting or ignoring a response is highly risky, as it can result in the authority to proceed with collection actions if taxpayers continue to fail to meet their tax obligations.
As soon as you receive the IRS notices or letters, respond promptly and appropriately.
How Greenberg Law Group, P.A. Helps After an Installment Agreement Denial
Greenberg Law can assist in determining the true basis for the refusal, so we know exactly what not to do next. We also assist in developing a strategy that complies with IRS regulations and your actual budget, ensuring that the next application is accurate and on target for your specific scenario. Moreover, whenever communication with the IRS is required, we can represent you, ensuring all communications are clear and comply with the applicable rules. And lastly, we help protect you from aggressive collection practices that could be detrimental to your finances and future.
When it comes to dealing with tax issues, don’t wait any longer to resolve them. The longer you wait, the worse it’ll get. Contact Greenberg Law Group today, and let us help you address your tax concerns effectively and appropriately.