What is the Six Year Rule for Repayment of Tax Liability?

8 November 2015
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Streamlined Installment Agreements

When the IRS negotiates with a taxpayer to establish a payment plan, the length of time over which you propose to pay them, can make a great deal of difference to the outcome. In a majority of the cases, taxpayers that don’t owe the IRS more than $50,000 may be able to work out a repayment plan with little or no financial analysis and no substantiation of expenses.

Simplified Requirements (addressing only Income Tax Liability):

1. The aggregate unpaid balance of assessments (the SUMRY balance) is $50,000 or less. The unpaid balance of assessments includes tax, assessed penalty and interest, and all other assessments on the tax modules. But, it does not include accrued penalty and interest; and

2. The minimum payment amount is determined by dividing the SUMRY balance by 72. The IA must resolve all balances due prior to the expiration of the Collection Statute Expiration Date (CSED) .

But, what if you don’t meet the standard for streamlined installment agreements? In cases where taxpayers cannot full pay and do not meet the criteria for a streamlined agreement, they may still qualify for the six-year rule. The time frame for this rule was increased in 2012 from five years to six years.

The Six Year Rule for Repayment of Tax Liability

Collection Financial Standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The six-year rule allows for payment of living expenses that exceed the CFS, and allows for other expenses, such as minimum payments on student loans or credit cards, as long as the tax liability, including penalty and interest, can be full paid in six years. Taxpayers must complete and submit an IRS Collection Information Statement (IRS Form 433-F), but do not have to provide substantiation of reasonable expenses.

If you think you are going to need more than six-years to repay the IRS, prepare for a hard time. The CFS will be applied and the IRS will review your financials with a fine tooth comb. What you think may be reasonable is unlikely to meet the IRS standards. While their are exceptions that allow the IRS to deviate from those standards, they will be slow to agree to do so.