You can use the Internal Revenue Service’s form 433-D if you are a business owner with no delinquent employment taxes or if you are an out-of-business sole proprietor. What is 433-D? It’s your basic installment agreement. But you can’t just file it. As with all IRS red tape, there are a few forms to file before you are approved for installment payments.
Why You May Need to File a 433-D Installment Agreement
If you’re still in business and fighting collections, all is not lost. You may still be able to file a 433-D in certain cases. Those revenuers, aka, the powers-that-be, will review individual cases and let you know if you can file. If approved, the IRS will send out a notice alerting you to submit Form 433-D during the collection process.
Now back to those other forms you must file first
Buckle your seatbelts, we’ll make life easy. First, you must file form 9465 which is the actual request to file an installment agreement. If you’ve filed the 9465 form, the IRS will already have viewed your already filled out form 433-A or form 433-F. Those forms will have your financial information on them.
It is only when your information has been reviewed and approved that you can finally fill out and submit IRS 433-D. Okay, enough forms and numbers, let’s get to the T & A. That’s terms and agreements, not the other colloquialism.
Understanding 433-D’s terms and agreements
Most people groan at fine print legalese, so we’ve made the Terms and Agreements section of the 433-D agreement easy to digest. Once you complete and submit the 433-D, the taxpayer—that’s you—agrees to these (layman’s) terms:
What are your liabilities? Once you file 433-D, the agreement will remain in effect until you pay off what you owe—in full—including penalties and interest. If the statute of limitations (the length of time you can legally pay your debt) expires, this agreement will no longer be in effect.
Currently, the statute of limitations for the IRS to collect your debt is 10 years, although it can be extended. If your installment agreement is terminated, you will receive written notice from the IRS prior to the termination.
Making the payments. The IRS expects payment by the due date. That’s the monthly due date on the agreement. If you can’t make your payment as scheduled, contact them immediately if not sooner.
If your ability to pay changes. If your current financial condition changes, this agreement may change accordingly. Your current financial condition does not mean your current financial situation. Situations can change by the day. Your financial condition is longer-term. That’s the difference between getting a $1000 rebate one week and getting a new long-term contract the next.
You have to provide updated financial information whenever it is requested. This updated information may mean either a modification of or a termination of the 433-D agreement if your financial condition has significantly changed.
You still must file Federal returns. In other words, you have to pay what you owe, when you owe it, even with this agreement in effect. Don’t blow it off and try to “fix it” by waiting to see if you can add it to the collections under your installment agreement.
Don’t look for a federal tax refund. Uncle Sam will apply any federal tax refunds or overpayments to your balance, including the shared responsibility payment under the Affordable Care Act. However, this has been reduced to zero for your 2019 taxes under the Tax Cuts and Jobs Act which took effect on December 31, 2018.
Your federal tax refund offset will continue each year until your debt is marked paid in full or until the mandatory collection period has expired.
Do I pay the $225 or $43 user fee? User fees are the fees that the IRS collects to provide a service. It is legal and it is the law. User fees are reviewed every couple of years. Currently, the IRS will deduct a $225 user fee from your first installment payment unless you qualify as low-income. Low income is defined as at or below 250 percent of the Federal poverty guidelines. If you qualify, your user fee’s reduced to $43. Direct debit users pay $107.
Why do auto-debit agreements get a break? Auto-debits make for less paperwork, right? That’s why you get a reduced fee. The $43 user fee will be waived if you agree to send your payments electronically. You have to fill out the Direct Debit section of 433-D with your banking information before you turn in your agreement.
If you’re low-income and don’t have access to direct debit, you will get your $43 back after you fulfill your installation plan obligations. See the Debit Payment Self-Identifier on page 1 and Form 13844 for qualifications and instructions. Yes, another form. But in the case of a refund, that’s okay.
What happens if you default on your installment agreement?
Default’s an ugly word that implies, well, fault. If you don’t pay as agreed, you’re subject to the rest of 433-D’s terms and agreements section.
The not so bad
- There’s an $89 reinstatement fee if you default on your installment agreement. If the IRS decides to reinstate the agreement, they have the authority to deduct this fee from your first payment (or payments) after 433-D’s reinstated.
- The IRS will apply all payments on this agreement as they see fit to be in the best interests of the United States. Usually, this means that they will apply the payment to the oldest collection statute—normally the oldest tax year or tax period. This is so your agreement keeps within the statute of limitations discussed earlier.
The not so good
- Your installment agreement can be terminated if you don’t make monthly installment payments as agreed; you don’t pay any other federal tax debt when due, or if you don’t provide financial information when requested.
- Lien on me. The IRS may collect the entire amount you owe if they terminate your agreement—EXCEPT the Individual Shared Responsibility Payment under the ACA. This means that the IRS can levy your income, bank accounts or other assets you hold. They can also seize your property.
This means that the IRS may file a Notice of Federal Tax Lien if one has not been filed previously. Tax liens are public information and can negatively impact your credit rating. One bright lining is that they cannot file a Notice of Federal Tax Lien with respect to the individual shared responsibility payment under the ACA.
The bottom line
If the IRS finds that the tax collection’s in jeopardy, they can terminate the installment agreement which may require managerial approval. In any case, they will notify you of approval or disapproval. The federal tax filing deadline has been extended to July 15 due to COVID-19. If you owe more than $25,000 in taxes or collections, it may be in your best interest to file an IRS Form 433-D installment agreement. It can be filed by phone, fax, or snail mail. Filing may keep your business lien-free.