IRS installment payment fees. (Photo: Pixabay)

If approved, the IRS’s revised schedule of fees would go into effect on January 1, 2017. (Photo: Pixabay)

The Internal Revenue Service has issued proposed regulations that would increase the fees for entering into an installment arrangement for paying taxes. The proposed change would also offer a new set of fees for taxpayers who set up an installment agreement via the IRS’s website. The new fees would take effect for installment agreements entered into on or after January 1, 2017.

Section 6159 authorizes the IRS to enter into an agreement with any taxpayer for the payment of tax in installments to the extent that the agency determines that entering into the installment agreement will facilitate the full or partial collection of the tax. Installment agreements are voluntary, and taxpayers may request an installment agreement in person, online, by telephone, or by completing the appropriate forms and mailing them to the IRS.

The agency currently charges three rates for installment agreements. The user fee, in general, is $120 for an installment agreement. The user fee is reduced to $52 for a direct-debit installment agreement, which is an arrangement whereby the taxpayer authorizes the IRS to request the monthly electronic transfer of funds from the taxpayer’s bank account to the IRS. The user fee is $43 notwithstanding the method of payment if the taxpayer qualifies as “low income.” A low-income taxpayer is an individual who falls at or below 250% of the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the US Department of Health and Human Services (Reg. § 300.1).

Under Reg. § 300.2, the IRS currently charges $50 for restructuring or reinstating an installment agreement that is in default. An installment agreement is deemed to be in default when a taxpayer fails to meet any of the conditions of the installment agreement. Currently, there is no exception to this fee for low-income taxpayers.

Fee Change as of January 1, 2017

Under the new proposed regulations, the following fees would be charged for installment agreements:

  • Regular Installment Agreements: A taxpayer contacts the IRS in person, by phone, or by mail and sets up an agreement to make manual payments over a period of time either by mailing a check or electronically through the Electronic Federal Tax Payment System (EFTPS). The proposed fee for entering into a regular installment agreement on or after January 1, 2017 would be $225 (Prop Reg § 300.1(b)).
  • Direct-Debit Installment Agreements: A taxpayer contacts the IRS by phone or mail and sets up an agreement to make automatic payments over a period of time through a direct debit from a bank account. The proposed fee for entering into a direct-debit installment agreement on or after January 1, 2017 would be $107 (Prop Reg § 300.1(b)(1)).
  • Online Payment Agreements: A taxpayer sets up an installment agreement through an Online Payment Agreement application on IRS.gov and agrees to make manual payments over a period of time either by mailing a check or electronically through the EFTPS. The proposed fee for entering into an online payment agreement on or after January 1, 2017 would be $149 (Prop Reg § 300.1(b)(2)).
  • Direct-Debit Online Payment Agreements: A taxpayer sets up an installment agreement through an Online Payment Agreement application on IRS.gov and agrees to make automatic payments over a period of time through a direct debit from a bank account. The fee for entering into a direct-debit online payment agreement on or after January 1, 2017 would be $31 (Prop Reg § 300.1(b)(2)).
  • Restructured/Reinstated Installment Agreements: A taxpayer modifies a previously established installment agreement or reinstates an installment agreement on which the taxpayer has defaulted. The proposed fee for restructuring or reinstating an installment agreement on or after January 1, 2017 would be $89 (Prop Reg § 300.2(b)).
  • Low-Income Rate: A rate that applies when a low-income taxpayer enters into any type of installment agreement, other than a direct-debit online payment agreement, and when a low-income taxpayer restructures or reinstates any installment agreement. The definition of low-income taxpayer would not be changed from that in the previously existing regulation. The low-income rate would remain at $43. The fee would be $31 when the taxpayer pays by direct debit from the taxpayer’s bank account with respect to online payment agreements entered into on or after January 1, 2017 (Prop Reg § 300.1(b)(3)).