CTRS Installment Agreements and Payment Plans Flashcards

What is the federal funds rate relationship to IRS interest on underpayments?

Answer: IRS interest on underpayments is the federal short-term rate plus 3 percentage points, compounded daily

Under IRC §6621, the underpayment interest rate is the federal short-term rate plus 3 percentage points, adjusted quarterly and compounded daily.

What is the failure-to-pay penalty rate and how does it interact with an installment agreement?

Answer: 0.5% per month up to 25% of the unpaid tax, reduced to 0.25% per month while an IA is in effect

The failure-to-pay penalty is 0.5% per month (up to 25% maximum), but it is reduced to 0.25% per month once an installment agreement is approved and in effect.

What is a 'full pay' installment agreement and when is it typically required?

Answer: An IA structured to pay the entire liability before the CSED expires, often required when the RCP equals or exceeds the full balance

A full pay IA is structured to fully satisfy the liability before the CSED expires; the IRS typically requires this when the taxpayer's RCP indicates they can afford to pay the full amount over time.

Can business entities (corporations, partnerships, LLCs) use the Streamlined Installment Agreement?

Answer: Yes, businesses can use a Streamlined IA for income tax balances up to $25,000 payable within 24 months

Businesses (non-sole proprietor entities) may use a Streamlined IA for income tax balances up to $25,000 payable within 24 months, which is a lower threshold and shorter term than the individual Streamlined IA.

What notice must the IRS send before terminating an existing installment agreement?

Answer: A 30-day notice (CP523) informing the taxpayer of the intent to terminate and their right to appeal

The IRS must send CP523 (Intent to Terminate Your Installment Agreement) giving the taxpayer 30 days to cure the default or appeal the termination.

What is the maximum term for a non-streamlined (financially verified) installment agreement for an individual?

Answer: The IRS can grant an IA term up to the remaining CSED period, which can be up to 10 years

For non-streamlined IAs that require financial disclosure, the IRS can grant payment terms up to the remaining CSED period, which can be close to 10 years depending on when the taxes were assessed.