Tax Law ✦ Installment Agreements & Hardship
A Payment You Can Live With, and the Levies Stop.
When the balance cannot be paid at once and an offer in compromise is not realistic, an installment agreement or hardship status is how the IRS and the Franchise Tax Board are held off. The terms are negotiable, the agencies’ own financial standards control, and the collection statute of limitations is the most important number in the room. North Star Law Firm negotiates plans built around that date, not around the first number the collector proposes.
The Short Answer
Yes, you can pay over time. The question is how much, for how long.
Both agencies will accept a monthly payment, and both stop levy action once an agreement is in place. What the collector proposes is usually the highest payment your financial statement could theoretically support. What the law requires is a payment computed under the agency’s own allowable-expense standards, and it is often far lower. Where even that payment is impossible, the IRS can place the account in currently-not-collectible status and the FTB can grant a hardship deferral, both of which stop collection while the balance simply sits. And because the IRS has only ten years to collect, a plan that runs past that date is a plan the IRS will never fully collect.
- IRS streamlined agreements: balances to $50,000 over 72 months with no financial statement
- Non-streamlined and partial-pay installment agreements (I.R.C. § 6159) from a full financial statement
- Currently-not-collectible status while the ten-year collection statute (I.R.C. § 6502) runs
- FTB installment agreements: online for balances to $25,000 over 60 months; negotiated above that
- FTB financial hardship determinations and release of Orders to Withhold and wage orders
- CDTFA and EDD payment plans, and plans that survive a business closure
The Options
Which arrangement fits your balance?
The right plan depends on the balance, what you can actually pay, how many years remain on the collection statute, and whether you are dealing with the IRS, the FTB, or both.
| Arrangement | Who it fits | Key terms |
|---|---|---|
| IRS streamlined installment agreement | Individuals owing $50,000 or less, businesses owing $25,000 or less | Up to 72 months; no financial statement; direct debit reduces the setup fee; liens generally not filed |
| IRS non-streamlined agreement | Larger balances that can be paid within the collection statute | Form 433-A or 433-F financial statement; payment computed from income less allowable standards |
| IRS partial-pay installment agreement | Balances that cannot be paid in full before the collection statute expires | Same financial statement; the plan runs until the statute expires and the rest is written off; reviewed every two years |
| IRS currently-not-collectible | Taxpayers whose allowable expenses equal or exceed income | No payments; collection suspended; the statute keeps running; the IRS may file a lien |
| FTB installment agreement | Individuals owing $25,000 or less (online) or more (by application) | Up to 60 months; all returns filed; direct debit; an Earnings Withholding Order is released once the plan is approved |
| FTB hardship deferral | Taxpayers who cannot meet basic living expenses | Collection suspended for a set period on documented hardship; the twenty-year statute keeps running |
| CDTFA / EDD payment plans | Businesses with sales or payroll tax balances | Typically 12 months online, longer by application; the agency may require current-period compliance and a lien |
Why the collection statute changes everything
The IRS has ten years from the date of assessment to collect (I.R.C. § 6502), extended by the time an offer, a bankruptcy, a collection due process hearing, or certain installment-agreement requests were pending. If four years remain on a $120,000 balance and your allowable payment is $600 a month, a partial-pay installment agreement collects about $29,000 and the rest expires. Agreeing to a $2,500 payment because the revenue officer asked for it, or signing a waiver that extends the statute, gives that up. We compute the expiration date for every assessment on your transcript before we propose a number.
The FTB is different. Its collection statute is twenty years (R&TC § 19255), so the run-out-the-clock strategy rarely works, and a plan or a hardship deferral is a longer-term arrangement. That is one reason an FTB balance is often the better candidate for an offer in compromise or, where the tax is old enough, a bankruptcy discharge, while the IRS balance is handled with a partial-pay plan.
What does hardship status actually require?
For the IRS, currently-not-collectible status is granted when a financial statement shows that allowable living expenses under the national and local standards equal or exceed income. The account is coded, collection stops, and the IRS checks back if your income rises above a threshold. Interest and penalties continue to accrue, and a lien may be filed, but a levy will not be. For the FTB, a hardship determination is made case by case on a financial statement with supporting documents, and it can release an Order to Withhold or reduce a wage order that would otherwise leave you unable to pay rent. Neither agency grants hardship on a phone call; both grant it on a documented financial statement prepared the way their manuals describe. That preparation is the work.
The Attorney-CPA Difference
The collector has a number in mind. So does the statute.
- Collection statute expiration date computed for every assessment before a plan is proposed
- Payment computed from the agencies’ own allowable-expense standards, not the collector’s ask
- IRS and FTB plans structured together so neither agency’s levy undoes the other’s agreement
- Wage orders and bank levies released as the agreement is put in place
Proof, In Print
He wrote the book on tax defense. Literally.
Phillip Zagotti co-authored Taxed: A Taxpayer’s Guide to Tax Defense and Resolution with Ashley Burdette. It explains installment agreements, currently-not-collectible status, and the collection statute in plain English, with the worksheets the agencies use. When you want the negotiation handled, the consultation is free.
Questions & Answers
Installment agreement questions we hear most
Will the IRS file a lien if I set up a payment plan?
Not usually for streamlined agreements under $50,000 paid by direct debit. For larger balances a Notice of Federal Tax Lien is likely, and it can sometimes be withdrawn once a direct-debit agreement has been in place. The FTB files liens more readily and rarely withdraws them before payment.
What happens if I miss a payment?
The IRS sends a default notice and gives you a chance to cure; a defaulted agreement can usually be reinstated. The FTB terminates and resumes collection, including reissuing wage orders, so an FTB plan should be set at a payment you will not miss.
Can I get a plan if I have unfiled returns?
No. Both agencies require all returns to be filed before approving an agreement. Filing the missing returns is step one, and it often reduces the balance the plan has to cover.
Does an installment agreement stop interest and penalties?
No. Interest continues at the statutory rate, and the IRS failure-to-pay penalty drops to a quarter percent per month while the agreement is in effect. The FTB’s penalties continue. Penalty abatement is a separate request, and often a worthwhile one.
The levy stops the day the agreement is accepted.
A free payment plan review with an attorney-CPA, and a flat fee in writing before you commit.