If your business owes taxes to the IRS, it can be a stressful and overwhelming experience. However, the IRS does offer a solution for businesses that are unable to pay their tax debt in full – a corporation installment agreement.
A corporation installment agreement is a payment plan that allows businesses to pay their tax debt over time in smaller, more manageable monthly payments. This can be a great relief for businesses that are struggling with cash flow and cannot afford to pay their taxes in one lump sum.
To qualify for a corporation installment agreement, the business must owe less than $25,000 in combined tax, penalties, and interest and must be able to pay off the debt within 24 months. For businesses that owe more than $25,000, they must provide financial information to the IRS to determine their ability to pay and may be subject to a lien or levy.
One important factor to consider when entering into a corporation installment agreement is the interest and penalties that will accrue on the unpaid debt. The IRS charges interest on the unpaid balance at the federal short-term rate plus 3%, compounded daily. The penalty for failure to pay is 0.5% of the unpaid taxes per month, with a maximum penalty of 25%. By entering into a payment plan, the business can avoid additional penalties for late payment.
To apply for a corporation installment agreement, the business must complete Form 9465, Installment Agreement Request, and provide all required information. The IRS will evaluate the application and determine whether the business qualifies for the payment plan.
It is important to note that the business must continue to file all required tax returns and pay all taxes due during the term of the installment agreement. Failure to do so can result in default of the agreement and additional penalties.
In conclusion, a corporation installment agreement can be a beneficial option for businesses that are unable to pay their tax debt in full. However, it is important to consider the interest and penalties that will accrue and to continue filing all required tax returns and paying taxes on time. If your business is struggling with tax debt, contact a qualified tax professional for assistance in determining the best course of action.