IA Eligibility Requirements

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Who is eligible to pay back taxes to the California Franchise Tax Board via an installment agreement?  It can be a little complicated.

It’s difficult not to compare FTB and IRS collection tactics.  Both almost always first demand/request payment in full.  The collection notices are worded in a way that if you don’t read beyond the first sentence, it will appear that full payment is your only option.  And when you call them up, that’s the first thing out of their mouth.  IRS will usually say “Do you have the ability to pay your tax bill in full?” If you cannot write them a check, then the discussion typically shifts to what is required for an installment agreement.  However, the FTB will often (at least at first) demand full payment without regard for your ability to pay and then very reluctantly tiptoe around the option of paying back your taxes in installments.

The eligibility requirements for an FTB installment agreement are more stringent than the IRS requirements.  First and foremost, it is very difficult to obtain an installment agreement with FTB if you have an active earnings withholding order (EWO).  An EWO is just another word for “wage garnishment” or “wage levy.”  Once the FTB has brandished this collection tool, and they have a steady stream of payments coming in, it is very difficult to convince them that they should trade these “guaranteed” payments for a promise to pay from the taxpayer.

Like the IRS, the FTB does require that all back tax returns have been filed so there is no question as to how much is owed.  Also, like the IRS, FTB requires that the entire tax debt be paid off within a specified time frame.  They give as much as 60 months for some tax debts, but only 36 months for others.  The IRS will allow a full 72 months for tax debts under $50,000.

Both FTB and IRS recognize certain events that will cause an installment agreement to default.  Some of these events include (a) failure to make timely payments, (b) failure to timely file a future tax return, and (c) incurring a new tax debt.

Whether you owe FTB or IRS (or both) it would be a mistake to think that you can always just request an installment agreement to avoid enforced collection action.  It’s not always that simple.

Paying the IRS

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Since the IRS exists to collect taxes, one would think that the process of paying them would be simple, but it’s not.  Follow these tips so that you get proper credit for your payment:

  • Send a check or money order.  Don’t send cash.  It is never a good idea to send cash through the US Mail.  Lost checks can be canceled, but if cash gets stolen or lost then you have no paper trail.
  • Make your check payable to the United States Treasury, not the Internal Revenue Service.
  • The IRS also suggests that taxpayers use all digits when writing out the check amount.  For instance, include the dollars and cents place even if it is a whole number (i.e., $100.00).
  • Do not staple, clip, glue, tape, or otherwise affix your payment to any other papers (such as a letter or a payment voucher) sent with your payment.
  • Be sure the following information appears on your check: name, address, daytime phone number, primary Social Security number (i.e., the SSN belonging to the first listed taxpayer on the return), tax period and tax form (i.e., 2004/1040).
  • If you were sent a payment coupon then you should mail your payment to the address on the payment coupon.  If you do not have a payment coupon, check here to look up the correct address.

As nitpicky as all this seems, the IRS is pretty forgiving when you are sending them money. I always recommend that payments be made according to the above guidelines, but I also know for a fact that many of these components can be missing and the IRS will still cash the check.  For instance, the IRS will have no problem cashing a check made out to the IRS, even though technically they prefer that it be payable to the US Treasury.  Also, a check without a phone number is usually fine.  Even if you happen to send your payment to the wrong IRS address, believe me, the check is going to get cashed.  It may take a bit longer if the service has to re-route the check, but it will get cashed.

Finally, for taxpayers who don’t use banks, the best option is a money order or cashier’s check.  But if you’re a “strictly cash” kind of person, you may be able to pay your tax bill or installment agreement payment in cash at your local IRS office.  Availability of this option will vary from office to office.