A more thorough explanation:

An installment agreement is a payment plan that allows a taxpayer to pay their unpaid federal taxes to the Internal Revenue Service (IRS) on a monthly basis. This is helpful for taxpayers who cannot pay their tax liability in full at once.

There are two types of installment agreements:

• Guaranteed Installment Agreements: This type of agreement is mandated by law for taxpayers who owe $10,000 or less. The IRS is required to enter into this agreement if the taxpayer meets certain criteria and provides financial information.
• Streamlined Installment Agreements: This type of agreement is available for taxpayers who owe $50,000 or less. The taxpayer must provide financial information and agree to make payments over a period of six years or seventy-two months.

Beginning in 2004, the IRS can also enter into partial installment agreements for taxpayers who cannot pay their tax liability in full. The IRS will review these agreements every two years.

To submit an installment agreement, the taxpayer must follow the procedure required by the IRS. If the taxpayer does not follow the rules, the IRS may ignore the submitted agreement. This is especially important for agreements involving high amounts of tax liability.

John owes $8,000 in federal taxes but cannot pay the full amount at once. He applies for a guaranteed installment agreement and provides his financial information to the IRS. The IRS approves his application and John agrees to make monthly payments until his tax liability is paid in full.

This example illustrates how a taxpayer can use an installment agreement to pay their tax liability over time instead of all at once.