IRS Compromise Help » Installment Agreement

Can You Add More Years to an Installment Agreement?

Tripp — Tue, 06 Apr 2010 04:34:25 +0000

One of the ways you can resolve your IRS tax liability is through an installment agreement (monthly payment plan). When you set up your installment agreement, the IRS requires that you include all of the tax years that you owe for in the installment agreement. So, for example, if you owe taxes, penalties and interest for 2005, 2006 and 2007, you must include all three years in the installment agreement. You could not set up an agreement for just 2006.

So, what happens if you have set up an installment agreement and you find yourself owing more tax this year than you can afford to pay back. Well, the simple answer is that you will be re-negotiating your installment agreement. If you file your taxes with a balance due and you are unable to pay that in full, you have defaulted on your installment agreement and if you take no action, the IRS could begin active collection activity against you. “Active collection” is best known as wage or bank levies/garnishments or seizure of assets.

When you’re in this situation, you should immediately call the IRS and let them know you owe for the current year and you need to include that on your tax return. You should have a copy of the tax return you filed handy so you can fax it to the IRS if necessary. Depending on the total amount you owe and how long ago you negotiated your payment plan, you may have to go through the whole process of sending in a financial statement and negotiating with the IRS for your payment plan, or, they may simply add that additional tax to your plan and let things carry on as usual. In my experience, however; the IRS always makes you present new financial information in the hopes that things have changed and they will be able to require a higher monthly payment in your installment agreement.

Can I File an Offer in Compromise after Setting up an Installment Agreement?

Tripp — Tue, 10 Nov 2009 11:34:03 +0000

Setting up an Installment agreement can be a challenge, but it is also a great way to resolve some IRS cases. Very simply put, an installment agreement is a way to pay off your tax debt with a monthly payment plan. You may full pay your tax debt or you may not, depending on the amount you are paying each month and the time remaining for the IRS to collect against you. However, the very best way is when you can successfully negotiate an offer in compromise to settle your case for much less than you owe. People that I have worked with in the past have been wary of setting up an installment agreement (even when it was absolutely necessary to prevent or stop a levy from happening) because they did not want to foreclose the option of being able to file an offer in compromise to settle their IRS debt.

What I told them, and what I am sharing with you is that setting up an installment agreement does not prevent you from being able to submit an offer in compromise and resolve your case that way with the IRS. In some circumstances, this may just help you because it will already let you konw what type of financial information the IRS requires when submitting an offer in compromise and you may even have some of the forms required for an offer in compromise completed with only a little updating required before you can submit your offer in compromise.

Bottom line: the installment agreement will not prevent you from filing an offer in compromise.

Worried About IRS Wage Levy after Setting up an Installment Agreement

Tripp — Thu, 15 Oct 2009 20:10:52 +0000

QUESTION:

I set up an installment agreement a couple of weeks ago to pay off my tax liability. I understand that it is going to take a while before my taxes are paid in full, but I thought once I set up the installment agreement, the IRS cannot come and try to levy my wages. I just received an “Urgent” notice stating the IRS is going to levy my wages or bank accounts. HELP!

ANSWER:

You are correct. Once you have an installment agreement set up, as long as it is valid, the IRS cannot levy your wages. What I believe is going on in your case is that the IRS “machine” simply has not caught up with your installment agreement yet. You hear this a lot about organizations as large as the IRS – “the right hand doesn’t know what the left hand is doing.” I think that is the case here. You have an installment agreement, but the computers that issues the levy notices and other collection notices do not seem to catch up for a few weeks.

You should feel at ease knowing that as long as you are making your payments on time and you are current the IRS cannot levy your wages. I would recommend that you send a letter back to the IRS office that sent you the collection notice and let them know you have already set up an installment agreement. Remember to always send correspondence to the IRS by Certified Mail, Return Receipt Requested. You should enclose a copy of the letter you received from the IRS confirming your installment agreement as proof. You can also call the 800 number on the notice and speak with someone at the IRS.

Do I have to provide Bank Statements to the IRS

Tripp — Fri, 04 Sep 2009 12:58:11 +0000

When you are filing an offer in compromise with the IRS you have to give the IRS a lot of financial information and proof. They want to see the last three months of bank statements, pay stubs, utility bills, investment account statements, medical bills and more. You can almost picture the offer in compromise program as wanting the same type of information as if you were being audited and had to prove why you claimed certain deductions on your income tax return.

All of this financial information has to be provided at the beginning of the filing of the offer in compromise and is usually required to be updated during the offer in compromise process (perhaps even several times) because of the length of time it takes to for the offer in compromise to be examined.

Now, if you are setting up a monthly payment plan (or installment agreement as the IRS calls it) you may or may not be required to provide financial information and bank statements. If you owe the IRS less than $10,000 and you can pay it off in 36 months, the IRS will automatically set up an installment agreement for you.

The next scenario is if you owe the IRS less than $25,000. When you owe less than $25,000 you do not necessarily have to provide financial information and bank statements as long as the total tax, penalties and interest will be paid off during the statute of limitations for collection. Many times the IRS will ask you what you want to pay and then they will tell you if that will pay off the debt or not. If it will they will then set up your installment agreement. If your offer will not pay off the tax in time, the IRS will tell you what the minimum payment will have to be. If you cannot afford that payment you will have to provide financial information to the IRS.

If, however, you cannot afford the payment that the IRS must receive to pay off the debt in 36 months or less (if you owe less than $10,000) or if you cannot pay off the tax before the end of the statute of limitations (if you owe less than $25,000) then you would have to provide all of the financial information to prove that you do not have that much disposable income every month and need a lower payment amount for your installment agreement.

When you owe the IRS more than $25,000, you must provide financial information to the IRS and your monthly payment will be what the difference in your income and allowable monthly expenses is.

Impact of Owing More Taxes on Installment Agreement

Tripp — Fri, 23 Jan 2009 14:22:37 +0000

QUESTION: I filed an extension of time to file my 2007 income taxes but I did not pay anything by April 15, 2007. I expect that I will owe more money when I do file the return. I am currently on a payment plan with the IRS for prior year tax liabilities. What will happen to my payment plan when I file this year? Can I just add my 2007 tax liability to my current payment plan?
ANSWER: This is an interesting dilemma you face. When you file an extension of time to file a return that only gives you additional time to file your return, but not additional time to pay your taxes. So any tax that you will owe for 2007 was due on April 15, 2007. When you have an installment agreement in place and you do not file a return on time, keep up with your estimated tax payments, or you do not pay your taxes on time your installment agreement will be defaulted by the IRS and the IRS can begin to take collection action against you such as levying your bank account or garnishing your paycheck. So it is very important that you go ahead and take action now to prevent the IRS from taking any collection action against you. You will need to have your installment agreement reinstated and have to pay an additional fee for reinstatement. You may also ask the IRS to add your current year tax liability to your installment agreement. Depending on the amount of money you owe in total, it may be necessary that you provide financial information to the IRS to determine your monthly payment.