Installment Agreement-Prior Year

[zeros]

Client had an installment agreement made out for the year 2007. This year, she again owes a large amount. If she does not have a new agreement made, does the IRS add the additional new taxes to the old agreement? Could she have two agreements going? Looking for answers. She wants to pay the monthly last year agreement only.

[JohnH]

Once she files owing money, the original installment agreement automatically goes into default and becomes due in full (also subject to levy if she doesn't act quickly) . Depending upon the total amount owed and other factors, IRS will usually allow her to combine the two into a single agreement and reset it. They will charge an additional fee for the new installment agreement.

They will not allow her to have two installment agreements in place at the same time. There's actually no reason to do that anyhow because having two agreements would not affect or reduce any penalties and interest which will be due. May as well keep it all together for simplicity's sake.

[zeros]

Recomendation?

Should I set up a new installment agreement with the same amount monthly as the last agreement, seeing that the old agreement is null and void at this time? She wants to pay the same amount against both liabilities.

[JohnH]

There are a couple of ways she could go. Since she doesn't want to increase the monthly payment amount, I don't know that any of them make very much difference. Maybe someone else will jump in and point out pros and cons of the approaches.

The current agreement is not in default right now - that won't happen until she files the return and the new liability shows up in the system.

She can file the current year's return and wait for the default letter, which can take 2-3 months to arrive. If she continues to make payments on the existing agreement, she will be that much closer to resolving the issue and it at least shows good faith. Once she gets the default letter she can request a reset - either by mail or by phone. Asking by phone is a little better because she gets an immediate resolution (or she knows if there's some reason the request is going to be turned down.)


She can file an extension and delay dealing with any of this until Oct 15, provided she continues to make payments on the existing installment agreement. The extension will be valid even if it shows that she expects to owe and isn't paying in full, and the extension filled out in that manner won't cause the installment agreement to go into default. The benefit to this approach is that it puts everything off for 6 months with no downside that I'm aware of.

Finally, all of this assumes that the total she owes is under the IRS limits for automatic installment agreements and that she isn't already tagged as a habitual delinquent taxpayer ins their system. If those issues are present, she will have a tougher time getting it all worked out.