If you have a tax liability and you default on your IRS installment agreement, the IRS will generally terminate your installment agreement. However, you may be able to reinstate your IRS installment agreement without providing updated financial statements. As a result, reinstating an IRS installment agreement may be a prime option. The IRS will terminate an installment agreement for the following reasons:
- a failure to pay an installment payment when due under the terms of an agreement;
- failure to pay another tax liability at the time such liability is due;
- failure to provide an updated financial statement upon request;
- providing information prior to the date such agreement was entered into that was inaccurate or incomplete; or
- failure to pay a modified payment amount based upon updated financial information.
The IRS constantly monitors any new tax liabilities. Consequently, accruing a new tax liability is one of the most common reasons that the IRS will terminate an IRS installment agreement. If you meet any of the above criteria, addressing the issue immediately is key to successfully resolving your tax liability.
Reinstating an IRS Installment Agreement
Keep in mind that the Affordable Care Act individual shared responsibility payment liability will not default an existing installment agreement. Generally, if you do not meet the terms of your IRS installment agreement, the IRS will notify you in writing and give you 30 days to comply with the terms of the agreement before terminating you installment agreement. Reinstating an IRS installment agreement is often the best option to avoid liens and levies.
Will Financial Statement Analysis be Required?
If the IRS terminates your installment agreement, you may be able to reinstate it without providing financial statements. Where your IRS tax liability is over $50,000, the IRS may require you to substantiate your ability to pay a monthly payment toward your outstanding tax liability. Furthermore, providing updated financial statements may be tricky because your financial situation may have changed since you last provided such data. Often it is ideal to avoid providing new financial data if possible.
You may request a reinstatement of a defaulted or terminated installment agreement with no managerial approval, and no financial statement analysis if:
- The installment agreement is in default or was terminated because of an additional liability. And if addition of that new tax liability will result in no more than two additional monthly payments and the agreement will not extend beyond the Collection Statute Expiration Date (CSED). A lien determination is required for these agreements.
- The installment agreement meets streamlined criteria and the taxpayer has not defaulted an installment agreement in the 12 months prior to the current default.
Streamlined Installment Agreements
A streamlined installment agreement generally does not require new financial statement analysis and is easier to put in place than a non-streamlined installment agreement. As a result, a taxpayer can request a streamlined installment agreement in the following circumstances:
- The aggregate unpaid balance of tax assessments is $50,000 or less. The unpaid balance of assessments includes tax, assessed penalty and interest, and all other assessments on the tax modules. But that does not include accrued penalty and interest.
- If pre-assessed taxes are included, the pre-assessed liability plus unpaid balance of assessments must be $50,000 or less.
- The minimum payment amount is determined by dividing the total balance by 72. The IA must resolve all balances due prior to the expiration of the CSED (Collection Statute Expiration Date).
Streamlined installment agreements are very useful when reinstating an IRS installment agreement.
If I have an IRS Tax Liability, What are My Options? Can a Tax Attorney Help?
If you have a tax liability with the IRS, you may be able to reinstate your IRS installment agreement. A new tax liability will automatically terminate your installment agreement. So if you know you will have a new tax liability when you file a tax return, make plans as soon as possible to resolve the outstanding liability to avoid levies, liens, and other enforced collection actions. Contact a tax attorney today for a free consultation to discuss your options.