We’ve created this simple guide to help illustrate the various types of Installment Agreements that may be available to you depending on your particular situation.  Take a few minutes to better familiarize yourself with their differences — and remember, we are always here to help.

Learn more about ways we can help or feel free to contact us with any questions.

To download a high-resolution version of this infographic, please click here. 

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The short answer is simply, no.

All taxpayers are entitled to make a claim for a refund of overpaid taxes within the prior three years. However, in instances where there is a past balance, the IRS will confiscate any refund due and apply it towards a taxpayer’s oldest liability period before remitting any excess portion of the overpayment back to the taxpayer.  Even in cases where a taxpayer has entered into a formal payment arrangement, the IRS will offset any refund due and apply it towards the liability. The federal government will pursue all available options to ensure that it is paid for any delinquencies as expeditiously as possible.  The same holds true for many other types of federal debt the most common being delinquent student loan debt.

This is also why the Internal Revenue Service issues tax liens and assesses interest and penalties.  These are all mechanisms the IRS utilizes to ensure repayment of a tax and encourage “voluntary compliance” amongst taxpayers.  When the IRS grants payment arrangements they take into consideration all allowable household expenses and net that amount against the gross household income. Any excess income, beyond the amounts that are considered necessary living expenditures, the IRS expects to be remitted in the form of structured monthly payments.  One of those expenses being considered is income tax withholding.  If income taxes were taken into consideration as a qualified monthly expense, but there is in fact excess withholding, the IRS would assume that that amount should have been reduced when formulating the initial installment agreement terms anyway. Therefore, the IRS will confiscate the excess withholding in the form of a tax refund offset.

The best method for avoiding this pitfall is to seek the counsel of a qualified tax professional shortly after accruing a tax liability with the Internal Revenue Service.  This is especially crucial in instances where a taxpayer may have received or is due a large federal tax refund.  Careful tax planning in the current year can ensure that tax debtors minimize or altogether eliminate a tax refund that would ultimately be confiscated the following year.

For wage earners (those that receive a form W-2 at the end of the year) this can be as simple as adjusting the exemptions reported to their employer on form W-4.  All taxpayers are allowed to claim up to nine exemptions without providing any proof that they qualify.  This will severely reduce the amount of income tax withholding that an employer deducts from each paycheck and ultimately any refund due at the end of the tax year.  For self-employed individuals, taking a little extra time each week to maintain careful bookkeeping records will allow them the ability to consistently track current year tax obligations so that they aren’t in danger of over or under paying when making estimated tax deposits.

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When the IRS accepts a repayment agreement with a taxpayer, the Service promises not to attempt to collect the debt by any enforcement action. On the other hand, a taxpayer is informed that all tax obligations from that point forward have to be paid in full and on time. In addition, all tax returns have to be filed on time.

If you received the IRS Notice CP523, the first thing you need to do is to find the reason that caused this problem. You can do it yourself by calling the number indicated on the Notice, or ask your tax resolution representative to do that on your behalf. If all Installment Agreement payments have been made on time, then the next thing that you need to check is whether there are any outstanding tax returns that still have to be filed. You should also verify if all payments on returns, which became due after your agreement was finalized, have been made in full and on time. This is one reason why you should keep copies of all correspondence between you and the IRS, together with your mail delivery confirmations.

If you have not missed any Installment Agreement payments and have filed and paid all of your tax returns on time, then you have eliminated the most common causes for the Installment Agreement to default. However, there is something else that the IRS does not make very clear in its Terms of Installment Agreement – it is the fact that any new tax liability automatically defaults it.

Let’s say the IRS accepted an Installment Agreement for your 1040 – Income tax liability for the years 2006 through 2010. At some point after the agreement was approved, you got audited and the IRS assessed additional $150 for the year of 2009. The IRS sent you a letter stating that, but you have not paid attention to that letter because, as far as you were concerned, your 2009 liability was on a payment plan. However, any new tax liability (not penalties and interest, but the tax due amount) that is assessed after the Installment Agreement was approved terminates the agreement. Therefore, it would be a good idea to pay $150 to the IRS to make sure nothing is affecting your payment plan.  However, there are also other ways to approach a situation like that.

If the additional balance is not large, you can full pay it within 30 days from the day of the Notice CP523, as was already mentioned above. Make sure to contact the IRS to confirm that your payment has been received and the IRS will not terminate the Agreement. If you cannot afford to full pay the additional balance, you can either ask the IRS to include it into the Installment Agreement, or, if your request is denied, let the agreement default completely and then submit a brand new payment plan proposal.

No matter which way you choose, it is advisable to talk to your tax resolution representative before taking a certain course of action. You can then decide if you would like to take care of the situation yourself, or might need help from a professional.

It usually does not happen without a reason. However, the IRS Notice CP523 – Intent to Terminate Your Installment Agreement – often leaves a taxpayer wondering about what might have happened for the IRS to suggest that an Installment Agreement is about to default.  The most obvious reason would be a missed payment, but what if all payments have been made in full and on time?

When the IRS accepts a repayment agreement with a taxpayer, the Service promises not to attempt to collect the debt by any enforcement action. On the other hand, a taxpayer is informed that all tax obligations from that point forward have to be paid in full and on time. In addition, all tax returns have to be filed on time.

If you received the IRS Notice CP523, the first thing you need to do is to find the reason that caused this problem. You can do it yourself by calling the number indicated on the Notice, or ask your tax resolution representative to do that on your behalf. If all Installment Agreement payments have been made on time, then the next thing that you need to check is whether there are any outstanding tax returns that still have to be filed. You should also verify if all payments on returns, which became due after your agreement was finalized, have been made in full and on time. This is one reason why you should keep copies of all correspondence between you and the IRS, together with your mail delivery confirmations.

If you have not missed any Installment Agreement payments and have filed and paid all of your tax returns on time, then you have eliminated the most common causes for the Installment Agreement to default. However, there is something else that the IRS does not make very clear in its Terms of Installment Agreement – it is the fact that any new tax liability automatically defaults it.

Let’s say the IRS accepted an Installment Agreement for your 1040 – Income tax liability for the years 2006 through 2010. At some point after the agreement was approved, you got audited and the IRS assessed additional $150 for the year of 2009. The IRS sent you a letter stating that, but you have not paid attention to that letter because, as far as you were concerned, your 2009 liability was on a payment plan. However, any new tax liability (not penalties and interest, but the tax due amount) that is assessed after the Installment Agreement was approved terminates the agreement. Therefore, it would be a good idea to pay $150 to the IRS to make sure nothing is affecting your payment plan.  However, there are also other ways to approach a situation like that.

If the additional balance is not large, you can full pay it within 30 days from the day of the Notice CP523, as was already mentioned above. Make sure to contact the IRS to confirm that your payment has been received and the IRS will not terminate the Agreement. If you cannot afford to full pay the additional balance, you can either ask the IRS to include it into the Installment Agreement, or, if your request is denied, let the agreement default completely and then submit a brand new payment plan proposal.

No matter which way you choose, it is advisable to talk to your tax resolution representative before taking a certain course of action. You can then decide if you would like to take care of the situation yourself, or might need help from a professional.

The post Intent to Terminate Your Installment Agreement appeared first on 20/20 Tax Resolution.