Defaulting on a IRS or NYS Tax Installment Agreement

Defaulting on a IRS or NYS Tax Installment Agreement

Many of our clients who owe the IRS or NYS for unpaid back taxes have us set up tax installment agreements, which are paid monthly to satisfy the tax debt. The terms of these agreements require the taxpayer to stay in compliance by paying all taxes owed on time, filing all tax returns promptly, and avoiding new unpaid tax liabilities.

As sometimes happens during tough economic times, a taxpayer may be unable to afford the payment plan and stops making the monthly payments. Both the IRS and NYS label this as defaulting on the tax installment agreement. If you find yourself in this situation, it’s best to be proactive and have your tax counsel contact the IRS or NYS before the missed payment leads to a formal default, to work out an alternative payment plan. Usually, if you just miss one payment, the IRS will overlook the default. In cases of a new tax liability, a new payment plan will typically need to be established, but it’s much easier to set up a new plan before a technical default occurs.

Therefore, disclosing the default before it actually happens can help the IRS and NYS Tax Department be more cooperative and willing to work with you. While this makes sense, most people in this situation are embarrassed and tend to ignore the problem. This often makes the situation worse, as they become at risk of harsh collection actions that could have been avoided with quick, proactive steps.