Cancelled installment agreement

[Margaret CPA in OH]

A client owing back tax for several years primarily due to now ex-spouse's undeclared income had an installment agreement before I became involved.  We had to amend the last 3 years for a variety of reasons (errors, self-prepared, etc.) and have finally had all those accepted.  Now IRS has cancelled her installment agreement and states (in her email summary, I will receive the letters in a couple of days) that her balances for each year are due immediately, a total of nearly $30,000. 

I do have POA for all years for her on file but want to be prepared for some action in her favor.  She certainly has nowhere near this amount of money, her ex, a homeless druggie now, has no money to pay his share, and she has been paying monthly since May 2012, over $18,000. They applied her payments to the most recent years thus driving up the accumulated interest for the earlier years.

 I've never had a client in this much tax trouble.  What's a suggested route?  Is OIC an option? Any advice would be appreciated.  She so desperately wants to get this behind her but the accruing penalties and interest on the tax and penalties are crushing.

Thanks for sharing suggestions.

[Abby Normal]

Just get a new installment plan. They get automatically canceled if you file a balance due return and you have to get a new plan. I have clients that have to do this every year. It's hard to catch up sometimes.

[Catherine]

However, if she cannot make payments (insufficient cash flow) definitely check out the OIC option.

[Margaret CPA in OH]

Thanks for the replies.  It sounds as if options are available and I will research when the paperwork arrives.  This is a first for me in all my years of practice.  Guess I've been pretty lucky with clients.  There have been some wrinkles along the way but this is by far the most expensive situation. I took her on last year as she is engaged to a long time client who finally convinced her she would do well with professional assistance.  Hope I don't disappoint!  And hope I get paid... (I will, no worries, but it may be a while)

[Max W]

When the IRS cancels an IA, they send out a letter, CP523 (upper rt corner).  The default can be from a missed payment , or from being assessed additional taxes

It does Not default on the date of the letter but 30 days later. There is another 10 day grace period after that to allow any payment to post.  

If the additional tax is small, sometimes the IRS will roll the IA over automatically.  The options are an OIC, a new IA, or CNC (currently non-collectible).

The easiest solution would be a streamlined Installment Agreement (IA). The balance due must be less than $50,000.  If it is over that, the IRS will usually allow 30 days to pay it down. To determine the minimum payment, divide the amount due by 72 (months).  If the client needs more time for the paydown, there are strategies for getting additional time.

OIC, CNC, or a regular installment agreement will require documentation of income and allowable expenses.  

[Margaret CPA in OH]

Thanks, Max!  The letters just arrived in my mail today.  They are, indeed, CP523's. 

I think that the amended returns showing, mostly, additional tax due, IRS claims the entire tax wasn't paid.  As it happens, she did pay the balances due for 2 of the 4 years and has a refund due for one year. 

From May 2012 until January 2015 she had been paying $550 per month but in 2015 her extra outside self employment dried up.  She negotiated on her own a decrease to $200 per month faithfully paid through September.

There is no way she can pay $30,000 within 30 days.  If I use the 72 months you mention, the payments are $417, probably manageable though tight.  In any event, I will be on the phone tomorrow and let her know about OIC as well. 

Stay tuned!