Impact of Owing More Taxes on Installment Agreement
QUESTION: I filed an extension of time to file my 2007 income taxes but I did not pay anything by April 15, 2007. I expect that I will owe more money when I do file the return. I am currently on a payment plan with the IRS for prior year tax liabilities. What will happen to my payment plan when I file this year? Can I just add my 2007 tax liability to my current payment plan?
ANSWER: This is an interesting dilemma you face. When you file an extension of time to file a return that only gives you additional time to file your return, but not additional time to pay your taxes. So any tax that you will owe for 2007 was due on April 15, 2007. When you have an installment agreement in place and you do not file a return on time, keep up with your estimated tax payments, or you do not pay your taxes on time your installment agreement will be defaulted by the IRS and the IRS can begin to take collection action against you such as levying your bank account or garnishing your paycheck. So it is very important that you go ahead and take action now to prevent the IRS from taking any collection action against you. You will need to have your installment agreement reinstated and have to pay an additional fee for reinstatement. You may also ask the IRS to add your current year tax liability to your installment agreement. Depending on the amount of money you owe in total, it may be necessary that you provide financial information to the IRS to determine your monthly payment.