Required Compliance for Installment Agreements

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When negotiating an installment agreement with the Internal Revenue Service, they want you to be compliant on your past and current year taxes.

Before the Internal Revenue Service can legally enter into any agreement with you, you must be at least current on filing your past tax returns, and up to date on current year tax withholding or estimated taxes so as to avoid another new tax debt when the next tax return is filed.

For past year taxes, they want your tax returns filed. They don't have to be paid as they can be a part of the taxes you owe that is a part of any agreement. If you have any tax years on which the balance owing is relatively small, they would prefer you pay that off rather than adding it to an agreement. But, that is not an absolute requirement. What is a relatively small amount? That is subjective and depends on your financial profile. For some people $100 might be a small amount. For others it's a difference between paying the rent, utilities, or food.

For the current year the Internal Revenue Service wants you to be up to snuff on paying your estimated taxes or having adequate taxes withheld from your paycheck. However, once you get past the fInternal Revenue Servicet or second quarter of the year, it may be crippling to pay in the extra needed to catch up by the end of the year. In this case, start paying or withholding the correct amount of tax for the remainder of the year. When you do file this year's return you will owe some. The Internal Revenue Service will usually renegotiate your agreement to include the balance owing so long has you have been making a good faith effort.

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