I recently had a question from a client that comes in frequently:

Question:

What happens if you are on an IRS installment agreement (payment plan) and you incur more tax debt from a recently filed tax return?

Answer: 



Nothing good happens when you incur more tax debt!

One of the terms you agree to when establishing an installment agreement with the IRS is that you will timely pay any "new" tax balances due. New balances often occur when you file your current year tax return and you owe the IRS money. The IRS DOES NOT want you to continue to owe money year after year (often referred to as "pyramiding" tax liability). The goal is to have enough federal taxes withheld from your paycheck OR make estimated payments quarterly to cover your tax bill at the end of the year.

Contrary to popular thought, the IRS does not simply "rollover" your "new tax debt" into your "old payment plan". On very rare occasions, they MAY offer to do that, but generally the new debt will require a modification of your current installment agreement OR, worse case scenario, will default your agreement and you will start from scratch on all applicable years.

What the IRS will not let you have multiple installment agreements in place at the same time. The IRS wants ONE installment agreement with ONE monthly payment covering ALL applicable years in which you owe. Think about if from their perspective: It is hard enough to manage a taxpayer that owes taxes for multiple years---now have multiple tax payment plans for multiple years for a single taxpayer? That is a nightmare.

So--the simple answer is: If you can't pay your taxes, explore the possibility of an installment agreement (and there are several types, so consult a tax attorney for the best option) and pay your "new taxes" on time!