Can You Combine Tax Years for Installment Agreements?

Navigating Installment Agreements with the IRS

The Internal Revenue Service (IRS) provides taxpayers with the option to establish installment agreements, allowing them to settle their tax liabilities over an extended period. However, taxpayers may encounter situations where they have multiple tax balances or owe taxes for multiple tax years. This raises the question of whether it is possible to combine tax years for installment agreements.

Understanding IRS Installment Agreements

An installment agreement is a legally binding arrangement between a taxpayer and the IRS that outlines a specific payment plan for outstanding tax liabilities. This plan includes the amount of each payment, the payment due date, and the total duration of the agreement. Installment agreements provide taxpayers with a structured approach to repaying their tax debt while avoiding penalties and interest accrual.

Combining Tax Years for Installment Agreements

Generally, the IRS does not allow taxpayers to combine multiple tax years into a single installment agreement. Each tax year represents a separate tax liability, and the IRS treats them independently. Therefore, taxpayers with outstanding balances for different tax years must establish separate installment agreements for each year.

Exceptions to the Rule

In certain circumstances, the IRS may consider combining tax years for installment agreements. This is typically allowed when the taxpayer has multiple tax balances that are relatively small and can be paid off within a short period. For example, if a taxpayer owes less than $50,000 in total and can pay off the balance within 72 months, the IRS may approve a streamlined installment agreement that includes all outstanding tax years.

Streamlined Installment Agreements

The IRS offers a streamlined installment agreement program for taxpayers who meet specific criteria. To qualify, taxpayers must:

• Owe less than $50,000, including penalties and interest
• Be able to pay off the balance within 72 months
• Have filed all required tax returns and paid any taxes due for the past five years
• Not be in an existing installment agreement or have defaulted on a previous agreement

Benefits of Streamlined Installment Agreements

Streamlined installment agreements offer several benefits, including:

• No financial statement requirement
• Lower setup fees
• No federal tax lien filed
• Automatic approval without IRS review

Partial Payment Installment Agreements

For taxpayers who cannot pay off their tax balance within 72 months, the IRS may approve a partial payment installment agreement. This type of agreement allows taxpayers to make smaller monthly payments over a longer period. However, taxpayers must provide the IRS with a detailed financial statement and demonstrate their inability to pay the full balance within 72 months.

Consequences of Not Paying Taxes

Failing to pay taxes or enter into an installment agreement can result in severe consequences, including:

• Wage garnishment
• Bank account levies
• Property seizures
• Criminal prosecution

While the IRS generally does not allow taxpayers to combine tax years for installment agreements, there are exceptions for small balances and taxpayers who qualify for streamlined installment agreements. Taxpayers with multiple tax balances should consult with a tax professional to determine the best course of action for resolving their tax debt.