Can I change my mind after I agree to an Installment Agreement?

Conditions of your finances

It’s often asked whether you can change an Installment Agreement to some other agreement after you agree to the first agreement. The answer is yes. The financial conditions that existed at the time of the installment agreement often change during the life of the agreement. The remedy to making a change in the agreement with the IRS is preparing a new 433.

He want’s to pay

I sat down with Howard about a year ago to discuss the different settlement options available to him. Howard is in is mid fifties and had to close his business after nearly twenty years. In our discussion it had become apparent that Howard was truly embarrassed about the $21,146 in income tax he owed from the past three years. He insisted that he was going to pay it “come hell or high water” but he needed the IRS to work with him until he could get  back on his feet. He wanted to sell his business assets, give the proceeds to the IRS as a good faith down payment and set up a small payment for awhile and then increase the payment later when he could afford it.

I didn’t agree with his choice, I thought that he could qualify for an Offer in Compromise but he insisted that he wanted to pay his tax bill. So we submitted a custom installment agreement and of course the IRS was happy to agree.

Fast forward a year

Howard didn’t realize that his small payment didn’t even cover the penalties and interest so now he owes more that he did a year ago. In addition the custom agreement stated that he would increase his payment after a year.

Howard called me again to review his options. He is almost on his feet again however paying the IRS would keep him poor for five more years and with penalties and interest he realized that it just didn’t make sense to continue this agreement.

Howard and I went through his financial situation again to see if he could qualify for an Offer in Compromise and my conclusion was yes, however the settlement amount was  greater that what it was a year ago.

The Offer in Compromise formula has three components Income, Assets and Expenses. A year ago when Howard and I ran the formula it appeared that he could settle for around $5000 and now because his financial picture has somewhat improved he will settle for around $5000 plus the $4000 good faith payment and the $1000 in payments that he has already given them.

You always want to apply for an Offer In Compromise at your lowest financial point. Working with a tax debt strategist might save you thousands like in Howard’s case.


About John

John E. Jones, EA is an Enrolled Agent enrolled by the US Department of Treasury and has been granted the privilege of representing taxpayers before the IRS. John's specialty is general tax debt resolution and more specifically representing extreme hardship cases and seniors with compliance and resolution.
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