A Colorado taxpayer turns years of back taxes into one manageable monthly payment
An individual taxpayer in Colorado had let federal income tax slide for several years running, and by the time PFGTAX got involved, three years of unpaid 1040 balances, a leftover health coverage penalty, and three more years of returns that had never been filed at all had combined into a balance well past 21,000 dollars. PFGTAX got the taxpayer back into filing compliance, negotiated directly with the IRS, and in July 2021 secured a direct debit installment agreement that turned an open-ended, growing debt into one fixed payment the taxpayer could actually plan a budget around.
How it started
Falling behind on taxes rarely happens all at once. More often one missed year turns into two, then three, as paperwork and the dread of opening the mail pile up together. The taxpayer had unpaid income tax balances stacking up across 2013, 2015, and 2016, plus a smaller shared responsibility payment from 2017, the penalty the IRS assessed in certain years on people who went without qualifying health coverage. On top of those years, three more returns, for 2012, 2018, and 2019, had simply never been filed. Once a return goes unfiled, the IRS eventually estimates what it thinks is owed and tracks a balance anyway, often at a worse number than an accurate return would show.
The pressure from the IRS
By August 2020, the IRS had confirmed the numbers: $1,789.84 owed for 2013, $5,407.88 for 2015, $13,744.89 for 2016, and $77.00 tied to the 2017 shared responsibility payment, a total of $21,019.61 already climbing with interest and penalties. The missing returns made the picture worse, since there was no way to know what those years would eventually add until they were filed. For someone facing a number like that with no plan in place, the IRS’s collection options loom even before a specific notice arrives: a federal tax lien attaching to property, a levy pulling funds from a bank account, or wage garnishment taking a cut of every paycheck.
What we did
The first job was getting the account back into filing compliance. The IRS will not seriously discuss a payment plan, or any other resolution, while returns are still missing, so PFGTAX worked to get the outstanding 1040s filed before pursuing anything else. With that piece handled, PFGTAX put together the taxpayer’s full financial picture, income against ordinary
monthly living expenses, in the format the IRS uses to evaluate what someone can reasonably afford each month. That documentation went in as a formal request for an installment agreement covering the personal balance.
Alongside the payment plan request, PFGTAX also began the groundwork for a penalty abatement request, the process of asking the IRS to waive some of the penalties that had piled onto the balance over the years. That request depends on documenting the specific circumstances that led to the missed payments and filings in the first place, and it was still being developed as the installment agreement moved through the IRS’s review, so its outcome is a separate matter from the resolution described here.
The IRS approved the installment agreement on July 12, 2021. The taxpayer agreed to direct debit, meaning the payment comes out of a bank account automatically rather than relying on a mailed check every month, which removes one more thing to remember and one more way a payment could arrive late.
The outcome
Starting July 22, 2021, the IRS began drawing $690.00 a month directly from the taxpayer’s account toward the balance. As long as those payments keep going through on schedule, current returns get filed and paid on time, and no new balance builds up behind it, the IRS holds off on liens and levies while the agreement stays in place. The debt itself was not erased. Interest and the failure to pay penalty keep accruing on whatever remains outstanding, the same as with any installment agreement, so the total the taxpayer ultimately pays will be higher than the balance on the day the agreement was approved. What changed is the uncertainty. Instead of an open number that could turn into a levy notice at any time, there is now one predictable payment, on one predictable date, that fits into a monthly budget.
Why it matters
Multiple years of tax problems can feel like they compound the longer someone avoids dealing with them, and in a very literal sense they do, since interest and penalties keep adding up on every unfiled or unpaid year. But the fix does not require solving every year at once. Getting current on filings first, then putting real numbers in front of the IRS, is what opens the door to a workable monthly plan instead of a standoff that eventually ends in enforced collection.
Behind on filing returns or paying the IRS across more than one tax year? Call PFGTAX at 888.572.2179 to talk through what it takes to get current and get a plan in place.
Frequently asked questions
What is an IRS installment agreement?
An installment agreement is a formal payment plan under IRC 6159 and IRM 5.14 that lets a taxpayer pay off an IRS balance in monthly amounts instead of all at once. Once the IRS approves the plan and the taxpayer keeps up with payments, the IRS generally holds off on levies and other forced collection while the agreement stays in place.
Can someone get an installment agreement if they have unfiled tax returns?
Not usually until those returns are filed. The IRS requires a taxpayer to be in filing compliance before it will approve most resolutions, including installment agreements, so missing returns typically need to be filed first, even if the taxpayer cannot pay what those returns show is owed.
What happens if a direct debit installment agreement payment is missed?
Missing a scheduled direct debit payment can put the installment agreement into default. Under IRM 5.14, a defaulted agreement can send the account back into active collection, which may include liens or levies, so keeping enough money in the account on the payment date matters as much as the agreement itself.
Does an installment agreement stop penalties and interest from adding up?
No. Interest and the failure to pay penalty continue to accrue on the unpaid balance for as long as it remains outstanding, even while a taxpayer is making regular payments under an approved installment agreement. The monthly payment brings the balance down over time, but it does not freeze what is owed.
What is a shared responsibility payment, and can it show up alongside regular income tax debt?
The shared responsibility payment was a penalty assessed under prior federal law for taxpayers who did not carry qualifying health coverage in certain years. It is a separate line item from regular Form 1040 income tax, but the IRS tracks and collects it the same way, so it commonly shows up on the same account transcript as unpaid income tax from those same years.
Every case is different. Outcomes depend on a taxpayer’s specific financial situation, and PFGTAX does not guarantee any particular result or reduction in tax debt.
Behind on filing returns or paying the IRS across more than one tax year? Call PFGTAX at 888.572.2179 to talk through what it takes to get current and get a plan in place.