After your IRS telephone rep has taken your financial information and determined that you have positive monthly cash flow and are therefore able to make monthly payments on your unpaid tax balance, you will be asked to agree (or, rather, you will be told that you will have to agree) to make monthly payments that equal your positive monthly cash flow.

Actually, your rep may even ask if you can make monthly payments that are actually higher than your monthly cash flow just to see if you will agree to the higher payment, but this will not always happen.

So, as an example, let's assume that you have filed all of your tax returns and that you owe $25,000 for the last four years' unpaid taxes. Let's also assume that you have positive monthly cash flow of $722. If you haven't read the section on financial information yet, please read it now so you'll have a clearer understanding of what makes up your monthly cash flow.

The IRS rep now knows that you have what's called an ability to pay $722 per month on your unpaid taxes. We've already discussed the fact that we must use the IRS Definition of how much you can pay them and that we must use the IRS Definition of what expenses they will allow you to pay before they can get any of your monthly cash flow and what expenses they will not allow you to pay before they can get any of your monthly cash flow. So even though you may not like it, the number is $722.

So now you will be expected to pay $722 each month to pay off your old taxes. This is in addition to the taxes you are paying on your current year in the form of withholding from your paychecks or estimated tax payments.

The question now becomes, "exactly how would you like to make this $722 monthly payment?" You can do it in one of several ways:

1. Regular Installment Agreement - you mail in your monthly payment to IRS so that they will have enough time to process it by your monthly deadline date. You may choose any day of the month as your due date; you should mail your payment at least a week early to give them plenty of processing time. We always choose the 28th of the month for our clients so we will automatically know when everyone's payments are due.
2. Payroll Deduction -  you instruct your employer's payroll department to deduct the $722 out of your paychecks each month. Your payroll department will then send the money to IRS along with all of its regular payroll tax payments. We prefer this method since it gets the payment to IRS with as little trouble as possible - our clients don't spend it and default on their agreements.
3. Bank Draft - you authorize your bank to honor a monthly draft from IRS just like any other draft. This is our least favorite method of payment.

Along with your monthly payments, IRS has a few other mandatory rules regarding your Installment Agreement:

1. You agree to file all of your future income tax returns on time. Extensions of time to file are allowed.
2. In addition to filing on time, you also agree to completely pay off all of your future income tax returns and leave nothing unpaid when the returns are filed.
3. Any future overpayments on your tax returns that would ordinarily be paid back to you as refunds will be kept by IRS as payments toward your unpaid taxes.

As long as you continue to make your regular monthly Installment Agreement payments, you will remain in good standing with IRS and they will not levy you again. However, if you break your agreement and default on your Installment Agreement, IRS will begin enforced collection action against you again. this means more levies.

If, for any reason, you do not make a monthly Installment Agreement payment to IRS, you must call them at 800/829-7650 and explain the reason(s) for your nonpayment. If your reason(s) for nonpayment meet their guidelines, they may allow you a period of time when no payments are due. These circumstances are rare, but they do occur.

Just remember, if you don't make your monthly payment for any reason whatsoever, you absolutely, positively must call IRS and talk to them about it. Or at least call us and talk to us about it so we can call them for you.