Payment in full is expected at the time a North Carolina State tax return is filed or a liability is discovered by the Department and assessed. Occasionally, taxpayers do not have the ability to immediately pay the tax in full. In limited circumstances, the Department will negotiate installment payment agreements based on financial need that allow taxpayers to repay tax debt over a period of time. NC Gen. Stat. §105-237(b) provides that the Secretary may enter into an installment agreement if it will facilitate collection of the tax.

In some situations, the Department establishes payment plans without any review of financial condition for short-term agreements involving small amounts of debt. For longer-term agreements, agreements involving large amounts of liability, or when a taxpayer with a history of non-compliance is the subject of the agreement, the Department requires financial statements and supporting documentation. A review of the taxpayer’s financial condition is performed to validate financial need for the payment plan.

The primary goal of any collection action, including an installment payment agreement, is to bring the taxpayer into compliance. Occasionally, a taxpayer will establish a payment agreement for one filing period, fail to pay the tax due for an additional period and then request that the Department build the additional periods into the payment agreement. This type of behavior does not promote compliance, is not fair to the vast majority of North Carolina taxpayers that pay their taxes in full and on time and cannot be permitted by the Department.

Standard Conditions For Installment Payment Agreements

The taxpayer:

• Must file all due and past-due returns before an agreement can be established.
• Must remain in compliance, filing and paying in full all returns that come due during the term of the agreement.
• Must allow NCDOR to draft payments from their checking or savings account. The Department may allow certain exceptions if the taxpayer is not able to establish a bank account or if the term of the agreement is very short-term in nature.
• Must provide any additional information to NCDOR on an as requested basis. (Examples: Pay stubs to show income, lists of receivables owed to businesses, and any other financial information requested.) The Department may perform periodic reviews of financial condition during the term of the agreement to assess continued need for the payment level as well as possible jeopardy of collection.
• Must remain current in paying estimated income taxes and must ensure NC-4s reflect the correct filing status and number of allowable exemptions.
• Should assume that during the term of the agreement any state or federal refunds will be offset and applied to the debt. Refund offsets do not count as a payment under the terms of the agreement.
• Should assume that a certificate of tax liability (CTL) will be docketed in counties where the taxpayer resides or holds property to protect the State’s interest during the term of the installment agreement. CTLs are public records that establish a lien against property.
• Should understand that failure to abide by the above requirements, make any required payments, or meet any additional requirements established at the time of the agreement constitutes default.
• Should realize that any payments returned unpaid by your bank or financial institution to the Department constitutes default.
• Should be aware that legal action to enforce collection of the tax will commence immediately and without notice should the taxpayer default on any of the terms of the agreement.

In exchange for entering into an installment agreement, the State will:

• Not take any enforced actions to collect the tax (such as asset seizure or levy) during the term of the agreement unless it goes into default or the Department determines collection of the tax is in jeopardy.
• Provide 30-days written notification prior to changing the terms of the agreement based on improved financial condition of the taxpayer.
• Not assess the 20% collection assistance fee as provided by NC Gen. Stat. §105-243.1(d) during the term of the agreement if it has not been assessed. If previously assessed at the time of the agreement, payment of the fee will be built into the payment agreement. Interest continues to accrue at the applicable rate until the debt is paid in full.

To request an installment payment agreement, complete an Installment Agreement Request form. Taxpayers or practitioners that would like to discuss payment agreements or other payment options may contact the Department at 1-877-252-3252 or their local Collection Division Office.