What to Do if Your IRS Installment Agreement is Terminated
Over the years, True Resolve Tax has assisted countless taxpayers. In our experience, the IRS installment agreement is one of the most popular and convenient methods of settling tax debt. It allows you to pay it off in small, manageable portions.
Not everyone who applies for it qualifies. Even those who do qualify must abide by stringent rules during the payment period. But what happens if the IRS terminates the agreement? Is there any chance of reinstatement?
IRS Notice CP 523
Receiving this notice from the federal tax agency means you’re in danger of losing your IRS installment agreement. It’s normally sent via certified mail, and the heading expresses “intent to levy” and terminate the agreement.
Taxpayers are given a period of up to 30 days to pay their outstanding amounts. The notice also spells out various steps you can take to rectify the situation. You may pay online or via money order. Call an IRS helpline if you’re not sure of how much is due.
If you agree with the assessment but you’re not able to pay, call the IRS and discuss your options. Other than giving the reason for default, you’ll be asked to provide an updated financial statement (Form 433-F).
If you cooperate with these requests, the agency may restructure your agreement. You may be required to pay an additional fee depending on your income tax category, but it may be waived or reimbursed if you meet certain conditions.
You can also call the IRS to dispute the amount due and review your account with a representative. Be sure to have all the necessary account information at your fingertips when you do so.
Failure to pay the past due amount may lead to termination of your IRS installment agreement. This is done under section 6159(b) of the Internal Revenue Code. You can appeal this decision by calling or sending the tax agency a Collection Appeals Request (Form 9423).
Reasons for Termination of IRS Installment Agreements
Doing any of the following might result in the termination of your installment agreement with the IRS:
- Missing at least two payments in one year.
- Failing to pay the full amount due on your most recently filed tax returns.
- Failing to provide the IRS with your updated financial information or giving incomplete information.
- Failing to service your estimated tax payments or deposits.
Even with a payment plan in place, some taxpayers might still find it hard to meet their obligations to the IRS. This could be due to erratic, seasonal earnings, or other unforeseen circumstances such as illness.
Remember, the IRS doesn’t allow more than one payment agreement per taxpayer per year. If you accumulate more balances from other tax obligations, you must pay them on time.
If you don’t act within 30 days of receiving Notice CP 523, your IRS installment agreement will be terminated. You’ll receive this information through Letter 757C. You’ll then have another 30 days to appeal.
If the appeal is unsuccessful, the tax agency will have authority to issue of file lien after another 30 days. This means penalties are reinstated 90 days after receiving the initial notice.
Can the IRS Automatically Reinstate a Payment Plan?
It’s possible to reinstate your installment agreement with the IRS within 30 days of receiving notice CP 523. The tax agency can automatically do so under these two circumstances:
- You defaulted because of extra tax liabilities and can pay the amount due in two additional monthly installments.
- If you would qualify for a streamlined installment agreement. However, this option is available to those who owe less than $50,000.
Under both circumstances, the IRS can still file a federal tax lien.
If you owe over $50,000 and don’t qualify for automatic reinstatement, the IRS might ask for your financial details. A restructured agreement may be offered, based on the agency’s assessment of your ability to pay.
Right to Appeal
The IRS’ Collection Appeals Program (CAP) allows you to dispute a proposed or actual termination of your installment agreement. Other than calling the tax agency, you can fill out and send a collection appeal request (Form 9423). Failure to do so will be interpreted as agreeing with the IRS’ collection decision.
Filing your appeal under IRS CAP is a legally binding process that is not subject to judicial review. This means your appeal may be reviewed and determined by an individual at the tax agency. It’s not the most objective process because a decision may be made based on the reviewer’s whims.
A managerial conference is oftentimes held between a revenue officer and a settlement officer from the Office of Appeals. This is where they decide on whether to proceed with the appeals process.
A managerial conference is not always a necessity for one to request a CAP hearing involving a terminated installment agreement. It’s, however, a must when the hearing involves collection proceedings such as asset seizures, tax liens, and bank levies.
If you’d like a tax resolution expert to represent you without your presence, you must provide a properly filled Form 2848. You must also provide a Declaration of Representative. You can fill Form 2848 on the IRS website or get it from your local IRS office.
After filing Form 9423, the IRS won’t take any enforcement action until a decision is made by the Appeals office.
Consequences of Failing to Act
We always advise our clients to act within 30 days of receiving Notice CP523. This gives you the best chance of avoiding termination. After 90 days, the IRS may enforce a collection. Other than filing a lien, your employer or financial institution may also be approached with a levy.
If your tax debt is more than $52,000, the agency may start passport restriction proceedings with the State Department. It’s rare for these situations to escalate to this point, especially if you hire a competent tax resolution expert. Contrary to what you might have heard, the IRS prefers amicable settlements to forceful actions.
Approaching the agency through a qualified representative improves your chances of striking the best possible deal.
Are You Interested in or Currently Servicing an IRS Installment Agreement?
If the tax agency has sent you a notice showing intent to modify, reject or terminate it, you should take fast action to rectify the situation. Seeking the services of a professional tax resolution firm is your best bet at a favorable outcome.
True Resolve Tax offers unmatched tax resolution expertise. As an Enrolled Agent with the IRS, we’re licensed to handle all types of tax-related issues. We specialize in finding the best possible settlement methods for you, based on your needs.
We also represent you before the IRS should the need arise. Contact us today for more information on the IRS Installment Agreement, or our other tax resolution solutions.