The IRS installment agreement program gives taxpayers who owe back taxes the ability to pay their debt over time. If you set up a payment plan, the IRS will cease enforced collection activities while you pay your tax debt in monthly installments over a period of time.
For many taxpayers, this is an ideal solution. However, under the terms of your agreement, you must submit monthly payments in order for the IRS to continue to forego collection activities. If you fall behind on your payments or otherwise fail to meet the agreement’s obligations, you will have defaulted on your IRS installment agreement.
Why Is My Installment Agreement in Default?
The IRS may place your installment agreement in default for any of the following reasons:
- You fail to pay an installment payment when it is due.
- You fail to pay any new tax liability at the time the tax is due.
- You provide inaccurate or incomplete financial information prior to entering the agreement.
- You fail to provide the IRS with an updated financial statement upon request.
- You fail to pay a modified payment amount based on updated financial information.
What Happens If I Default on My IRS Installment Agreement?
Any of these actions can mean that you defaulted on your IRS installment agreement and are facing the possibility of your agreement being terminated. However, termination does not happen right away. In most cases, the IRS will let you know that you are in violation of the terms of your agreement with a CP523 Notice. Then, you’ll have 30 days to comply with the agreement before it’s terminated. During this time, your agreement is considered to be a “defaulted agreement,” but it is not terminated.
Will the IRS Reinstate My Installment Agreement?
It is possible to reinstate an installment agreement that is in default by correcting the issue that caused the default within 30 days. You can do this in several ways, such as:
- Paying any payments you missed.
- Providing any financial information the IRS requests.
- Paying any additional tax liabilities.
- Adding any additional tax liabilities to your existing installment agreement as long as it doesn’t extend the agreement by more than 2 months.
- Meeting streamlined criteria for an installment agreement if you have not defaulted on an installment agreement in the 12 months prior to the current default.
You may also request a Collection Appeals Program (CAP) hearing to appeal your default or termination. If you do not work with the IRS to have the agreement reinstated, the agency will terminate your agreement. Collections activities, such as a levy, will resume within 90 days from the date the IRS mailed the default notice.
If you defaulted on your IRS installment agreement or think you may be in danger of default, it’s important to get back on track as soon as possible. For more information about IRS installment agreements and possible solutions when your agreement is in default, contact East Coast Tax Consulting Group.