Updated: Oct 4
The Installment Agreement is one of the most popular methods of handling and managing tax debt to the IRS. In fact, it is a much more affordable option for those who do not qualify for an offer in compromise and cannot pay the entire tax balance that they owe. At Heritage Tax Representation, your tax attorney or enrolled agent can assist you in requesting either a full or partial pay installment agreement, in some circumstances we have arranged partial pay IA for small fractions of what was owed. For those who qualify, it breaks the total debt into smaller payments that may be automatically paid each month as the balance is whittled down. 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 (or ask us to call the IRS on your behalf) and discuss your options. Other than giving the reason for default, you’ll be asked to provide an updated financial statement (Form 433-F). The key is cooperation. You must respond to these letters immediately by calling and following the requests in the letter. The IRS may change the amounts of the agreement, they may require an additional fee or waive the reinstatement fee, but this depends on your income qualifications. 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:
- Defaulting on at least two payments in one year.
- You failed to pay the full amount due on your most recently filed tax returns.
- You failed to provide the IRS with your updated financial information or you gave incomplete information.
- You failed to pay 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 or no appeal was made the tax agency will have authority to issue levy or file liens after another 30 days and penalties, liens and levies are reinstated 90 days after the 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 IRS’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. The IRS is amenable to individuals and businesses who are willing to work towards a payment plan. Approaching the agency through a qualified representative improves your chances of striking the best possible deal. And like we’ve said before in other blog articles, knowing how to present your case in the best possible light before the IRS increases your chances to get the lowest monthly payment with the lowest total partial pay IA.
Are you currently being terminated from an installment agreement, and need to have it reinstated as soon as possible? 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. Heritage Tax Representation offers unmatched local tax resolution expertise. As attorneys and enrolled agents, we’re able 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 and represent you in Tax Court should the need arise.
Contact us today for more information on the IRS Installment Agreement, or our other tax resolution solutions. You can call us at (513) 900-9513 or complete our new client inquiry form by clicking this link: https://www.heritagetrs.com/book-online