Some individuals who are unable to pay a tax balance in full are allowed by the IRS to make payments on an installment basis. As with other types of payment plans, a small percentage of payers end up not meeting the specific terms of the agreement. Individuals who find themselves in default on an IRS installment plan may be able to have the arrangement reinstated or restructured.
The terms of an IRS installment agreement require the payer to make payments on schedule and to not incur any additional overdue taxes. Therefore, a late installment payment can cause a default. Filing a tax return in a subsequent year without making full payment can also result in default. If you have an installment agreement and either event occurs, the IRS is likely to mail you a specific document.
Notice CP523
For an IRS installment agreement, there is an important distinction between default and termination. IRS Notice CP523 is a form letter sent to notify a payer of a default in the terms of an agreement. The purpose of the letter is to provide notice that the installment agreement will terminate in 30 days unless corrective action is taken.
Notice CP523 also informs the recipient of the possibility of collection action if the installment agreement is terminated. The 30-day period between default and termination begins on the date printed on Notice CP523, not when the notice is actually received. The notice includes a phone number to call in order to speak with an IRS representative. The corrective actions necessary to avoid termination depend on what caused the default.
Missed payments
The IRS publishes many of its collection guidelines in the Internal Revenue Manual, also referred to as the IRM. The IRM advises IRS representatives that they may reinstate an installment agreement if the payer remedies the default by catching up on a missed payment. If there are multiple missed payments, reinstatement may require a re-evaluation of your financial condition.
Additional unpaid taxes
If the addition of more unpaid taxes caused a default, the easiest way to reinstate an installment plan is to pay the other outstanding taxes within 30 days. If that is not possible, you may be able to add the other unpaid taxes into your current installment agreement. The IRM advises that you may factor in the other taxes in a restructured plan as long as the new agreement does not add more than two months to the duration of your current payment schedule.
The IRS assesses a user fee for reinstating or restructuring an installment agreement. Contact a tax service for further assistance in IRS tax problems.
