Defaulting on a IRS Payment Agreement

With an IRS payment agreement there are monthly payments that must be made to the Internal Revenue Service or the New York State Department of Taxation and Finance.  Sometimes these payments are missed, either because they amount was too high, or the taxpayer just did not make the payment.  Even if it was not intentional, IRS payment agreement can go into default.

Taxpayers can avoid defaulting by:

  • Paying the minimum amount due each month
  • File all necessary tax returns on time
  • Pay all tax debts owed in full and timely
  • Make all scheduled payments

If your IRS payment agreement goes into default, payments and interest will continue to accrue until the balance is paid out in full.  If you know that you are unable to make a payment and might default on your installment agreement, contact the IRS.  If you contact the IRS and explain the extenuating circumstances, they generally will not take enforced collection actions.

If you default on your installment agreement you will receive the CP523 Notice.  This document informs taxpayers of their intent to terminate the installment agreement, and their intent to seize assets through a levy.

If you receive this notice, there are steps that you can take.

  • Read your notice carefully because it explains what you have to do since you defaulted in the installment agreement
  • Make your payment before the termination date so to minimize the chance the installment agreement terminates.
  • Contact the IRS immediately to see if you can get your IRS payment agreement reinstated.

No response it the worst action a taxpayer can make.  The IRS will terminate the IRS payment agreement and will take collection action.  This means that the IRS will file a federal tax lien and levy wages or accounts. Working with an experienced IRS tax attorney will help with this process.  Negotiating and working with the IRS is not easy when individuals do not understand the tax code, and process of defaulting on an installment agreement.  It is possible to renegotiate a IRS payment agreement, but often they do not come out in favor of the taxpayer and they end up agreeing to a high monthly payment and then defaulting.

By: Timothy S. Hart