The IRS is required to give a taxpayer adequate notice before terminating an installment agreement. You should receive Notice CP523 in the mail and be given 30 days to respond or fix the issue.
The Notice CP523 is telling you that you have defaulted on your payment plan. However, your installment agreement is not officially terminated until the 30-day period expires, and you also have appeal rights once the termination notice is sent.
Your installment agreement may be terminated for any of the following reasons:
Missed Payment
Missed payments can happen for any of the following reasons:
- You forgot to send payment
- Your account had insufficient funds
- You didn’t have the money to send your payment
- There was some sort of mixup or clerical error
The IRS encourages payment by direct debit so that taxpayers don’t need to remember to send a payment every month. You may want to see if your plan can be converted to a Direct Debit Installment Agreement if you’re having trouble remembering to submit your payments.
If your monthly payments don’t fit your budget, you should talk to a tax attorney and see if you may be eligible for lower monthly payments.
New Unpaid Taxes
The IRS expects you to keep up with your current taxes while making your installment payments. This can difficult to do because you’re effectively paying old taxes and new taxes at the same time.
If you miss an estimated tax payment or file a return without paying your tax bill, you have defaulted on your agreement. In some cases, you may be able to add your new tax liability to your existing payment plan, but it will depend on the amount of the tax liability and other factors.
Unfiled Returns
You also need to keep up with your tax filing obligations for the duration of your installment agreement. The IRS will generally seize your tax refunds and apply them to your balance, but you are still required to file your returns.
Even if you don’t have a tax filing requirement in a given year, the IRS may mistakenly believe you need to file. You may want to file a return just to be safe and keep your payment plan intact.
Contact a tax attorney if you’ve received a Notice of Default and want to avoid an IRS installment agreement termination.
The Gartzman Law Firm can help you with penalty relief and other tax resolution strategies. Use our contact form to request a consultation with an Atlanta tax resolution attorney.