You Defaulted on Your IRS Installment Agreement… Now what? Your Certified Tax Resolution Specialist (CTRS) negotiated a properly structured installment agreement for you that you can live with. This agreement means you don’t have to cringe every time you open the mailbox. And the threatening notices and letters and tax liens have stopped.

Now it’s time you start making payments as agreed upon in your installment agreement. It’s essential to remember that you make all your payments in the agreed-upon amount on time. 

Payments need to be made consecutively and without missing a month. The IRS might excuse a late or missed payment or two if you have a good excuse and it does not become a regular occurrence. However, an emergency or some other unforeseen issue may cause you either to be late with your payments or unable to pay it at all.

You will be considered in default if the IRS feels that you are not taking your installment agreement seriously. For example, they discover that you submitted inaccurate information on your application or stop paying. That is not a situation you want to be in. If you default on your installment agreement, the IRS can terminate it. However, you will be back to square one and owe the IRS significant tax debt.

What happens if you do not make your payment?

The IRS defines the default of an installment agreement as the taxpayer providing inaccurate information or the taxpayer not meeting the terms of their agreement. Then the IRS can be terminate the installment agreement. However, a taxpayer or representative may appeal a proposed termination.

The IRS may propose termination if the taxpayer fails to

• make an installment payment when it comes due;
• fails to pay another tax liability;
• fails to provide an updated financial statement;
• provides inaccurate information;
• and fails to pay a modified payment based upon submitted updated information.

Taxpayers who do not meet the terms of the installment agreement will be notified in writing and given 30 days to comply with the terms of the agreement before the agreement is terminated.

The process:

• A taxpayer whose installment agreement is monitored by the IDRS* will receive a Notice CP 523, Defaulted Installment Agreement – Notice of Intent to Levy.
• A defaulted installment agreement may be reinstated, without manager approval, if it is determined that the agreement was terminated “because of additional liability and if the addition of that new liability will result in no more than two additional monthly payments. And the agreement will not extend beyond the Collection Statute Expiration Date, also known as a CSED.
• The IRS will first make a lien determination before considering the request for reinstatement. Default and reinstatement terminations due to the taxpayer missing and or skipping payments will require manager approval.
• The taxpayer’s or their representative may request a Collection Appeals Program (CAP) hearing to discuss installment agreements’ proposed terminations and actual terminations. The law allows the taxpayer to appeal a termination of an installment agreement.

*See the Regular Installment Agreement (Over $50,000) section. The IDRS stands for Integrated Data Retrieval System, “a mission-critical system consisting of databases and operating programs that support IRS employees working active tax cases within each business function across the entire IRS” (IRS.gov, “Integrated Data Retrieval System (IDRS) – Privacy Impact Assessment,” 8/21/2013).

If the taxpayer ends up defaulting on their installment plan and becomes subject to collection activity, this is generally one of the first places that the IRS will hit with a levy action.

 Takeaway

Not everyone is eligible for an installment agreement. Your CTRS or representative can determine if you meet the criteria.

However, if you find yourself in a situation where you cannot keep up with your payments or comply with any other issues of your installment agreement, give me a call. 877-35508010. I have helped clients with installment agreement problems and often prevented the IRS from terminating the agreement.