Setting up an installment agreement with the IRS is one of the quickest, most effective ways to stay in good standing and get your balance paid off over time. However, sometimes, you might miss a payment and fear your agreement will be canceled or the IRS will come after you.
If you’ve missed a payment or received an IRS CP523 notice, you must act quickly to avoid further issues. You want to do everything you can immediately to resolve the issue and avoid further enforcement actions.
This guide covers what happens if you miss an installment agreement payment and how to avoid defaulting on your payment plan.
Consequences of Defaulting on an Installment Agreement
So, what are the immediate repercussions if you miss a payment on your installment agreement? Here are the consequences you can expect:
- Receiving a CP523 Notice: The IRS sends this notice to alert you that it intends to end your installment agreement and may seize your assets to cover your debt. Once you get this notice, it means that you have defaulted on the payment plan. However, if you make the required payment before the date listed on the notice, you may be able to prevent agreement termination.
- Additional penalties and interest: Anytime you have an outstanding tax balance, you will continue to get hit with penalties and interest until it’s paid off. Remember that if you fail to make your payments and pay off your balance, it will only keep building, making it harder and harder to get out of tax debt.
- Liens or levies: The IRS will proceed with collection actions if you don’t pay immediately and your agreement is terminated. These actions may be filing a federal tax lien, a public record indicating that the IRS has the right to your assets, or issuing levies, which could mean the IRS will seize your assets and property or garnish your wages.
Don’t ignore IRS notices or wait until it’s too late to prevent termination of your agreement. Talk to a tax attorney to ensure you resolve your issue immediately and get back on track with debt resolution.
Next Steps to Resolve a Missed Payment
When you’ve missed an installment agreement payment, your best bet is to act quickly to resolve the matter. When you’ve received Notice CP523, take these steps for faster resolution:
Contact the IRS Immediately
Your notice will include contact information for the IRS. Call the toll-free number on your notice to talk to an IRS agent about what to do. This must be done quickly, but definitely within 30 days to avoid further issues. Remember, however, that IRS employees represent the IRS. If you want to talk to someone with your best interests at heart, consider contacting a tax attorney.
Make Your Payment
If you make your monthly payment within 30 days, you may be able to avoid the termination of your agreement. Follow the instructions on your notice CP523 to make your payment, or contact the IRS if you have questions. You can make extra payments through your online IRS account or by mail.
Reinstate Your Payment Plan
If you miss a payment and default on your agreement, you can use the IRS’s Online Payment Agreement system to reinstate your agreement. This will likely involve paying a reinstatement fee when submitting your request. You may also need to provide financial information through Form 433-F or Form 433-A for individuals or Form 433-B for businesses if necessary, especially if you cannot make your minimum required payments.
Talk to a Tax Professional
Understanding IRS notices and your tax requirements can be complex and confusing. When in doubt, talk to a tax expert who can explain what the IRS does and what it means when you default on your payment plan. An expert can help you understand your options for making payments and getting out of debt as well.
What If You Can’t Afford Your Payments?
Many taxpayers may default because they can’t afford the monthly payments they agreed to when setting up their initial installment agreement. This is common, as many people think they can afford more than is realistic.
When you’re already into the payment plan term, and you can’t afford to pay, here are the options you have for resolution:
Modify Your Plan
First, log in to the Online Payment Agreement tool to request a change. The IRS states that you can use this tool to make these updates:
- Alter your payment amount: Lower your payments so they’re more affordable.
- Alter the due date: Maybe the problem is when your monthly payment is due. You can select any date from the 1st to the 28th.
- Change to direct debit: Direct debit agreements automatically take out your payment from your account, which can help you avoid missing a payment.
- Change your bank account information: Make sure your agreement is connected to an account with enough funds to cover it monthly.
- Reinstate after default: Use the online tool to reinstate your plan and pay the fee if you default.
The tool is pretty simple to use. You will log in, view your current plan, make the desired changes, and submit. Note that your updated payment amount must meet IRS requirements for the minimum payment. If you can’t pay that, you may need to submit additional information showing your financial situation and any evidence of hardship.
Roll in a New Balance
It may be too much to handle if you already have an agreement and then get hit with another unaffordable tax bill. The IRS may allow you to combine your existing agreement with your new balance to make payments on everything at once, but you need to be proactive about requesting this option.
Apply for an Offer in Compromise
Payment plans aren’t right for everyone. Sometimes, you may need additional assistance paying off your balance because of financial hardship or changes in your fiscal circumstances.
An offer in compromise is one option, where you will send in your income and expense information to the IRS along with an offer of what you can afford to pay instead of your entire balance. If the agency thinks your offer is all you can reasonably be expected to pay, it may accept.
Request Currently Not Collectible Status
Sometimes, an unexpected hardship may prevent you from making your monthly payment. If your situation is temporary, call the IRS to request currently not collectible status. When your account has this status, the IRS won’t take any collection actions against you because of your hardship. Keep in mind that once your situation improves, you will again have to take steps to get your balance paid off.
How to Prevent Future Payment Plan Issues
The good news is that being proactive can help you prevent missing payments or other issues with your installment agreement. Here’s a list of ways to avoid payment plan problems:
- Pay your minimum payment by the deadline each month.
- Choose the lowest payment possible, but pay more when you can afford to do so.
- Adjust tax withholding throughout the year so you don’t have as much due all at once during tax time.
- Make estimated payments each quarter of the year to avoid new liabilities.
- Set up direct debit to ensure timely payments and prevent forgetting to pay.
- Make overpayments in months when you can afford it.
- Stay up to date with your tax return filings and tax payments each year.
- Include accurate, updated information in the system when making your payments and making updates.
- Contact the IRS if you have a new address.
- Make sure your payments align with what is included in your installment agreement.
- Always be upfront with the IRS about issues you’re having making your payments or dealing with financial issues.
- Work with a tax professional to establish a plan with the IRS for getting your debt paid off.
The best thing you can do is stay compliant with your tax obligations. As long as you make your required monthly payments by the deadline and continue to file your returns and pay taxes, you should stay in good standing.
Find the Right Tax Professional at Paladini Law
If you’ve defaulted on your installment agreement, take action quickly to avoid further issues with the IRS. Remember that you must be diligent about meeting IRS deadlines and continuing to file your returns, even when you have a payment plan. Contact the IRS if you can’t pay what you owe.
It’s also a good idea to consult a tax professional for personalized guidance. They can help you understand any notices you receive, the consequences, and how to stay proactive against further problems. Tax experts will also be able to review your situation and advise you on another avenue to pay off your debt aside from the payment plan, if necessary.
When you’re ready to take action on a missed payment, talk to the team at Paladini Law. Our team works with clients nationwide to help them resolve their tax issues, from IRS audits to payment plans to offers in compromise to debt forgiveness.
Contact Paladini Law today to set up a consultation with our team.
