What to do if I missed an IRS payment or if I defaulted on an IRS payment plan?
What should I do if I’m about to miss a payment in my IRS repayment plan?
You have several options available if you aren’t able to make payments on your installment agreement with the IRS. Options include reducing the monthly payment to reflect your current financial condition. You may be asked to provide proof of changes in your financial situation so make sure you have all documents and information needed and available when you call.
What do I do when I’ve already missed a payment in my IRS payment plan, or I have defaulted on my IRS payment plan?
About 18% of all IRS payment plans default each year. That amounts to about 1 million taxpayers a year who get into hot water because their IRS payment plan has been terminated for noncompliance. For those who default on an IRS payment plan or “installment agreement,” there are a few options to get back in good standing with the IRS and avoid enforced collection activity (IRS liens and levies).
Two important items about defaulting on IRS Payments
First, the IRS does not allow more than one collection arrangement per taxpayer. For example, if you are in an installment agreement for a year and you file and owe on the next year, the IRS will not give you a separate payment plan on the new return balance owed. You can only have one agreement with the IRS and it must cover all balances owed. All of this to say if you incur a new balance owed and don’t pay it, your entire Installment Agreement will default.
Second, if you have an Affordable Care Act (ACA or Obamacare) individual shared responsibility payment liability (ISRP) for not having adequate healthcare coverage and it generates an amount owed to the IRS, it will not, in and of itself, default the installment agreement. The IRS cannot enforce collection on ACA penalties. Payment has to be made through an installment agreement.
Default timeline and reinstatement
When you miss a payment, file another balance due return without payment, or fail to comply with the terms of the payment plan, the IRS ultimately sends you one of two IRS notices: CP523 or Letter 2975. These notices do not terminate your agreement – but they do put you on notice that you have 30 days to take action, or the agreement will be terminated. The IRS will not issue a levy until 90 days after the CP523/Letter 2975 date.
Within the next 30 days after the CP523 notice, you can reinstate the installment agreement to avoid IRS levies. However, the IRS has the discretion to request new financial information depending on your circumstances to reinstate the agreement. Routinely, the IRS allows two circumstances to automatically reinstate the payment plan:
- The agreement defaulted because of a new tax liability and the new amount would be paid in two additional monthly payments, or
- The taxpayer would qualify for a streamlined installment agreement (owe less than $50,000 and can pay within 72 months) AND the taxpayer has not defaulted on an installment agreement in the past 12 months.
In both circumstances, the IRS reserves the right to file a federal tax lien. However, in practice, the IRS rarely files a lien (assuming one is not already filed) if the taxpayer owes under $10,000 or qualifies and obtains a streamlined installment agreement.
I don’t have an IRS payment plan, but I think I need one, where do I start?
If you’re behind in paying your taxes or have determined that you can’t afford to pay an upcoming amount due, an IRS payment plan may be your answer. The IRS has a number of remedies to help people who have a legitimate financial hardship and are unable to pay their taxes.
Here the IRS offers a lengthy description on the qualifications for an IRS payment plan. If you find that these regulations and requirements are difficult to understand how they apply to you, please contact us at The W Tax Group for a 100% Free tax case evaluation. We will be glad to answer your questions, review your tax status and help you determine if an IRS payment plan is the most favorable option for you.
On a final note, IRS issues never go away, they simply collect more interest and penalties for you to pay. Always take immediate action when you have an IRS tax problem.