An IRS installment agreement is a formal arrangement between a taxpayer and the Internal Revenue Service (IRS) that allows the taxpayer to pay off their tax debt in monthly installments. While installment agreements can provide taxpayers with much-needed relief from the burden of tax debt, it’s crucial to understand the consequences of defaulting on the agreement.
What Constitutes a Default?
According to the IRS, a default occurs when a taxpayer fails to meet the terms of their installment agreement. This can include:
- Failing to make an installment payment on time
- Failing to pay another tax liability when due
- Failing to provide an updated financial statement upon request
- Providing inaccurate or incomplete financial information
- Failing to pay a modified payment amount based on updated financial information
Consequences of Default
If the IRS determines that a taxpayer has defaulted on their installment agreement, they have the authority to terminate the agreement. This means that the taxpayer will lose the benefits of the installment plan and will be subject to the full amount of their tax debt.
In addition, the IRS may take further collection actions, such as:
- Issuing a Notice of Intent to Levy, which informs the taxpayer that the IRS intends to seize their property to satisfy the debt
- Levying the taxpayer’s bank account or wages
- Filing a Notice of Federal Tax Lien, which creates a public record of the taxpayer’s debt
Reinstatement of Terminated Agreements
In some cases, a taxpayer may be able to reinstate a terminated installment agreement. To do so, they must demonstrate that the default was due to reasonable cause and that they are now able to meet the terms of the agreement. The IRS will consider factors such as the taxpayer’s financial situation, their history of compliance with tax laws, and the reason for the default.
Appealing a Termination
Taxpayers who disagree with the IRS’s decision to terminate their installment agreement can file an appeal with the Collection Appeals Program (CAP). The CAP is an independent body within the IRS that reviews taxpayer appeals and makes recommendations to the IRS.
Defaulting on an IRS installment agreement can have serious consequences for taxpayers. It’s important to understand the terms of the agreement and to make all payments on time. If you are unable to meet the terms of your agreement, it’s crucial to contact the IRS immediately to discuss your options.
Frequently Asked Questions
Q: What should I do if I miss an installment payment?
A: If you miss an installment payment, you should contact the IRS immediately to explain the situation. The IRS may be willing to work with you to reinstate your agreement.
Q: Can I reinstate a terminated installment agreement?
A: Yes, you may be able to reinstate a terminated installment agreement if you can demonstrate that the default was due to reasonable cause and that you are now able to meet the terms of the agreement.
Q: How do I appeal a termination of my installment agreement?
A: You can appeal a termination of your installment agreement by filing a written request with the Collection Appeals Program (CAP). The CAP will review your appeal and make a recommendation to the IRS.
Q: What happens if the IRS seizes my property to satisfy my tax debt?
A: If the IRS seizes your property to satisfy your tax debt, you have the right to file a claim for a refund. You can also request a hearing to contest the seizure.
Q: Can I get help from a tax professional if I’m having trouble with my installment agreement?
A: Yes, you can get help from a tax professional, such as an enrolled agent or a certified public accountant, if you’re having trouble with your installment agreement. A tax professional can help you understand your options and negotiate with the IRS on your behalf.
IRS Installment Agreement Don’t Do This!
FAQ
What happens if I don’t pay my IRS installment agreement?
What happens if IRS payment plan goes into default?
Can you reinstate an installment agreement with the IRS?
How long can the IRS collect on an installment agreement?
What happens if you get a defaulted installment agreement?
In 2021, the IRS sent 2.4 million defaulted installment agreement notices. If you get one too, you have options to get back in good standing with the IRS and avoid enforced collection activity (like liens, levies, and passport restrictions). What causes default? The IRS defaults installment agreements for 4 reasons:
What happens if the IRS defaults on a payment plan?
Furthermore, the IRS will not default any Installment Agreements/Payment Plans during this period. By law, interest will continue to accrue on any unpaid balances.
What happens if I don’t pay my installment payments?
Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Debit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.
What happens if I default on my tax agreement?
If you defaulted on your agreement because of a new tax bill from a tax return you recently filed, the IRS will also want you to increase your withholding and/or make estimated tax payments, so it doesn’t happen again. If you don’t get back into good standing with the IRS in 90 days, the IRS may start enforced collection on your tax bill.