December 28, 2015

7055048_sOne of the most popular methods for paying a debt with the IRS is the monthly installment agreement. If you are able to successfully negotiate a payment plan with the Internal Revenue Service, then all calls and letters from them will be on hold—as long as you continue to make your payments in a timely fashion.

What happens if circumstances change and you cannot make these payments? Don’t worry, the IRS can accommodate changes in a financial situation.

Ask for a break

If you are dealing with a sudden reduction in income or are paying off an unexpected expense, try explaining your situation to the IRS. If your situation is a short-term one, the IRS is likely to accommodate your request to miss your payment for a month without requiring much documentation or proof. Be sure to call the agency before your payment is due, however, or it might be too late.

Request for a reduction in monthly payment

Facing a more long-term increase in living expenses or reduction in income? While the IRS generally reviews your case every year or two, you may be able to maintain your agreement terms by contacting the IRS when your situation changes.

If you are seeking more permanent relief, inform the IRS of your financial situation by providing a new collection information statement—either Form 433A or 433F. You may need to prove the change in financial circumstances to the IRS by submitting a copy of your higher utility bills or medical expenses, or presenting your paycheck with a lower income.

The IRS may be able to reduce your monthly payment, or possibly even place your account in currently not collectible status depending on your circumstances. Keep in mind that you may be a potential candidate for an offer in compromise or bankruptcy filing with this change in status.

 Default your installment agreement

If you simply opt to stop making payments to the IRS, the agency will consider that you have defaulted on your installment agreement. Remember, though, that a pending default does not mean that the IRS will immediately levy your bank account or wages.

The IRS will send you IRS Notice CP523 or a Notice of Intent to Terminate your Installment Agreement a month after your missed payment. Upon receiving this notice, you have 60 days to file an appeal that disputes the intention to end the agreement. No levy action can be taken against you during these 60 days. Filing an appeal may buy you some time before negotiating a new payment plan with the IRS, as the IRS cannot collect with a pending appeal.

Take note that while it is possible for the IRS to reinstate an installment agreement, the agency is generally less likely to grant another installment agreement if a prior agreement was defaulted. The terms and conditions of the reinstated installment agreement may also change.


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