You negotiated a payment plan with the IRS, and they have been leaving you alone. As long as you make that payment, IRS letters and calls are on hold, and things are OK.
But what if you have a sudden, unexpected expense. Or an unexpected reduction in income? What if you simply get to the point where you can’t make the payment?
You have options.
1. Call the IRS and ask for a breather. Believe it or not, the IRS is usually very accommodating if your situation is short-term. A call with a request to miss a month’s payment should get an IRS “yes.” Usually, for a one month breather, the IRS will barely require a reason. Make sure you make this call in advance of when your payment is due. Calling after the due date could be too late, putting your account in default.
Simple rule of thumb: The more time you request, the more the IRS will require. A change lasting more than a month may require more from you, such as an IRS collection information statement. (For example, if you had an unexpected car repair that drains you cash flow for two months, the IRS may want a copy of the repair bill.)
2. Update the IRS with information that you need the payment permanently reduced. This will likely require disclosure of your new financial situation. The IRS will need a new collection information statement – either Form 433A or 433F – showing your reduction in income or increase in living expenses. Be ready to provide the IRS with proof of the changes – paystubs with lower income, unemployment compensation, or on the expense side, items like higher medical expenses, car payment, or utility costs.
With the new financial statement, the IRS can reduce your payment, and even place your account in uncollectible status if you can no longer make a payment. (Uncollectible status is when the IRS makes a determination that forcing a payment plan would put you in economic hardship. The law prevents the IRS from entering into payment plans that create financial hardship.)
With the changed circumstance, you may be a good candidate for an offer in compromise or the filing of bankruptcy to resolve your debt.
3. Do nothing. If you do nothing and stop making the payments, the IRS will default your installment agreement. The month after you missed your payment, expect the IRS to send you a Notice of Intent to Terminate your Installment Agreement (IRS Notice CP523). This notice is required by law – specifically, Internal Revenue Code 6159(b)(5).
But just because your installment agreement has a pending default does not mean the IRS can immediately levy your wages or bank account. You have options – and protections – if default occurs.
After you receive the notice to terminate your installment agreement, the IRS will allow you 60 days to file an appeal disputing the intent to end the agreement. While those 60 days are pending, the IRS cannot take any levy action against you. If you file an appeal, the IRS can’t take any enforcement while the appeal is pending. The protections against levy during an appeal of defaulted installment agreement are law, and can be found in Internal Revenue Code 6331(k)(2).
If you want some time before you negotiate a new plan with the IRS, the appeal provides it and the IRS cannot collect while the appeal is pending.
The IRS can accommodate a changed financial situation. The IRS needs to know the changes to adjust your payment plan. The changes could be short-term and simply give you a month off from the payment, or could result in longer, more permanent relief, such as a reduced payment, uncollectible, or even an offer in compromise. Either way, you have options to put things back in place with the IRS when your payment needs to be changed.