How to get the IRS to reinstate your installment agreement
You negotiated a monthly payment plan with the IRS, and all was going well – you were making you payments on time, and staying current with your taxes.
But you ran into some short-term trouble and filed a tax return with a new liability that you did not pay.
The IRS billed you for the new tax debt, and sent you a Notice of Intent to Terminate Installment Agreement, identified in the upper-right hand corner as IRS letter CP523.
A condition of the agreement was no new tax debts, and the new liability caused the IRS to consider your agreement in default, and now they want to terminate it. You want to correct the default, get your installment agreement back, and prevent it from being terminated.
Here’s some good news:
Believe it or not, your installment agreement has not yet terminated, and you have options. The IRS is only putting us on notice that they are about to terminate your installment agreement, in 30 days. In other words, the IRS is giving us an opportunity to fix the installment agreement and get it reinstated before they actually terminate it.
Here are our options to get your agreement reinstated in the next 30 days:
1. If you have a new tax liability, pay it before the agreement is terminated (in 30 days) and request reinstatement. Usually, I like to hand-deliver a cashier’s check to the IRS to have the payment applied as quickly as possible to clear the new balance. When paying, I bring a copy of the check to the IRS, and get it stamped as proof of payment. Armed with verification of payment, I then call the IRS a few days later, at which time the check should have eliminated the liability, and negotiate reinstatement.
2. If you cannot pay the new tax liability in 30 days, the Internal Revenue Manual permits the IRS to reinstate your installment by adding the new balance to your payment plan if doing so permits you to repay both the old and new taxes without adding more than two months to the length of the agreement. For example, if you have 60 months left to pay what you owe, the IRS will add the new tax liability to the agreement, reinstate it, and give us 62 months to full pay.
3. If you owe the IRS under $50,000, including with the new tax liability, the IRS should permit us to convert the agreement to a Direct Debit Installment Agreement. This allows repayment of the old and new tax debt within 72 months, giving you even more time to fund paying the IRS back as compared to the additional two month option in #2, above.
Beware, though: When processing a request for reinstatement, the knee-jerk reaction from an IRS agent is to make you start from scratch, and have you provide a entire new financial statement, along with supporting documentation (bank statements, pay stubs, proof of living expenses) to negotiate a new payment plan. But you like the agreement you have, want to keep it, and do not want to negotiate new terms all over again.
The three options above avoid financial disclosures to the IRS, the need to supply documentation, and requires no IRS managerial approval. Sometimes, though, it takes a little “elbow grease” to educate the IRS agent on the other end of the phone call.
Also, it is important to know that even if you can’t fix the installment agreement within 30 days of receiving the Notice of Intent to Terminate Installment Agreement, you have rights. By law, under Internal Revenue Code 6331(k)(2), every taxpayer has the right to appeal an IRS notice that terminates an installment agreement. The appeal forces the IRS to send the issue of default for review by its Office of Appeals. Equally important, while the appeal is pending, the IRS is prohibited by law from taking any action to levy your wages, accounts or property.
There are solutions to a pending termination of your installment agreement, including IRS provided options to permit resolution without renegotiating a new agreement, and rights to appeal any default to the IRS Office of Appeals. Either way, defaulted installment agreements come with rights and remedies that permit the termination to be fixed.