An installment agreement is a convenient way to take care of your tax debt without using a credit card or letting your tax debt linger. But if you fail to keep up with payments, switch bank accounts without notifying the IRS, or otherwise miss required payments, you may receive IRS Notice CP523. It’s important to read your notice in full, respond promptly, and take action to get your installment agreement back in good standing.
Why You Received IRS CP523 Notice
The IRS sends notice CP523 if it intends to terminate your payment agreement. If you received IRS Notice CP523, it’s because you have missed a payment or had a payment returned by your bank. You may also have incurred new tax debt if you filed your tax return and did not pay any currently due taxes. Remember, paying all new tax liabilities in full is part of keeping your installment agreement in good standing.
The IRS may also terminate your agreement if they believe that their ability to collect payments is in jeopardy; this may be the case if a taxpayer is planning on fleeing the country. Even if you have already rectified the situation, you may have received this notice if the IRS initiated it prior to your corrective action.
Even if you have taken corrective action and brought your installment agreement up to date, it’s important to take this notice seriously and follow the instructions to avoid losing your installment agreement.
Breaking Down the Notice
This IRS notice is easy to decipher and it contains all of the information you need to move forward. In the upper right corner, you’ll find the notice number, your taxpayer ID number or SSN, and a phone number you can use to contact the IRS. The notice is called “Notice of intent to levy—Intent to terminate your installment agreement.”
In the right-hand column, you’ll find a breakdown of the amount you originally owed, the failure to pay penalty, and the current interest charges. In bold, you’ll see the total amount that is immediately due if your installment agreement is terminated. The notice also states how much you need to pay if you want to avoid a default on your installment agreement.
The other parts of this form outline what you need to do if you agree with the past due amount, if you agree with the amount due but cannot make a payment, and if you disagree with the notice.
Your Next Steps
What you do next depends largely on whether or not the information in the notice is accurate and whether or not you are able to pay.
If You Agree With the Notice
If you agree with the installment agreement and know that you have missed a payment, you can simply pay the past-due amount and your account will be caught up. Should you not make that payment, the installment agreement will be terminated and the entire amount will be due immediately.
You are free to pay online or via mail with a check or money order. If you have automatic payments set up and you simply forgot to update your bank account information, you may be able to update that information on your IRS account and resume automatic payments.
What if the information is accurate but you are unable to pay the past-due amount? The IRS does understand that people fall behind, jobs get lost, and other unexpected issues occur. There are options that can keep you compliant and allow you to keep your installment agreement.
For example, they may roll your past-due amount back into the installment agreement and extend the length of the agreement, lower the monthly payment and extend the installment agreement duration, or otherwise make the payment plan more manageable. There may be a fee of $89, which is reduced to $43 for low-income taxpayers. However, none of this will happen automatically. You will need to contact the IRS or work with a tax attorney.
If You Disagree With the Notice
Perhaps you believe you made the payment in question or you already made the late payment before you received this notice. If you did make the payment late but prior to receipt of the notice, your installment agreement is likely in good standing.
However, you don’t want to risk your installment agreement, your assets, and your financial stability—so to be on the safe side, you should still call the number given on your CP523 notice and talk to an IRS representative. If they have received your payment and your installment agreement is no longer in danger, they can tell you that and you can disregard the notice. If they have not received your payment, they can then tell you your options.
You also have the legal right to request an appeal. This process goes through the IRS Office of Appeals. It begins when you call the Office of Appeals or submit Form 9423, the Collection Appeals Request.
How to Get Back on Track With Your Installment Agreement
In most cases, getting your installment agreement back on track is just a matter of paying the past-due amount, paying your new tax liability or rolling it into your installment agreement, or updating your payment information with the IRS.
But once your installment agreement is all caught up, it is crucial that you stay up-to-date by making all payments early or on time, keeping your payment information updated, and responding to all correspondence from the IRS. If a taxpayer has ongoing payment issues and frequently misses payments, the IRS may move forward with the termination of the installment agreement.
Other Options Available to You
Perhaps you aren’t interested in getting your installment agreement caught up because your financial situation has changed drastically. A layoff or significant pay cut could leave you unable to make your monthly payments. In that case, you may want to talk to a tax attorney about these options:
All of these programs have strict eligibility criteria, and you generally won’t qualify if your income is too high or you have assets that you could liquidate. If you’re struggling, however, these programs can be a lifesaver.
Consequences of Terminating Your Installment Agreement
If you ignore the notices sent by the IRS and do not take any action to resolve your delinquent payments, the IRS will move forward with terminating your installment agreement. This can impact you in a number of ways.
First, they will immediately demand payment in full—this includes the original amount of your installment agreement and any accrued penalties and interest. Most people cannot pay this, hence the need for the installment agreement.
Once you miss the initial due date, the IRS will move forward with a series of letters threatening a levy of your assets. After you’ve reached the end of the letters, they will actually move forward with levying your assets. It is much harder to stop a levy or reverse it than it is to prevent one, so once you get to this point, you are fighting an uphill battle. We’ll look into the potential outcomes of levies below.
Wage Garnishment
In some cases, the IRS will garnish your wages. This generally involves getting a court order allowing wage garnishment and then sending paperwork to your employer notifying them of your outstanding tax debt and requesting that they withhold a set amount from your paycheck to go toward your tax debt. The amount they can withhold from each paycheck depends on how much you earn and what the IRS thinks you need to live on. The limits placed on the IRS are far more lax than the limits placed on other creditors, so you could be left with very little if they are successful in their wage garnishment.
People often think that switching jobs allows them to get out of garnishment. However, the IRS is excellent at tracking people down. It’s only a matter of time before they find your next place of employment and send the garnishment paperwork there—and at that point, your account will have accrued more interest and penalties.
Seizure of Assets
The IRS may also attempt to settle your tax debt by seizing your assets and using the proceeds to pay off what you owe. They can attempt to seize a wide range of assets, including your home and any other real estate you own, your vehicles, your personal property, retirement accounts, and money held in bank accounts.
As is the case with garnishment, it is far more difficult to reverse a seizure of assets than it is to prevent it—so if you want to prevent this outcome, you should act sooner rather than later.
Loss of Passport
In some circumstances, the IRS will go so far as to revoke your passport. They ask the State Department to use its authority to seize your passport or deny your passport application. Before the IRS takes this step, they will send you Letter 6152, Notice of Intent to Request U.S. Department of State Revoke Your Passport.
Best Practices for Compliance
Now that you’ve been in this situation once, you likely want to do whatever it takes to avoid falling behind and risking the loss of your installment agreement again. These tips can help you avoid missed payments and unwanted IRS notices:
- Setting up automatic payments: Automatic payments make it much harder to miss a payment—all you have to do is ensure that you have the money in your account ahead of your due date.
- Notifying the IRS of changed bank accounts: If you change bank accounts, notify the IRS right away. Verify that your next payment will come out of your new account before you empty the old account.
- Alerting the IRS ahead of time if you must miss a payment: Financial setbacks happen, and if you’re unable to make a payment, it’s better to connect with the IRS ahead of time to discuss your options and keep your installment agreement in place.
- Settling your checking account each month to verify that your payment was taken out: At the end of each month, double-check your checking account and make sure that your installment agreement payment came out.
- Changing your tax withholding to avoid future tax liabilities: Avoid having your installment agreement canceled due to past-due taxes by ensuring that your employer is withholding the proper amount from each paycheck. If you are self-employed, this may mean adjusting your estimated quarterly tax payments.
If you’ve received an IRS notice and you’re panicking, we’re here to help. The team at Seattle Legal Services knows how overwhelming tax concerns can be, and we want to support you in your efforts to catch up and become compliant with IRS requirements. Call us at 206-536-3152 or fill out our online contact form to set up a consultation.