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The Dangers of Defaulting on Your Installment Agreement

You applied for an Installment Agreement and qualified for it. You begin to make monthly payments. So far so good. But in a month, you do not make a payment or pay less than the minimum monthly payment. Without regarding your reason for non-payment, the IRS terminates your agreement. You are back to square one.

irs installment plan

Factors Affecting Your Agreement

When your agreement is designed, the minimum payment you are required to pay each month is determined. It is essential at that time that you negotiate with the IRS to set up minimum monthly amount that you can pay through the duration of the agreement.

Remember that your financial situation may fluctuate in future. Consider change in circumstances such as marriage, birth of a child, moving to another state, change of job, etc.

If circumstances may decrease your income even for a few months, you may negotiate with the IRS to reduce your minimum monthly payment. You can always pay more than the minimum amount to pay your back taxes in fewer weeks.

Results of Defaulting on the Agreement

If you do not pay the minimum monthly amount for a month, the IRS may terminate your agreement. To reinstate the agreement, you may need to pay the reinstatement fee and provide the reason for the non-payment.

After your agreement is terminated, the IRS can begin collection at any time. They may place a lien on a property or asset to recover the unpaid taxes.

Upon defaulting on an agreement, the IRS becomes distrustful of the taxpayer and may not respond to negotiation. If you cannot pay the minimum monthly installment for any month, contact the IRS immediately and explain your financial difficulty. The IRS may change the existing agreement.

Your Agreement

Before you agree to an agreement, consider these factors:

  • Your future refunds are applied to your tax debt until it is paid in full. You are required to keep paying at least the minimum monthly payment even if your refund is taken.
  • You are required to file your tax returns on time and pay your full tax bill
  • You must include your name, Social Security Number, daytime phone number, tax year, and return type on each payment you make.
  • You must send your payment to the address on your statement. If you didn’t receive your statement, send the payment to the address listed on your agreement.

In case of defaulting, immediately contact the IRS to make an appeal. The IRS cannot begin collection action till they reject your appeal. You may explore tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement if you are having difficulty in paying the minimum monthly payments.