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I DEFAULTED ON MY IRS PAYMENT PLAN, WHAT STEPS SHOULD I TAKE?

Posted by Michael S. Anderson | Oct 28, 2021 | 0 Comments

WHAT IS AN IRS PAYMENT PLAN?

Most individuals with IRS debt will qualify to make payments on the IRS debt over time.  The IRS typically calls these  "installment agreements".   Most people call them "payment plans".

There are different kinds of IRS payment plans.  Some are set up to pay the IRS debt in full before the collection statute expiration date expires, some pay only a portion or none of the IRS debt before the IRS collection statute expiration date expires. Learn More

Whether or not the IRS payment is set up to full pay or to "partial pay", many taxpayers, at some point during the process, default on the payments.  

Sometimes this happens because the taxpayer doesn't understand that the IRS will only agree to one payment plan at a time that takes into account every year's debt.  

WHAT ARE THE REASONS WHY PEOPLE DEFAULT?

Taxpayers default for several reasons:

LATE FILED RETURN

If the taxpayer filed a return late after the payment plan is arranged, the system will kick the taxpayer out or default the payment plan.

NEW BALANCE

If the taxpayer has a new debt after the payment plan is arranged either from a new tax year, or as a result of an IRS audit, or CP2000 related debt, the IRS will eventually default the payment plan.

PAYMENTS MISSED

If the taxpayer misses two payments within one tax year, the IRS will default the payment plan.

FAILURE TO PROVIDE UPDDATED INFORMATION

If the taxpayer is asked to update financial information (the IRS will usually ask every two years if in a payment plan or every year in a non-collectible status arrangement), and doesn't, the IRS will default the payment plan.

WHEN THE PAYMENT PLAN DEFAULTS, WILL THE IRS LEVY OR GARNISH?

If the taxpayer defaults on the plan, the system will eventually move the debt back into the IRS' collection system. That collection system will first send a "notice of default" and provide 30 days to correct the problem/request re-instatement. 

If the taxpayer doesn't request re-instatement within the 30 day period, the IRS will terminate the payment plan.

The taxpayer will then have 30 days to appeal the termination.

If the appeal isn't filed or if it's unsuccessful, the IRS can start the collection process again and issue levies, garnishments etc.

HOW TO PREVENT IRS COLLECTION WHEN A DEFAULT OCCURS?

ASK FOR RE-INSTATEMENT

If the taxpayer asks for the payment plan to be re-instated within the 30 day initial period, the IRS may agree and simply reinstate the plan OR it may ask for new/updated financial information for review.

The IRS will usually agree to reinstate the plan if the default occurred because of new debt that can be paid in a few months or the taxpayer qualifies for a streamlined payment agreement and hasn't defaulted within the last 12 months on the payment plan.

RE-ANALYZE OPTIONS AND WORK WITH IRS ON NEW PLAN

If the IRS requests updated financial information and won't re-instate the plan, the taxpayer may be able to avoid providing it if the taxpayer qualifies for streamlined/non-streamlined payment plans.  If an "ability to pay" plan or non-collectible status are necessary, the detailed financial information will have to be provided.  

Either way, the payment plan will end up looking different than the previous plan.  This may be good or not depending on the current debt amount, and the taxpayer's current income, budget, and asset situation.

About the Author

Michael S. Anderson

Michael Anderson has been representing Arizona clients with tax debt problems for two decades and has helped his clients eliminate millions of dollars in tax debt. His tax debt practice is limited to helping individuals and the self-employed who have serious IRS problems.

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If you have an IRS problem, call our office and ask to speak with the Attorney about it. We like to discuss the situation on the phone for free to ask you some questions, answer some of yours, and to determine whether it may make sense for us to help. We’ve helped several thousand clients with tax debt problems over the last two decades. We’ll tell you the truth about your options and help you find the best one.