Just because you are in an IRS Installment Plan with the IRS doesn't mean that your work is done. One of the common questions I get is “why did the IRS terminate my installment plan?”.
The following are the most common reasons why this happens.
Your Income Changed
When you file a tax return the IRS reviews it to determine whether you income has changed i.e. increase. If they see this and you are in a partial pay installment plan or a plan based on your income and budget, they will send you a letter indicating that the plan will end unless you provide updated financial information. Unless your payment plan is guaranteed or streamlined, the IRS will request new financials when it sees the increase in income.
You Didn't File a Return
Installment plans are contingent on compliance. If you late file a future tax return….it will send you a notice of intent to terminate your agreement and send you back to collection. You will have to file any missing returns, and negotiate a new plan.
You Didn't Pay a Future Debt
If you file a subsequent return on time and it has a balance due but you don't pay it, the IRS will do the same thing as if you didn't file the return on time. It will send a notice terminating the agreement and force you to re-supply your financials.
You are in a Partial Pay Installment Agreement
Many people with tax debt are either in non-collectible status arrangement or they are in a partial payment installment agreement with the IRS. In a partial payment agreement, you aren't paying enough to the IRS to pay the debt owed before the 10 year clock on collection runs out. (IRS Statute of Limitations on Collection) This type of arrangement is allowed, but the law requires that the IRS review the arrangement every few years.
You owe the IRS $75,000, and have convinced them to accept $100.00 per month toward it. The Statute of Limitations period has 4 years or 48 months remaining to collect the debt of the 10 year total time-frame it has to do so. Six years have elapsed. About 2 years into that 4 year remaining period, the IRS should send you a letter asking you to supply updated financial information.
If you make a late payment, the IRS will typically warn you, but if not caught up, it will sever the installment agreement and you will have to re-negotiate it.
Contact the IRS as soon as you are having one of the problems above. If you are having trouble, don't ignore the situation. Call the IRS and ask for a month off. Review any changes in your financial situation and re-think whether some other option may now make more sense like Non-Collectible Status, a Lower Installment Agreement, Bankruptcy, or an Offer in Compromise.
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