Taxation & Estate Planning

Defaulted on your IRS installment agreement? Where do you turn now?

By howardlevy

You promised the IRS a monthly payment that your budget could no longer bear.  Or you tried so hard to repay your back taxes that you fall behind on this year’s return.  Your intentions are good, but this has caused your IRS installment agreement to default.  Where do you turn next?

First, it is important to know that the IRS must send you a notice of default before it can end your installment agreement and start collecting again.  This notice is titled “Notice of Intent to Levy!!! You Defaulted on Your Installment Agreement.”  If you are unsure if you have recieved this notice, take a look at it here.  With this notice comes very important rights.

After the IRS sends the notice of default, you have 30 days to file an appeal to renegotiate the installment agreement.  

Here is the important part:  If you file the appeal timely, the IRS cannot take any collection action or enforce the default until your appeal hearing is completed.   This is mandated by law  – Internal Revenue Code 6159(b)(5) - and by the Internal Revenue Manual (IRM 5.14.11.9).

Renegotiating installment agreements in IRS appeals protects your wages, bank accounts and assets from IRS collection action while a new plan of resolution is negotiated.   There, you can provide updated financial information – without any threat of levy – to solve the default.  You will also have the benefit of having one person being responsible for your case – an IRS appeals officer – rather than the chance of dealing with multiple personalities in the IRS Automated Collection Service.

If you are unable to repay your IRS debt, other options available to you include offer in compromise, bankruptcy or being placed in IRS uncollectible status.  If you owe under $25,000, the IRS has simple streamlined installment agreement process – learn more about that at my prior post here.

Defaulted installment agreements reflect the reality of our economy.  But you can keep the IRS at bay if you have defaulted and get your life back on track.

Full post as published by IRS and the Law on March 07, 2010 (boomark / email).