The Internal Revenue Service (IRS) has a number of ways to both accommodate struggling taxpayers while also mitigating losses in connection with taxpayer’s failing to meet their tax obligations, one of which is to put a taxpayer in default on an installment agreement. Under the terms of an installment agreement, a taxpayer will typically have to pay his or her tax obligation in full, but may do so over a financially feasible period of time and at a financially feasible interest rate.
When a taxpayer decides to enter into an installment agreement, he or she promises to make payments in a timely fashion under the terms of the agreement. Failure to do so can put the taxpayer right back where he or she started before the agreement was entered into. At such point, the taxpayer may receive a CP 523 Notice from the IRS. A CP 523 Notice is a notice from the IRS that the taxpayer has failed to meet his or her obligations under the terms of the agreement, and at that point the taxpayer will have 30 days to comply with the terms of the original agreement. If the taxpayer fails to comply within 30 days, the agreement will be terminated. Internal Revenue Service, Internal Revenue Manual, 126.96.36.199 (3-11-2011), Defaults and Terminations: IDRS Monitored Agreements, available at https://www.irs.gov/irm/part5/irm_05-014-011.html.
A taxpayer will typically receive a CP 523 where the agreement under which the taxpayer has faulted is what is known as an Integrated Data Retrieval System (IDRS) agreement. Such agreements are monitored under the IDRS system because they are garden-variety installment agreements. The IDRS system will note when the taxpayer has failed to meet his or her obligations under the agreement, at which point a CP 523 agreement is generated and sent to the taxpayer in default. Some installment agreements are not IDRS monitored, normally where the payment amounts are varied or some other special circumstance obtains such that manual monitoring of the installment agreement is required.
The CP 523 is formally known as the “CP 523, Default Installment Agreement-Notice of Intent to Levy,” and receipt of this form means that the IRS not only intends to terminate the installment agreement if no compliance occurs within 30 days, but also that that IRS intends to levy on the assets of the taxpayer in default after the 30 days has passed. Taxpayers that have received this form should act quickly, and do what they can to salvage or modify the agreement in some way. Failure to do so could result in an IRS levy, and may also preclude the IRS from working with the taxpayer on future installment agreements in the future. Tax debtors in such situations should speak with a licensed tax attorney to learn more about their options under IDRS installment agreements.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.