CP523 (Intent to Terminate Installment Agreement and Seize Your Assets)
If you default on an installment agreement, the IRS will send Notice CP523. This notice alerts you that your agreement is about to be terminated, but you can avoid termination by taking action.
Key takeaways
- What? Notice 523 Installment Agreement in default
- Who? Taxpayers who miss a monthly payment, incur new tax debt, or fail to file a return.
- Why? You have not stayed compliant with the terms of your installment agreement.
- Next steps? Make up the missing payment, contact the IRS to create a new installment agreement, or apply for another form of IRS tax relief.
- Deadline? 30 days
If you find yourself in this position, read on to learn more about the steps you can take to regain control over your tax issue.
What is Notice CP523?
Notice CP523, also known as “Notice of Intent to Terminate your Installment Agreement” and “Notice of Intent to Levy,” notifies you that the IRS plans to end your installment agreement. At this point, you can still get back into good standing and keep your payment plan active, but you must act quickly.
If you don’t pay the missing payment or make suitable arrangements by the deadline, the IRS can demand payment in full. Then, the agency can start the collection process, which may include seizing tax refunds, taking away your passport, freezing the funds in your bank account, and/or seizing your assets.
Why Did the IRS Send Me Notice CP523?
The IRS sent this notice because you have defaulted on one of the terms of your payment agreement. This usually happens because you missed a monthly payment or incurred a new tax debt. You may also receive the notice if you:
- didn’t file a tax return,
- failed to make estimated quarterly tax payments or
- broke other terms of the agreement.
The IRS may also send this notice if it discovers that you provided false information when applying for the installment agreement.
What to Do if You Receive CP523
If you want to keep your installment agreement active, you must quickly address the reason for default. Generally, you get 30 days from the date the notice was sent, but always check the deadline on your notice to be sure.
For example, if the CP523 says that your plan fell into default because you incurred a new tax debt, pay that bill in full, and then contact the IRS to ensure your payment plan is still active. If you received CP523 after missing a monthly payment, pay that amount and then continue your installment agreement as usual.
If you’re unable to pay your new tax debt, catch up on monthly payments, or take other recommended actions, you should contact a tax attorney. They will know the ins and outs of working with the IRS and be able to help you get the best resolution for your situation.
How to Appeal an Installment Agreement Termination
Luckily, you can appeal the IRS’ decision to terminate your agreement by making a request through the Collection Appeals Program (CAP). If the CP523 doesn’t outline how to appeal, then just contact the IRS directly. Usually, with the CAP, you will appeal to the supervisor of the IRS employee handling your case. Then, if you disagree with their decision, you can request an appeal.
During the appeal, you will be able to explain why you disagree with the termination and be able to suggest alternatives. However, you need to move forward very carefully. You cannot appeal a CAP decision in Tax Court. To be on the safe side, you may want to work with a tax professional.
What if You Ignore Notice CP523
If you ignore Notice CP523, the IRS will move forward with terminating your installment agreement. Then, your tax debt will be due in full, and the IRS can try to enforce collection actions.
The agency will issue a federal tax lien if one is not already in place — this gives the IRS a legal right to the proceeds of any assets you sell (up to the amount of the tax debt plus interest, fees, and collection costs). A lien also makes taking out loans against your assets very difficult.
If you don’t pay, the IRS may also garnish your wages, take the funds in your bank accounts, or seize other assets. The agency has the power to take nearly anything, including your home, in some situations. That’s why it’s so critical not to get behind.
Dealing With Tax Debt After Installment Agreement Termination
If your installment agreement is terminated, you will owe the IRS the balance in full immediately. Your options for tax relief depend on the situation, but here are some of the possibilities:
- Apply for a new installment agreement — The IRS may not approve your application based on your recent termination, and if they do, you will have to set up direct debit payments with Form 433-D or payroll deductions.
- Consider an offer in compromise — If you can prove that you can’t afford to pay, you may be able to get a settlement. Keep in mind that almost half of OIC applications are denied, so working with a tax professional will yield the best chances of a successful application.
- Look into a partial payment installment agreement — This is when you make small monthly payments, and when you get to the end of the collection statute period, the IRS waives the remaining amount of debt. This can save you money, but you must submit many financial details.
- Request currently not collectible status — If you get CNC status, the IRS will not pursue any collections against you until your financial situation improves.
Alternatives such as innocent spouse relief or an offer in compromise based on equitable tax administration may be worth considering, depending on the situation.
Is Notice CP523 Common?
If you’ve received this notice, you are not alone. Many people on IRS payment plans go into default, and the most common reason for default is incurring new tax debt. The reason payment plans have such high default rates is debatable, but one possibility is that people set up payment plans that they can’t afford because they don’t work with tax professionals.
In fact, an independent analysis of IRS tax debt resolution programs indicates that almost a quarter of people on monthly payment plans could have qualified for an offer in compromise or a partial payment installment agreement instead. The best way to avoid this situation and to ensure the best possible outcome for your unique tax issue is to consult a tax expert when you receive a CP523 notice.
How to Avoid Termination of Your Payment Plan
Once you receive Notice CP523, you probably never want to go through that stress again. To stay current on your payment plan and avoid default in the future, consider the following tips:
- Choose the best payment date for your budget – You can go online and pick any day from the 1st to the 28th of the month.
- Pick a low payment – Then, you can pay extra on months where you can afford it, but you don’t have to worry about not being able to afford your payment.
- File returns on time – Filing on time helps to reduce penalties even if you owe tax.
- Update your W4 – Increase your withholding to avoid a future tax bill. If you’re self-employed or have multiple jobs, you should fill out the extra section of this form to ensure the withholding covers all of your income.
- Consult with a tax attorney if you cannot afford your payments – A payment plan might not be the best option if you’re struggling to make payments. A tax attorney can help you explore other options.
FAQs About Installment Agreement Default and Termination
What if I cannot afford the minimum payment on my installment agreement?
If you can no longer afford the minimum payment, you need to reach out to the IRS to try to modify your payment plan. Depending on the situation, you may be able to get a reduced payment by establishing a partial payment installment agreement, or you may be able to get a longer payment term. In both cases, you will need to file a collection information statement such as Form 433-F, 433-A, or 433-B.
What if you keep forgetting to make monthly payments?
If you cannot remember to make your monthly payments, consider setting up direct debit payments. You may be able to do this online or by filing Form 433-D.
How do you stay on top of quarterly estimated tax payments?
The IRS can also default on your agreement if you don’t pay your estimated quarterly payments. Generally, you must make payments that are a quarter of your prior year’s tax liability, and if you don’t, your payment will be considered late. However, if you are earning less this year or paying more through withholding at your job, you can use Form 1040-ES to calculate the correct amount for your payment.
Get Help With Notice CP523
At Wiggam Law, we have extensive experience helping people with IRS and state tax debt. Have you just received Notice CP523? Are you worried about going into default on your payment plan? Need help dealing with the IRS? Then, call us at (404) 233-9800 or fill out our online form to schedule a consultation, and we can take the first steps towards a solution together.