IRS Notice CP 523: Default on Installment Agreement

Notice CP 523 (IRS Installment Agreement Default) is the letter the IRS sends when you default on an IRS payment plan. This notice explains your payment plan is in default and that the IRS may terminate it if you fail to act within 30 days. It also warns you that the IRS may file a tax lien can start to levy assets such as a state refund after approximately 90 days if you take no action.

If you live in the United States, the IRS sends this notice through certified mail, and if you live out of the country, it comes via registered mail. Here is an example of CP-523 from the IRS.

When Do People Receive Notice CP 523?

If your monthly payment doesn’t go through or if your check bounces, the IRS considers that to be a payment plan default. An IRS installment agreement default may also happen in other situations. Namely, if you refuse to provide financial information as requested or if the IRS finds out that you provided incorrect information when applying for your payment plan, you may be in default. Additionally, if you obtain a new balance, or fail to file a tax return, your payment plan can also be terminated. Finally, if you fail to make required estimated tax deposits or estimated tax payments, this can lead to default as well.

What Should You Do If You Receive Notice CP 523?

If you receive Notice CP 523, you should attempt to make a payment before the termination date or payment deadline listed on the notice. That can get your installment plan back in good standing in many cases. It is always best to call the IRS to confirm the reinstatement and not just send payment.

If the IRS mistakenly terminated your payment agreement, or you do not agree with the amount due, contact the IRS at the number on the top of the letter.

When a new balance accrues, it will automatically lead to a payment plan default. If you receive a default because of a new balance you cannot pay, call the IRS or contact a tax professional to see if he or she can restructure the new balance into a new monthly payment plan. You may have to fill out a 433-F for the IRS in most cases, which is a financial statement.

If you are unable to resolve the situation by calling the IRS directly, you can request a CAP (Collections Appeals Program) to challenge the termination of the Installment Agreement. Remember the CP-523 notice warns and provides the date of termination if you fail to pay. Once that date arrives, you have 30 days to request a CAP Appeal.

How to Appeal the Termination of Installment Agreement

If you are not able to resolve the matter through the online portal or by calling the IRS, you can request a CAP (Collection Appeals Program) to challenge the termination of the payment plan. The CP523 notice provides a date of termination if you don't pay. Once that date arrives, you have 30 days to request a CAP Appeal. 

You have the right to request a CAP appeal, which can be used for a wide range of collect actions, which include rejection, modification and termination of an installment agreement. A CAP appeal differs from a Collection Due Process (CDP) hearing in that you cannot appeal the decision later in US tax Court. 

What Happens After You Receive Notice CP 523?

After the IRS issues Notice CP 523, the following timeline generally takes effect.

• If you don’t make a payment or contact the IRS by the date indicated on the notice, the IRS may terminate the payment plan 30 days after the date printed on the notice.
• After the IRS issues the notice, you have 45 days to appeal a defaulted agreement.
• After the IRS issues the notice, you have 76 days from the notice of intent to terminate the IA to appeal, but you have to wait until the agreement terminates.

If you don’t respond to IRS Notice CP 523 within 13 weeks (basically 90 days), the IRS changes the status of your account. At that point, the failure-to-pay penalty rate increases, and the IRS can file a federal tax lien. Then, the IRS may seize assets like a state tax refund. To avoid that, contact the IRS or have a tax professional reinstate your payment plan as soon as you receive the notice of your IRS payment plan default.

If you received an IRS CP523 notice, it does mean your installment agreement is in default. Taxpayers who default on installment agreements are subject to IRS collection actions. It is important to either contact the IRS to resolve the tax issue or contact a tax professional to handle it for you. 

In some cases, the IRS may not wait to issue the levy and start seizing assets. If they have sent you a notice of your appeal rights in the past about the levy, then a levy could include funds in your bank account or your wages. The IRS can also start the levy right away if it thinks tax collection is in jeopardy.

What If You Can No Longer Afford Your Monthly Payment Under the Installment Agreement?

If you are struggling to keep up with the payments of your monthly installment agreement, there are steps you can take to adjust your plan with the IRS. The IRS knows that financial situations change, and they allow taxpayers to make changes to their current payment plans with them. Below are some steps to take:

• Assess Your Financial Situation: Review your current situation to determine what is a better monthly amount that is reasonable. Maybe something changed with your income. Identify the key things that have changed since you initially set up your payment plan, as it may be required to provide financial proof. 
• Contact the IRS: You can call the toll-free number provided on the CP523 notice, or you can go online to make adjustments as well, depending on the type of agreement you have set up. 
• Submit a New Installment Agreement: You can apply for a new payment plan if your current one does not work for your financial situation. You can potentially reduce your monthly payment amount to something you can afford. 
• Prepare Supporting Documents: You may be required to submit supporting documentation that verifies your change in financial status.

How to Get the Installment Agreement Reinstated After Receiving IRS Notice CP 523

To reinstate your payment plan, you need to reach out to the IRS directly or get a tax professional to do it on your behalf. Typically, you have to provide some additional financial details to the IRS, and the representative may have to get approval from their manager to reinstate the agreement. The agent may ask why you defaulted and how you are going to avoid default in the future.

They may also ask for some details about your assets, and they may even require you to fill out a new form 433-D (Installment Agreement). That’s a short one-page form. Finally, the IRS may require you to set up direct debit payments or payroll deductions. That just makes the new payment arrangement more secure.

However, if you are in a streamlined payment agreement and this is your first default in 12 months, you may not have to provide any extra financial details to get the payment plan reinstated. Note that you may have to pay a reinstatement fee of $50.

If the IRS terminates your agreement due to new unpaid tax liabilities, you may have to pay those amounts before you can restart your payment plan. However, usually, if your new tax amount owed is equal to less than two monthly payments on your current payment plan, you can roll the taxes into your payment plan. In this situation, you can also get your payment plan reinstated without giving the IRS any additional financial details.

Get Help Responding to Notice CP 523

To get help after receiving CP 523, speak to a licensed tax professional with expertise in resolving installment agreement problems. Start your search today using the form below and let our algorithm do the hard work of finding the best tax professional.