If you have an installment agreement with the IRS and you receive a CP523, something went wrong. This notice is the IRS telling you they intend to terminate your payment plan. Once the agreement terminates, the IRS can immediately resume full collection activity, including levies and liens. You have 30 days to cure the default.
Why Your Agreement Is Defaulting
The IRS terminates installment agreements for several reasons. The most common is missed payments. You skipped a month, your bank account didn't have enough for the automatic debit, or your payment was late. One missed payment can trigger the CP523.
The second most common reason is unfiled tax returns. Your installment agreement requires you to stay current on all filing obligations. If you didn't file your most recent return on time, the IRS considers that a violation of the agreement terms.
The third reason is a new balance due. You set up a payment plan for 2022, but then you filed your 2023 return with a balance. That new balance wasn't covered by the original agreement, and the IRS treats it as a default condition.
Less common reasons include failure to provide updated financial information when requested and failure to make estimated tax payments if you're self-employed.
What Happens If the Agreement Terminates
Bad things. Once the installment agreement terminates, the IRS regains full levy authority. They can levy your bank account, garnish your wages, seize accounts receivable, and grab your state tax refund. The full balance becomes immediately collectible with no payment plan protection.
The IRS may also file a Notice of Federal Tax Lien if one hasn't been filed already. If a lien was being held because of the agreement, it may now be filed publicly.
Getting a new installment agreement after default is harder than getting the first one. The IRS may require a larger monthly payment, a direct debit agreement, or full financial disclosure. There may also be a reinstatement fee.
How to Cure the Default
Read the CP523 carefully. It tells you why the agreement is defaulting. Address the specific reason.
If you missed a payment, make it immediately. Then make your regular payment on the next due date. Call the IRS at the number on the notice to confirm the agreement is being reinstated.
If you have an unfiled return, file it immediately. If the return has a balance, you may need to modify your installment agreement to include the new period.
If a new balance triggered the default, you'll need to address that balance either by paying it, adding it to the agreement, or explaining why it exists.
Prevent Future Defaults
Set up automatic debit for your installment agreement payments. Never miss a filing deadline while you're on a payment plan. If you're self-employed, make adequate estimated tax payments so you don't generate new balances. If your financial situation changes and you can't make the payments, call the IRS and request a modification before you miss a payment.
The IRS would rather modify an agreement than terminate one. But they need to hear from you before the default, not after.
If you've received a CP523, call us immediately at (813) 229-7100. The 30-day clock is running.