The Acceptance Letter
When the IRS approves your installment agreement, you receive Letter 148C or a similar acceptance notice. This letter confirms your monthly payment amount, the due date, and the terms of the agreement. Read it carefully. The terms include requirements beyond just making payments: you must file all future returns on time, pay all future taxes in full, and not incur any new tax debt. Violate any of these terms and the agreement can be terminated.
Payment Reminders
The IRS sends CP521 notices as payment reminders. These confirm your next payment amount and due date. If you are on a direct debit installment agreement, these are informational. If you are making manual payments, treat them as your reminder to pay on time.
The Default Warning: CP523
This is the letter nobody wants to see. CP523 means the IRS intends to terminate your installment agreement. Common reasons include missed payments, unfiled returns, or new tax balances. You have 30 days to cure the default. Call the IRS immediately, explain the situation, and make the missed payment. If you act quickly, the agreement can often be reinstated.
Terms Changes
Letter 177C or Letter 3477 may notify you of changes to your installment agreement terms. This could happen because additional tax periods were added to the agreement, your financial situation changed, or the IRS reviewed and revised the terms. Review any changes carefully and contact the IRS if the new terms are not workable.
Annual Statements
While on an installment agreement, you will continue to receive annual balance due reminders (CP71 or CP71A). These show your remaining balance including accrued penalties and interest. The balance will decrease as you make payments, but it decreases slowly because interest continues to accrue on the unpaid balance.
Protecting Your Agreement
The most common reason installment agreements fail is unfiled returns. Many taxpayers set up a payment plan, start making payments, and then fail to file the next year's return on time. That single missed filing can trigger a default notice and terminate the entire agreement. File every return on time, even if you cannot pay the balance due on the new return.
An installment agreement is a contract with the IRS. Keep your end of the bargain and they will keep theirs. Break it and you are back to square one with levy authority restored.