IRS Notice 0757c

Installment Agreements

IRS letter 0757C informs taxpayers that their installment privilege (agreements) has been terminated. Installment agreements are used to repay taxes owed to the IRS. United States Taxpayers who fail to file a tax return or fail to pay taxes by the deadline are subject, by law, to penalties assessed by the IRS. Taxes unpaid by the original filing deadline are subject to interest and a monthly late payment penalty. The failure to file a tax return is also subject to penalty, which makes filing a timely return important even if the amount of taxes owed cannot be paid in full. One option for taxpayers to resolve their tax debt to the IRS is an agreement to pay the taxes in installment payments.

An installment agreement is a payment plan to pay delinquent taxes within an extended time frame. Taxpayers who believe they can satisfy their tax obligation in full within the extended time frame should consider requesting a payment plan. A short-term payment plan does not subject a taxpayer to any user fees. Taxpayers can apply for a short-term payment plan if they are able to pay the tax debt in full within 120 days and can thus avoid paying the fee to set up the installment agreement. Taxpayers must responsibly manage their account to make an installment agreement work. They must pay at least the minimum monthly payment when due. Also, taxpayers must file all required tax returns on time and pay all taxes in full. While an installment agreement is in effect, the IRS will apply any future refunds to the taxpayer’s debt until it is paid in full.  Penalties and interest continue to accrue until the balance is paid in full.

The IRS will generally not take any enforced collection actions when a payment plan is under consideration or while a plan is in effect. It will also refrain from enforced collection actions for 30 days after a request is rejected or terminated, or during the period it evaluates an appeal of a rejected or terminated agreement.

REASONS IRS INSTALLMENT AGREEMENTS ARE TERMINATED

The IRS is required to give a taxpayer adequate notice before terminating an installment agreement. Taxpayers usually receive IRS Notice CP523 in the mail and are given 30 days to respond or fix the issue. The IRS Notice CP523 is telling the taxpayer that he or she has defaulted on their payment plan. However, your installment agreement is not officially terminated until the 30-day period expires, and you also have appeal rights once the termination notice is sent.

A taxpayer’s installment agreement may be terminated for any of the following reasons:

MISSED PAYMENTS

Missed payments can happen for a number of reasons. It may be that you forgot to send payment or your account had insufficient funds. It may be that you didn’t have the money to send your payment or there was some sort of mix-up or clerical error in the process. The IRS encourages payment by direct debit so that taxpayers don’t need to remember to send a payment every month. Taxpayers may want to see if their plan can be converted to a Direct Debit Installment Agreement if they are having trouble remembering to submit their payments. If your monthly payments don’t fit your budget, you should talk to a tax attorney and see if you may be eligible for lower monthly payments.

NEW UNPAID TAXES

The Internal Revenue Service (IRS) expects you to keep up with your current taxes while making your installment payments. This can difficult to do because you’re effectively paying old taxes and new taxes at the same time. If you miss an estimated tax payment or file a return without paying your tax bill, you have defaulted on your agreement. In some cases, you may be able to add your new tax liability to your existing payment plan, but it will depend on the amount of the tax liability and other factors.

UNFILED RETURNS

You also need to keep up with your tax filing obligations for the duration of your installment agreement. The IRS will generally seize your tax refunds and apply them to your balance, but you are still required to file your returns. Even if you don’t have a tax filing requirement in a given year, the IRS may mistakenly believe you need to file. You may want to file a return just to be safe and keep your payment plan intact. Make sure you contact a tax attorney if you’ve received a Notice of Default (Notice CP523) and want to avoid an IRS installment agreement termination.

HOW TO AVOID AN IRS INSTALLMENT PRIVILEGE TERMINATION

When your installment plan defaults, your installment agreement is bound to be terminated by the IRS. Taxpayers should protect their assets by taking the following steps to avoid an IRS installment plan default in the first place.

DON’T MISS PAYMENTS

Missed payments are a major reason that taxpayers default on their installment agreements. This is one reason that the IRS prefers Direct Debit Installment Agreements so you don’t have to remember to send a check every month. If you do miss a payment, you may have a limited amount of time to correct the default. If you need to renegotiate your agreement, contact a tax attorney for assistance.

FILE YOUR TAX RETURNS

If you are required to file a tax return and fail to do so, you’ve defaulted on one of your obligations under your installment agreement. The IRS can terminate your payment plan, even if you’ve been making all of your monthly payments. File your tax returns on time or request an automatic extension if you can’t meet the deadline. If you expect to receive a refund, be aware that the IRS is generally going to seize your refund and apply it towards your outstanding balance.

AVOID NEW UNPAID TAX OBLIGATIONS

While you’re making your monthly payments on your tax, you’re also probably incurring new tax obligations. You may be required to quarterly estimated tax payments, or you may owe a balance when you file your tax return. A failure to pay these amounts on time and in-full can constitute a payment plan default. In some cases, you may be able to add these amounts to your existing plan and either increase your monthly payment or extend your repayment period.

Lastly, if you receive the letter 0757C, it means that your installment agreement is being terminated and it also means that you have received notice CP523 before and the IRS didn’t receive a response. Don’t give up. Get your tax professional to help as they will know the best way to handle your situation.