Taxpayers who owe back taxes to the IRS can take advantage of an installment plan to repay their balance due. Installment plans allow individuals to set their own payment amount and payment date so that they can afford to repay their debts. To sign up for an IRS payment plan, taxpayers must complete Form 9465 "Installment Agreement Request" and submit it to the IRS. But what if you default on an IRS installment agreement? What can happen to you because of defaultng? What will the IRS do next?

Situations That Could Cause You to Default

It's very easy to default on an IRS installment agreement. If you miss a single payment, you will automatically default on the plan. If you provide false or incorrect information on your installment agreement request the agency could revoke your plan and require you to pay the entire balance immediately. Loss of income can also make it impossible for you to meet your monthly repayment amount, causing you to default on your agreement. If your account goes into default, you'll receive a CP-523 notice from the IRS that reports the status of your account. Generally, if this is your first missed payment, you'll have at least 30 days before the IRS places your account into default.

Communicate With the IRS Immediately

The most important thing to do if you default on an IRS installment agreement is to contact the IRS right away. Failure to communicate with the agency can lead to a tax lien being placed on your property or to having your assets seized to repay the back taxes. On the other hand, if you speak with an agent as soon as you default, you can avoid these consequences by requesting that your installment plan be adjusted to reflect your new financial circumstances. For example, if you've lost a major source of income that makes it hard to repay your debt, you can request a lower repayment amount until your income returns to normal.

Set Up Automatic Payments

Once you've renegotiated your installment agreement terms, it's a good idea to establish automatic payments so that you don't accidentally miss a payment again. On IRS Form 433-D "Installment Agreement", you can enter your bank account number and bank routing number so that the payment is automatically withdrawn from your funds each month.

Defaulting on an IRS installment agreement doesn't mean the end of the world. If you communicate with the IRS as quickly as you can, you can avoid facing a tax lien and return your account to good standing.  As with all tax related matters talking with a tax resolution professional can help you sort out all the options.