Why did the IRS terminate my installment plan?

images-thumb-375x534-61823Just because you are in an IRS Installment Plan with the IRS doesn’t mean that your work is done.  One of the common questions I get is “why did the IRS terminate my installment plan?”.

The following are the most common reasons why this happens.

Your Income Changed

When you file a tax return the IRS reviews it to determine whether you income has changed i.e. increase.  If they see this and you are in a partial pay installment plan or a plan based on your income and budget, they will send you a letter indicating that the plan will end unless you provide updated financial information.  Unless your payment plan is guaranteed or streamlined, the IRS will request new financials when it sees the increase in income.

You Didn’t File a Return

Installment plans are contingent on compliance.  If you late file a future tax return….it will send you a notice of intent to terminate your agreement and send you back to collection.  You will have to file any missing returns, and negotiate a new plan.

You Didn’t Pay a Future Debt

If you file a subsequent return on time and it has a balance due but you don’t pay it, the IRS will do the same thing as if you didn’t file the return on time.  It will send a notice terminating the agreement and force you to re-supply your financials.

You are in a Partial Pay Installment Agreement

Many people with tax debt are either in non-collectible status arrangement or they are in a partial payment installment agreement with the IRS.  In a partial payment agreement, you aren’t paying enough to the IRS to pay the debt owed before the 10 year clock on collection runs out.  (IRS Statute of Limitations on Collection)  This type of arrangement is allowed but the law requires that the IRS review the arrangement every two years.

An Example

You owe the IRS $75,000, and have convinced them to accept $100.00 per month toward it.  The Statute of Limitations period has 4 years or 48 months remaining to collect the debt of the 10 year total time-frame it has to do so.  6 years have elapsed.  2 years into that 4 year remaining period, the IRS should send you a letter asking you to supply updated financial information.

Late Payment

If you make a late payment, the IRS will typically warn you, but if not caught up, it will sever the installment agreement and you will have to re-negotiate it.

Avoiding problems

Contact the IRS as soon as you are having one of the problems above.  If you are having trouble, don’t ignore the situation.  Call the IRS and ask for a month off. Review any changes in your financial situation and re-think whether some other option may now make more sense like Non-Collectible Status, a Lower Installment Agreement, Bankruptcy, or an Offer in Compromise.

 

Written By:

michael-anderson-tax-lawyer-mesa-azAnderson Tax Law
2158 N. Gilbert Rd. Ste 101
Mesa, Arizona 85203

Phone: (480) 507-5985
Fax: (480) 507-5988
Email: [email protected]
Website: https://taxlawyeraz.com

 

Differences between the IRS CP504 letter and the IRS LT11 letter are important to understand

downloadIRS CP 504 Letter vs. IRS LT 11 Letter

The IRS likes to remind you about tax debt.  As part of it’s collection process it sends these reminders in the mail with bold lettering that says “NOTICE OF INTENT TO LEVY”.   Most people don’t know however that there are two types of Notice of Intent to Levy letter.  The first is a “CP 504” and the second is an “LT11”.

Differences between the IRS CP504 letter and the IRS LT11 letter are important to understand.

The CP504 letter states that it is a notice, it includes the debt amount, years owed, and it typically states that the IRS intends to seize your state tax refund or other property.  It then threatens the seizure of assets again if no call or payment is made.

To the average person this letter tells them that levy will be happening and soon.

But…the CP504 letter is a “toothless” letter.  It’s toothless because the IRS can’t actually levy anything until it sends out the second letter, the LT11.

The Internal Revenue Code section 6330 requires the IRS to send notice letters before it can levy but as part of that notice it must inform you of your right to file an appeal of the collection activity within 30 days of it’s mailing.   The LT11 letter contains that language and the form needed to file the appeal along with instructions.  The LT11 letter is also sent by certified mail to your last known address.

 

It’s important to understand the difference between the two letters for a few reasons:

1.  If you receive a cp504 letter you know that you still have time to get legal advice and plan your case in order to best take advantage of the law before proposing a solution to the IRS or filing a bankruptcy.  You don’t necessarily want to approach the IRS prematurely.

2.  If you receive an LT11 letter, you can appeal collection activity allowing you more time to prepare the case.

3.  If you receive an LT11 letter, you can appeal and preserve your rights to challenge the IRS’s eventual decision to Tax Court.

4.  Once the 30 day timeframe is passed after the LT11 mailing date, the IRS can and will levy.

What you should do if you owe

If you owe the IRS, and don’t know whether the LT11 letter has been issued, you need to obtain an IRS account transcript.  This transcript will tell you whether a “real” Final Notice of intent to levy has been issued and when.

If it hasn’t been issued on the year in question then you are safe from IRS collection for the time being.  Instead of calling IRS collection, you should use the extra time to learn more about your options and create a plan if one is available to make your situation better for purposes of reducing or eliminating the debt.

If the LT11 letter was issued, it was to the most recent address the IRS had on file, and more then 30 days have passed, you are subject to levy and should expect it.

There are ways to stop the levy process even if the 30 day period has passed.  An equivalent hearing request can be filed in certain circumstances, a payment plan request, an offer in compromise filed or even a bankruptcy.  Which option you use will depend on your situation.

michael-anderson-tax-lawyer-mesa-azWritten By:

Anderson Tax Law
2158 N. Gilbert Rd. Ste 101
Mesa, Arizona 85203

Phone: (480) 507-5985
Fax: (480) 507-5988
Email: [email protected]
Website: https://taxlawyeraz.com