When taxpayers are unable to pay their taxes in full, the IRS often grants them an installment agreement. This agreement allows the taxpayer to make monthly payments to the IRS toward their debt. However, what happens if a taxpayer fails to keep up with their payments? Can the IRS terminate an installment agreement?
The short answer is yes, the IRS can terminate an installment agreement. But before we dive into the reasons why the IRS may choose to do so, let`s first review what an installment agreement is and how it works.
An installment agreement is a payment plan that allows taxpayers to pay off their tax debt over time, usually in monthly installments. The terms of the agreement can vary depending on the amount owed and the taxpayer`s financial situation, but typically, the IRS requires that the full amount of the debt be paid off within a certain amount of time. This timeframe can range from a few months to several years, depending on the situation.
Now, let`s talk about why the IRS may choose to terminate an installment agreement. Here are some of the most common reasons:
1. Failure to make payments: If a taxpayer fails to make their monthly payments on time, the IRS may terminate their installment agreement. The IRS will typically send the taxpayer a notice reminding them of their missed payment and giving them a deadline to catch up. If the taxpayer fails to do so, the IRS may terminate the agreement.
2. Failure to file tax returns: If a taxpayer fails to file their tax returns on time while on an installment agreement, the IRS may terminate the agreement. The IRS requires that all taxpayers on an installment agreement remain current with their tax filings.
3. Change in financial situation: If a taxpayer`s financial situation changes, such as if they get a new job or inherit money, the IRS may reevaluate their installment agreement. Depending on the circumstances, the IRS may choose to terminate the agreement and require the taxpayer to pay the debt in full.
4. Failure to provide updated financial information: The IRS may require that taxpayers on an installment agreement provide updated financial information periodically. If a taxpayer fails to do so, the IRS may terminate the agreement.
If the IRS does choose to terminate an installment agreement, the taxpayer will typically receive notice in the mail. The notice will explain why the agreement was terminated and what steps the taxpayer can take to resolve the situation. In some cases, the taxpayer may be able to appeal the decision.
In conclusion, while an installment agreement can be a helpful tool for taxpayers struggling with tax debt, it`s important to keep up with payments, file tax returns on time, and provide updated financial information as needed. Failure to do so can result in the termination of the agreement, leaving the taxpayer with a larger debt to pay off.