Can the IRS Change an Installment Agreement?

••• Comstock Images/Comstock/Getty Images

The Internal Revenue Service will change your installment agreement if you miss payments or your financial condition changes, which might involve increasing or reducing payment amounts. The IRS can revoke the agreement if you fail to file tax returns after the agreement or you provided inaccurate information in negotiating terms for the agreement plan. Stay in contact with the IRS when you your ability to make monthly payments changes.

Pay What You Can Afford

Installment agreements through payment plans for the IRS arise when you are unable to immediately pay the taxes you owe in full. Instead, the IRS allows you to make monthly payments with the installment plan. However, you face fees and interest on the tax you owe as long as the agreement stays in effect. The IRS and tax attorneys encourage taxpayers to use any possible financial sources, including loans or credit cards, to pay taxes in full and avoid additional costs incurred through installment agreements. If you need an installment agreement, arrange to pay as much as you can each month to reduce and eventually eliminate the rising interests on your tax debt.

Reinstatement or Termination

Once your installment agreement has been established, you need to make your scheduled payments each month. If you don’t or can’t, you face reinstatement fees or termination of your payment plan. Notifying the IRS that you will make late payments or have difficulty making the payments will help avoid levies on your income, salary, bank accounts or property.

Late Payment Notifications

A missed payment may result in a notification from the IRS and a requirement on form CP 521 to make the late payment, which includes information on added fees and interest charged. The CP 521 notice indicates a change in the installment agreement is pending. Failure to make the late payment or contact the IRS could lead to an immediate cancellation of the agreement. The warning provides you a chance to continue the agreement plan. The IRS usually provides a 30- to 60-day waiting period before revoking the plan.

Changes to Plan

Changes may occur to your financial situation. The IRS usually reviews your case every year or two, but you can help maintain the terms of your agreement by contacting the IRS when these situations change. You will need to submit a new form 433-A to continue the agreement. If your income improves, the IRS might demand higher payments each month. You could be entitled to lower payments if your financial situation worsens, but this leads to continued interests and fees on your account, making it more difficult to pay off your tax debt. In severe cases, in which you cannot pay off your taxes, you can arrange for a partial payment installment agreement, in which you pay less than the full amount over time. This method requires more details regarding financial disclosure and approval from the IRS.