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The Internal Revenue Service (IRS) sends notices to taxpayers when they’re in default. One such notice or letter you may receive is the IRS CP523. The best way to avoid receiving these notices is by paying your tax obligations on time. What is IRS CP523 notice, and how do you respond to it?
What Is IRS Notice CP523?
If you default on an IRS installment agreement, you receive Notice CP523. Other terms used to describe or identify notice CP523 are “Notice of Intent to Levy” and “Notice of Intent to Terminate.” This notice notifies the recipient that the IRS plans to end their installment agreement because they defaulted on it. You’ll receive this notice by certified mail if you live in the United States. If you live outside the U.S., you’ll get the notice as registered mail.
Why would the IRS send a certified letter? The IRS uses certified mail instead of regular mail to receive proof of mailing and delivery. The IRS will know that you received the notice, and you can’t claim that you never did. IRS also uses certified mail because it’s important you respond to the notice promptly. The notice may have crucial deadlines you must meet.
Why Did You Receive a CP523?
The main reason the IRS sends the CP523 notice is your failure to pay the monthly amount specified in the installment agreement. Additional reasons for this notice include:
- Failure to pay the full tax amount on your most recently filed return.
- Failure to submit updated financial information when the IRS asks for it.
- Failure to respond to Notice CP521. The IRS sends CP521 when you miss at least one payment on an installment agreement.
- Not making your required estimated tax payments.
The tone used in the letter can be a bit intimidating. However, the letter simply means the IRS intends to terminate the installment agreement and start the collections process on the balance due — not that they have already done so. You still have time to respond.
What to Do if You Receive CP523 from the IRS
When you receive CP523, you should take action immediately. Although your IRS installment agreement is in default status, the IRS will not terminate it until 30 days after the date printed on the CP523 notice. The agency will also not start the collection actions before the 30 days have passed. This means that you have only 30 days from the date printed on the notice to pay before the installment agreement goes into termination status.
Your IRS notice contains the actions you should take. Generally, here’s what you’ll need to do to remedy the default:
- Read the letter carefully. It includes all the steps you should take.
- Make full payment before the termination date to prevent your installment agreement from being terminated.
- Contact the IRS for possible reinstatement of your agreement.
The notice is an intent to terminate the installment agreement, and if you fail to respond to the CP523 letter or ignore it, the IRS will terminate your installment agreement. The agency will also start taking collection action, which may include filing a federal tax lien or levying your wages or bank accounts.
Collection actions and unresolved tax debts can negatively affect your credit score, hindering your future credit access, employment and housing opportunities, and loan approvals. The IRS offers taxpayers several payment plans, and you can enter into a new payment agreement to avoid all these scenarios.
How to Appeal an Installment Agreement Termination
You should call the IRS on the number printed on the notice if you’ve already paid all your tax obligations to confirm that your account is up to date. If you disagree with the notice, you have the right to appeal under the Collection Appeals Program (CAP). CAP will review the reason for the planned termination and request reinstatement. CAP is used to appeal various actions, including modifying, terminating and rejecting an installment agreement.
If you don’t respond to the notice or fail to make payments, the IRS will assume that you agree with the content of the notice CP523 they sent you and move forward with the termination process.
Reinstating a Defaulted Tax Payment Plan
This may have been the first time you defaulted on your payments, leading to the CP523 notice. If the IRS agrees to reinstate your payment plan, you’ll have to pay a reinstatement fee. You may have to submit a new form if you want to change the terms of your payment agreement.
The IRS understands that you may need some flexibility and often reinstates payment plans for individuals who need longer terms or lower monthly payments. If the IRS terminates the installment agreement because of a new unpaid tax balance, the agency will require you to pay the unpaid balance in full before reinstatement.
What if You Can’t Pay?
It is easy to avoid cancellation of your installment agreement if you can pay the amount due. However, if you don’t have funds to make the payments due or cannot continue making your monthly payments, you have other options. Besides the traditional IRS agreements, the alternatives include:
- Offer in Compromise: This option allows you to settle your tax debts for less than what you owe the IRS. You can make a single full payment or pay periodically. However, not everyone qualifies for an Offer in Compromise. Reach out to a tax professional to find out if you are eligible for this option.
- Currently Not Collectible: If you can prove to the IRS that your financial situation is so dire that you can’t simultaneously make payments and afford your basic living expenses, the agency will place your account in “Currently Not Collectible” status. This is a temporary delay in making payments, and you must resume paying when your fortunes change. You’ll have to provide bank statements, pay stubs and other relevant documentation to prove your financial status.
- Partial payment installment agreement: This option is available if your financial situation has changed or your income level has decreased and you can no longer make your payments. The IRS can reduce your monthly payments according to your current financial status. You must prove how your financial status has changed.
Get Help With Notice CP523
The CP523 notice gives you only 30 days to respond before the IRS takes action. IRS actions can harm your credit score and future loan approval prospects. We can help you sort out such issues with the IRS. BC Tax is a tax consultancy agency that helps clients with tax preparation, back taxes and tax resolution. We provide free consultation and will guide you in the right direction when responding to the IRS CP523 notice. Feel free to contact us for tax consultation.
Authored by the BC Tax Insights Team, this article reflects the collective expertise and experience of our seasoned tax professionals. The Insights Team at BC Tax comprises specialists with a deep understanding of various tax scenarios and solutions. With a focus on providing informative, accurate, and practical insights, our goal is to guide readers through the complexities of taxation and financial planning. Every piece is crafted with the intent to help individuals and businesses navigate the ever-evolving world of taxes, ensuring clarity and confidence in decision-making.
