When you default on an installment arrangement there is no explanation. The most common reasons are:
- You didn’t send in your payment or your payment was late. If you call immediately upon receiving the notice, you can usually be reinstated as soon as your payments are current. Don’t depend on the IRS vouchers as a reminder to make your payment. Vouchers can come to you after the due date or not at all. Have a note on your calendar to make your payment whether or not the voucher shows up. If you send in a payment without a voucher, include your social security number, the tax year to apply the payment (2006-1040) and have your phone number on the check.
- You filed your return late or did not pay your taxes in full when you filed your return. One of the conditions of having a payment plan with the IRS is that you don’t get behind on filing or paying in the future. Again, the IRS will likely reinstate the agreement if you can bring your payments current and you contact them immediately after receiving the notice of default. To prevent this from happening in the future make sure your estimated taxes are paid timely if you are self employed or that your withholdings are sufficient if you are an employee.
If you default and you have to renegotiate your payment plan with the IRS it is unlikely you will get the same payment amount. If your financial situation has worsened, your payment amount will be reduced. Likewise, if your financial situation has improved, your payment amount will go up. Rather than just go back into another installment arrangement, I advise our clients to reevaluate to see if there is another settlement option that would be better now that their situation has changed.
There are legitimate situations where I advise clients to strategically default on purpose so that a better settlement can be reached with the IRS. This should only be done with the help of a professional representative who can guide you through the renegotiation process.
Scott Allen E. A.
Tax Debt Advisors, Inc.