Top 5 Reasons the IRS May Cancel Your Payment Plan

Why The IRS Will Drop You From Your Payment Plan

Setting up an IRS installment agreement can feel like a huge relief — it gives you a structured way to pay off tax debt over time. Being in an installment agreement also protects you from other actions the IRS may take against you. But, just because the IRS approves a payment plan doesn’t mean it’s permanent. Quite the contrary.

The IRS can (and often will) terminate the agreement if you don’t hold up your end of the bargain.

Here are the top reasons the IRS might kick you out of an installment agreement:

1. Missing a Payment

The most common reason people get removed from their installment agreement is simple: they miss a monthly payment. One missed payment might not be the end of the world, but multiple missed payments are a red flag for the IRS. However, the IRS does have the authority to remove you from your plan just for being late for one single payment; so… you don’t want to get in the habit of making payments late or missing payments.

2. Filing Late or Not Filing at All

The IRS expects you to stay current on all future tax filings once your payment plan is in place. If you don’t file your return on time — even if you owe nothing — they can void the deal. We also see this happen frequently. A taxpayer forgets to file an extension on April 15th, and the next thing they know, they’re booted from their installment agreement.

3. Owing More Taxes

If you rack up a new tax debt while you’re already on an installment plan, that’s a problem. It shows the IRS you haven’t resolved your underlying tax issues and will kick you out of your current agreement. You’ll need to make sure you know this. In fact, this happens very frequently. Taxpayers are in an installment plan for previous years, file a tax return with new tax due that they don’t pay in the current year, and subsequently get booted from their installment plan without ever knowing.

This is something that we regularly monitor for our clients to ensure that they stay in compliance with the payment plans that we set up for them.

4. Providing Inaccurate Information

When setting up the agreement, you’re required to give accurate financial information. If the IRS finds out you were less than honest, they’ll terminate the agreement immediately.

For example, if you tell them you only have a checking account and they find out you also have a savings account (which is easy for them to do), then, YOU’RE GONE!

5. Failure to Respond

If the IRS sends you a notice asking for updated financial info or documentation and you ignore it, you risk losing your agreement. In fact, they will boot you faster than you can blink your eyes if you don’t respond by their requested response date.

Bottom Line:

Once you’re in an installment agreement, treat it like a contract — because it is. Stay current, stay honest, and stay in communication with the IRS. Losing your agreement could lead to renewed penalties, interest, or even aggressive collection actions like levies and liens.

Please reach out to us at Liberty Tax Defenders for your free consultation! We’ve helped numerous clients set up and stay on installment agreements. We’ve also saved our clients roughly $2 million in taxes the IRS said they owed.

We’re here to help!

Cheers!