CP 523: What an IRS Installment Agreement Default Notice Means and the 30 Days You Have

The envelope comes certified mail. Inside, the IRS says your installment agreement is in default, that it intends to terminate the agreement, and that it intends to levy. For a lot of people, that is the moment they assume the plan is gone.

It is not gone. A CP 523 is a proposed termination. The law requires the IRS to give you notice and a chance to respond before it ends the agreement, and the IRS's own procedures require it to reinstate a defaulted plan if you fix the problem in time. This page covers what the notice means, why plans default, and the exact windows you have.

The notice and the statute behind it

IRC 6159(b)(5) says the IRS may not modify or terminate an installment agreement for inaccurate information, a change in financial condition, a missed payment, an unpaid new liability or a missing financial update unless it gives the taxpayer notice at least 30 days before the action, with an explanation of why. The only exception is jeopardy, where the IRS believes collection is at risk. IRM 5.14.11.2 confirms that termination without advance notice is limited to jeopardy situations.

For agreements monitored by IRS computers, that notice is CP 523, Installment Agreement Default Notice. For agreements monitored by a revenue officer, it is Letter 2975, Notice of Defaulted Installment Agreement Under IRC 6159(b). IRM 5.14.11.4 says the notice goes by certified mail to domestic addresses and registered mail to foreign ones, and on a joint liability each spouse gets a separate notice even if they live at the same address.

The campus procedures in IRM 5.19.1.6.4.19 list what CP 523 says: the reason for the proposed termination, the corrective action needed, that the notice is a notice of intent to levy, and your right to appeal the proposed termination.

Why plans default

IRM 5.14.11.3 lists the reasons the IRS may propose termination, and it adds a sentence worth memorizing: installment agreements may not be defaulted nor terminated for reasons other than those listed. The reasons are:

• You missed an installment payment.
• You did not pay another tax liability when it was due. That includes related accounts, such as a sole proprietorship and its owner.
• You did not provide an updated financial statement when asked.
• Information you gave before the agreement was entered was inaccurate or incomplete.
• You did not pay a modified payment amount set from updated financial information.

Two things are not on the list. An open delinquent return investigation on another period does not by itself default the plan; IRM 5.14.11.3 notes that status can coexist with the agreement. And the campus procedures in IRM 5.19.1.6.4.17 state that IRC 6159 does not allow an agreement to default for non-payment of estimated tax. Skipping estimated payments still causes trouble, because it produces a new balance when the return is filed, and that new balance is a listed reason. See avoiding a new tax balance during your plan.

The three windows

• Day 0 to day 30: the cure and appeal window. The agreement is in default but not terminated. It terminates 30 days after the notice date unless you take corrective action or appeal. The IRM allows an extra 15 days for an appeal mailed near the deadline.
• Day 30 to day 60: the post-termination window. If the agreement terminates, IRC 6331(k)(2)(D) still bars levy for 30 days afterward, and you can appeal the termination itself during that period, again with 15 days allowed for mailing.
• Through day 90: the levy bar. IRM 5.14.11.4 states no levies may be issued on the tax periods in the agreement for 90 days after the CP 523 or Letter 2975 is mailed. Behind the scenes, the account sits in a default status for 13 weekly cycles before moving back to regular collection.

If you file a timely appeal, levy stays barred while the appeal is pending. Note the scope, though. The bar protects the periods in the agreement. IRM 5.14.1.5 gives an example of a business whose agreement covers two quarters; a later quarter not in the agreement, with all collection notices sent, can be levied even while the default window runs.

Cure it, and the IRS must reinstate

This is the most useful rule in the default procedures. IRM 5.14.11.5 says that if an agreement is in default but not yet terminated, it must be reinstated if the taxpayer remedies the default, unless there is another reason for default. The campus procedures go further. IRM 5.19.1.6.4.19 says that if the taxpayer corrected the reason for default as instructed on the CP 523, such as paying the new balance in full or making up the missed payment within 45 days of the notice, the IRS reinstates the agreement regardless of unfiled returns or collection statute issues, adding: we cannot legally terminate an IA for CSED or unfiled returns.

So the first question when a CP 523 arrives is simple: what does it say caused the default, and can you fix exactly that? Make up the missed payment. Pay the new balance. Send the financial update that was requested. Then call and confirm the plan is reinstated. Expect a reinstatement fee; see reinstating a defaulted payment plan.

If you cannot cure it

Sometimes the reason for default is the plan itself: the payment is no longer affordable. Call before the 30 days run. If your account still meets Simple Payment Plan criteria, the campus procedures allow the IRS to reinstate the plan and revise the payment without a financial statement or managerial approval. If not, expect to provide updated financial information so the IRS can set a new amount.

If you disagree that you defaulted at all, appeal. The Collection Appeals Program covers proposed terminations and terminations. Under IRM 8.24.1.3.4 you have 30 days from the proposed termination to appeal, usually on Form 9423, Collection Appeal Request, and a separate 30 days after an actual termination. One caution from the same section: if you appeal before termination, you may not appeal again once the termination takes effect. See appealing through the Collection Appeals Program.

What else happens on default

• The failure-to-pay penalty goes back up. When a terminated agreement is removed, IRM 5.14.11.4 says the rate returns to 0.5 percent a month. The months you spent in the plan keep the reduced rate.
• A lien may be filed. If your agreement form told you a lien notice may be filed if the agreement defaults, IRM 5.14.11.6 allows filing as soon as the CP 523 is mailed. Otherwise, absent risk to the government, a lien is generally not filed for 90 days after the notice.
• Your next request gets harder. A history of defaults is one of the factors the IRS weighs when deciding whether a new request is made solely to delay collection. See requests the IRS treats as made to delay.

Read the notice for the dates

The 30 days run from the date printed on the notice, not the day you open it. Certified mail sitting at the post office is still running. If you have moved, the notice goes to your last known address, which is one more reason to file Form 8822 when your address changes; the IRS payment plans page lists notifying the IRS of address changes among the ways to avoid default. If you have a representative with a power of attorney on file, ask whether a copy went to them too.

What to do today

Read the reason on the notice. Fix that reason if you can, by payment or by sending what was asked for. Call the number on the notice, confirm the fix, and ask that the agreement be reinstated. If you cannot fix it, ask for a revised payment before day 30. If you think the IRS is wrong, file Form 9423 before day 30. Keep a copy of everything, with the date you sent it.

A default notice is the IRS following the statute. Follow it back. Thirty days is enough time to save almost any plan, but not if you spend the first twenty-five of them hoping the letter goes away.