CP523 Notice: Default on Your IRS Installment Agreement

A CP523 means the IRS considers you in default on an installment agreement and intends to terminate it. Variants include the Spanish CP523 (SP) and the CP623. If you worked to set up a payment plan, this notice can feel like a betrayal, but it also means the plan can often be saved if you act quickly.

Why you received it

The IRS says you are in default of your installment agreement. The page does not list the triggers, so the notice itself gives the reason. The IRS payments page explains that missing payments, or failing to file or pay on time, can cause a plan to default. Other common causes are a new balance for a later year, a returned payment, or a failure to file a required return while the plan is in place.

The notice also states that the State Department generally cannot issue or renew a passport for someone with seriously delinquent tax debt.

What to do

1. Read the notice to find the stated reason. Compare it with your payments in your Online Account and your bank records.
2. If the cause is a missed or returned payment, pay before the termination date. The IRS points to its payments page.
3. If the cause is a new balance or unfiled return, file or pay as needed. Interest and penalties may add to the amount.
4. Call the IRS right away to ask about reinstatement. The IRS says reinstatement may carry a fee, or you may need to pay any new tax liability in full.
5. If you already fixed the problem, call anyway so the IRS can record it and reinstate your agreement.
6. Consider a revised agreement if your finances have changed. See installment agreements.

Appeal rights

If you disagree with the reason for termination, call the number on the notice first. If you still disagree after that conversation, you can appeal and request a hearing with the IRS Independent Office of Appeals, through the Collection Appeals Program. Publication 1660 explains that an appeal need not be in writing unless the notice came from a revenue officer, in which case it should be in writing, preferably on Form 9423. If you appeal within the 30 days, the IRS generally cannot levy until the appeal is completed, unless collection is in jeopardy. A CAP decision cannot be taken to court.

Interest and penalties

Interest and some penalties continue to accrue while you are in an installment agreement. If the agreement terminates, the IRS may begin collection. The failure-to-pay penalty rate can be reduced while a qualifying installment agreement is in effect, and may increase if the agreement ends and levy notices follow. See failure-to-pay penalty.

What happens if you do nothing

The IRS will terminate the agreement and start collection, which can include a federal tax lien or levies on wages or bank accounts. Future refunds are applied to the debt while a balance remains. You may then receive a final notice with hearing rights, such as CP90 or CP297.

Common mistakes

• Making the missed payment but not calling to confirm the agreement is back in good standing.
• Ignoring a required return that is due while the plan is in place.
• Assuming the IRS will "just take the payment from the bank next month."
• Letting a direct debit fail because of a closed account.
• Waiting to the last day of the 30 days.

When to involve a CPA

Contact a CPA if you cannot afford the payments, if the reason is unclear, or if you have a new balance. A CPA can ask for a revised agreement, hardship status or an appeal. See currently not collectible status. With a signed Form 2848, we can contact the IRS for you.

How we can help

We can identify the cause of the default, confirm your account status, and ask the IRS to reinstate or restructure the agreement. See our IRS representation services or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.