What Happens if You Default on an IRS Installment Agreement For Your Business?

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After dealing with IRS business debt, you found a great solution: an installment plan to keep payments manageable.

Unfortunately, despite trying your best to keep up with the agreement, you’ve defaulted on your plan and are scrambling to figure out next steps for minimizing the damage.

What Are the Consequences of Defaulting?

Fines are bad enough, but you also risk terminating your agreement if you default on your payments. This could compromise your tax debt situation and leave you vulnerable to aggressive collection action. In some situations, this may involve a Notice of Federal Tax Lien (NFTL), while other businesses may suffer levies.

Default penalties can vary somewhat based on the business entity. In some cases, individuals can be liable for business debts not paid according to installment agreements.

While LLCs provide some protection, a lot depends on whether the LLC itself is the only taxpayer — or if the single member owner (SMO) takes on this role. Based on this distinction, default notifications or assessments could be applied against the SMO’s assets or the LLC’s assets.

Revising Your Installment Agreement

The IRS will send a notice prior to terminating your business installment agreement, but a proactive approach is always preferable when you’re struggling to make payments. This means reaching out to the IRS — ideally with help from a skilled representative such as an enrolled agent.

Businesses, like individuals, are eligible to revise installment agreements as needed. Sometimes occurring in the aftermath of defaults, such revisions provide the opportunity to reinstate payments after lapsing. While reinstatement often is accompanied by a significant fee, it’s still the best option for most businesses with considerable tax debt.

If you need help setting up, revising, or reinstating an IRS installment agreement, get in touch with the Highland Tax Group. We can help you choose and implement the best plan for your situation.