When you enter into an installment agreement with the IRS to pay off a tax debt, you expect that agreement to shield you from enforced collection actions—such as levies, liens, or wage garnishments. However, if you receive IRS Notice CP523, that protection may be in jeopardy. This notice serves as a formal warning that the IRS plans to terminate your agreement due to a default, placing you at risk of aggressive collection efforts. Understanding the legal implications of this notice is essential to protecting your financial stability and rights as a taxpayer.
What Is IRS Notice CP523?
IRS Notice CP523 is a formal notification that your existing installment agreement is in default and is subject to termination. The IRS issues this notice when you have:
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- Missed one or more required payments;
- Failed to file a necessary tax return;
- Incurred a new tax liability while your current agreement is active.
Once issued, the notice signals the IRS’s intention to resume collection efforts, which may include levies on bank accounts, wage garnishment, and other enforced actions authorized under the Internal Revenue Code.
What Does the CP523 Notice Include?
The CP523 notice provides essential information including:
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- The total tax balance owed;
- The reason the agreement is being terminated;
- A deadline—typically 30 days—to take corrective action;
- Instructions on how to request reinstatement or file an appeal;
- A Notice of Intent to Levy under IRC § 6331(d), which allows the IRS to take collection action after the notice period.
Failing to respond within the allotted timeframe allows the IRS to proceed with collection measures without further notice.
What Are Your Legal Options?
Despite the urgency, receiving a CP523 notice does not mean you are without recourse. Several legal options remain available:
Cure the Default: If the default was due to a missed payment or unfiled return, remedying the issue quickly can allow you to maintain your existing agreement.
Request Reinstatement: The IRS may reinstate the agreement if it is your first default or if you can show reasonable cause for noncompliance.
File an Appeal (Form 9423): You may formally contest the termination by submitting Form 9423, Collection Appeal Request, which triggers a hearing with the IRS Independent Office of Appeals.
Renegotiate Terms or Seek a Settlement: If your financial situation has changed, you might qualify for a revised payment plan, a Partial Payment Installment Agreement, or even an Offer in Compromise, allowing you to settle your tax liability for less than the full amount.
Seek Legal Representation: An experienced tax attorney can advocate on your behalf, negotiate terms, present mitigating evidence, and ensure that your procedural rights are preserved throughout the process.
Consequences of Inaction
Failing to act on a CP523 notice can lead to severe consequences such as:
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- Immediate wage garnishment or bank levies;
- Filing of federal tax liens against your property;
- Significant credit damage;
- Potential passport denial or revocation if your tax debt exceeds a certain threshold.
The IRS will not delay enforcement once the notice period expires, making timely action critical.
Relevance for Taxpayers
IRS Notice CP523 is not a routine administrative message—it is a legal red flag. It means your installment agreement is at risk, and with it, your protection from IRS enforcement. Taxpayers must understand that their rights are time-sensitive. Engaging early and strategically, particularly with the assistance of legal counsel, can help avoid financial hardship and restore compliance.
Whether you are trying to cure a default, appeal a decision, or explore alternative resolutions, proactive legal guidance can make the difference between manageable debt and aggressive collection. Don’t ignore CP523—act decisively to protect your financial future.
We Can Help!
At JH Tax Law, we help clients navigate IRS procedures, protect assets, and reestablish compliance. If you’ve received a CP523 notice—or suspect one may be forthcoming—contact our office for a confidential consultation.