You negotiated a payment plan with the IRS, and they have been leaving you alone. As long as you make that payment, IRS letters and calls are on hold, and things are OK.
But what if you have a sudden, unexpected expense. Or an unexpected reduction in income? What if you simply get to the point where you can’t make the payment?
You have options.
1. Call the IRS and ask for a breather. Believe it or not, the IRS is usually very accommodating if your situation is short-term. A call with a request to miss a month’s payment should get an IRS “yes.” Usually, for a one month breather, the IRS will barely require a reason. Make sure you make this call in advance of when your payment is due. Calling after the due date could be too late, putting your account in default.
Simple rule of thumb: The more time you request, the more the IRS will require. A change lasting more than a month may require more from you, such as an IRS collection information statement. (For example, if you had an unexpected car repair that drains you cash flow for two months, the IRS may want a copy of the repair bill.)
2. Update the IRS with information that you need the payment permanently reduced. This will likely require disclosure of your new financial situation. The IRS will need a new collection information statement – either Form 433A or 433F – showing your reduction in income or increase in living expenses. Be ready to provide the IRS with proof of the changes – paystubs with lower income, unemployment compensation, or on the expense side, items like higher medical expenses, car payment, or utility costs.
With the new financial statement, the IRS can reduce your payment, and even place your account in uncollectible status if you can no longer make a payment. (Uncollectible status is when the IRS makes a determination that forcing a payment plan would put you in economic hardship. The law prevents the IRS from entering into payment plans that create financial hardship.)