Author credentials
I am a CPA with more than 15 years of experience advising individuals and small businesses on tax resolution, including installment agreements, offers in compromise, and collection alternatives. Over my career I’ve negotiated hundreds of payment plans with the IRS and helped clients avoid liens and levies by restructuring payments or documenting reasonable cause.
Why this matters
An installment agreement can prevent immediate collection action and provide breathing room to pay a tax liability. But these plans require ongoing compliance: timely payments, filing current tax returns, and maintaining accurate contact information with the IRS. Missing these obligations turns a helpful tool into a potential trigger for aggressive enforcement.
Sources and rules referenced in this article reflect IRS guidance current as of 2025 (see IRS official pages on installment agreements and collections) and are intended for general education. This is not individualized tax advice; consult a tax professional for decisions tied to your situation.
Lifecycle overview — steps from setup to closure
- Enrollment: You apply for a plan (online for many taxpayers, by phone, or by submitting forms such as Form 9465 and, if required, a financial statement like Form 433-F). See IRS guidance on applying for installment agreements for details (IRS, Installment Agreements).
- Good-standing period: While compliant—paying on time and filing returns—your plan remains in effect.
- Notice of default: Missed payments or failure to file timely returns generate notices. The IRS typically provides written notice and an opportunity to resolve before taking enforced collection action.
- Collection/enforcement: If default persists, the IRS may take actions such as filing a federal tax lien, issuing levies (wage garnishment or bank levies), or pursuing passport certification for seriously delinquent debt. (See IRS collections pages.)
- Reinstatement or modification: In many cases you can reinstate or adjust a plan by responding quickly, curing arrears, and providing updated financial documentation. Alternatives include temporarily delaying collection (currently not collectible status) or pursuing an Offer in Compromise.
Key enforcement actions the IRS can take
- Federal tax lien: A lien protects the government’s interest in property. The IRS files a Notice of Federal Tax Lien to alert creditors and affect title transfers. A lien can complicate selling or refinancing assets. (IRS, Federal Tax Liens)
- Levy: If the IRS obtains a levy, it can seize bank accounts, garnish wages, or take other property to satisfy the debt. Levies are a last-resort collection tool but are used when contacts and other steps fail.
- Passport certification: The IRS can certify seriously delinquent tax debt to the State Department, which may result in passport denial or revocation. (IRS, Certification of Seriously Delinquent Tax Debt)
- Continuous interest and penalties: Even with an installment agreement, interest and some penalties usually continue to accrue until the tax is paid in full.
(Author note: in practice I prioritize stopping levies by negotiating short-term payments or obtaining a temporary hold while we submit documentation.)
What causes default — common triggers
- Missed monthly payments: The most common cause of default is an overdue payment or a series of late payments.
- Failure to file returns: The IRS may revoke an agreement if you don’t file required tax returns on time.
- Changes in financial circumstances: Job loss, medical emergencies, or unexpected expenses can render a previously sustainable payment unaffordable.
- Unreported changes to your address or employer: If notices don’t reach you, you may miss critical deadlines.
How the IRS notifies you and the timeline
The IRS usually sends one or more notices before taking enforcement action. Typical steps are: a missed-payment notice, a default notice explaining what to do to bring the plan back into compliance, and then potential collection letters. Timing can vary; act immediately on any IRS notice to preserve options.
Reinstatement and modification — practical steps to fix a default
- Read IRS notices carefully: Notices explain what the IRS expects—payment, documentation, or a response within a stated timeframe.
- Cure arrears: Paying the missed payments plus any assessed fees and interest will often reinstate an agreement. If you can’t pay in full, move to step 3.
- Contact the IRS promptly: Call the number on the notice or the IRS collections phone line. Explain the reason for the missed payment and ask about reinstatement or modification. Be polite and prepared.
- Provide updated financial information: The IRS may require Form 433-F (Collection Information Statement) or similar documentation to evaluate a lower monthly payment or partial-payment plan. If you’re eligible for a streamlined online agreement, you may not need a financial statement, but eligibility rules vary. (See IRS, Installment Agreements.)
- Request a temporary status: If you can’t make payments due to short-term hardship, inquire about Currently Not Collectible (CNC) status or a temporary payment reduction. CNC stops collection activity but does not erase the debt.
- Consider alternatives: If reinstatement isn’t feasible, evaluate an Offer in Compromise, bankruptcy implications, or bankruptcy discharge where applicable. An Offer in Compromise has strict eligibility rules and requires detailed financial disclosure. (See IRS Offer in Compromise.)
Practical tip from my practice: Document every call (agent name, date, and summary) and follow up in writing. If the IRS asks for forms, submit them by certified mail or through the IRS online portal where available.
When the IRS will not reinstate — reasons requests are denied
- Repeated noncompliance history.
- Owing other tax returns that are unfiled.
- Failure to provide required financial statements.
- The IRS determines you have the ability to pay under a different arrangement.
If denied, you can appeal the collection decision using the IRS Collection Appeals Program (CAP). An appeals officer can review whether the IRS took appropriate steps before levying or filing a lien.
Example scenarios (anonymized)
- Scenario A: A taxpayer with a stable income missed a single payment because of a banking error. They paid the missed amount within two weeks, the IRS reinstated the plan, and penalties were limited to interest on the shortfall.
- Scenario B: A small-business owner lost income and missed three consecutive payments. We prepared a current financial statement and negotiated a reduced monthly payment; the IRS accepted a modification after verifying expenses.
These outcomes are typical when taxpayers act quickly and provide clear documentation.
Managing your plan to avoid default
- Automate payments where possible to reduce missed payments.
- File all future tax returns on time; the IRS enforces filing compliance strictly for existing plans.
- Revisit your budget annually and after major life changes—if a plan is tight, request a modification before you miss payments.
- Keep records of IRS correspondence and your payments.
See our step-by-step guides for help: How to Set Up an IRS Installment Agreement: A Step-by-Step Guide (https://finhelp.io/glossary/setting-up-an-irs-installment-agreement-a-step-by-step-guide/) and How to Calculate a Realistic Monthly Payment for an Installment Agreement (https://finhelp.io/glossary/how-to-calculate-a-realistic-monthly-payment-for-an-installment-agreement/).
When to call a professional
If you face levies, a Notice of Federal Tax Lien, or complex income changes, call a CPA, enrolled agent, or tax attorney. In my experience, professional representation reduces the risk of costly enforcement missteps and helps negotiate reasonable terms faster.
FAQs — concise answers
- What if I can’t afford the IRS payment? Ask about CNC status, modify the plan with updated finances, or explore an Offer in Compromise. (IRS, Offer in Compromise)
- Will interest stop during an installment agreement? No—interest generally continues to accrue until full payment. Penalties may, in some cases, be reduced when the IRS accepts certain arrangements.
- Can the IRS change the terms unilaterally? The IRS can propose changes or revoke an agreement if you’re noncompliant, but it typically gives notice and a chance to respond.
Authoritative sources
- IRS — Installment Agreements: https://www.irs.gov/payments/installment-agreements
- IRS — Offer in Compromise: https://www.irs.gov/individuals/payment-plans-installment-agreements/offer-in-compromise
- IRS — Collection and Enforcement pages (Federal tax liens, levies, passport certification): https://www.irs.gov/businesses/small-businesses-self-employed/what-to-know-about-installment-agreements
Professional disclaimer
This article is educational only and does not substitute for personalized tax advice. Rules and thresholds change; consult a licensed tax professional before making decisions about your tax liabilities or representation.
Related FinHelp resources
- Streamlined Installment Agreements: Who Qualifies and How to Apply: https://finhelp.io/glossary/streamlined-installment-agreements-who-qualifies-and-how-to-apply/
- Defaulting on an Installment Agreement: Consequences and Fixes: https://finhelp.io/glossary/defaulting-on-an-installment-agreement-consequences-and-fixes/
- Modifying or Revoking an Existing IRS Installment Agreement: https://finhelp.io/glossary/modifying-or-revoking-an-existing-irs-installment-agreement/
If you need help interpreting an IRS notice or preparing documentation to request reinstatement, consult your tax advisor.
