Quick summary

Default can begin with a single missed payment or failure to keep current with filing requirements. When an agreement goes into default the IRS can terminate the plan and resume full collection activity — interest and failure‑to‑pay penalties continue to grow until the tax is paid or another resolution is reached (IRS, Payment Plans; IRS Pub. 594).

Immediate consequences

  • Termination of the installment agreement: the IRS may end the plan and demand immediate payment of the full balance. (IRS, Payment Plans)
  • Continued interest and penalties: the failure‑to‑pay penalty generally accrues at 0.5% of the unpaid tax per month (IRC §6651) and interest compounds daily at the statutory rate that changes quarterly. (IRS, Payments)
  • Collection actions: if the balance remains unpaid, the IRS can file a Notice of Federal Tax Lien, levy wages, garnish bank accounts, or seize assets. (IRS Pub. 594)

Typical timeline and triggers

  • A missed payment, returned automatic debit, or falling out of compliance with filing obligations can put the agreement at risk. In practice, a single missed digital debit or payment often prompts contact from the IRS; if you don’t resolve the issue the IRS may terminate the agreement and move to collections.
  • The IRS publishes common triggers for automatic termination; you can read more about those triggers to see which apply to your situation (see “Automatic Termination Triggers for Installment Agreements”).

How the IRS collects after default

Once an agreement is terminated the IRS has several tools:

  • File a Notice of Federal Tax Lien to record its claim against your property and credit history.
  • Issue levies on wages, bank accounts, retirement accounts, or other assets.
  • Issue enforced collection (seizure) actions for nonexempt property.
    These actions are described in IRS Publication 594 (The IRS Collection Process). Acting early often reduces the likelihood of aggressive collection steps.

How to fix a default — step‑by‑step

  1. Don’t ignore IRS notices. Read any notice carefully and take action by the date shown. Contact the number on the notice if you believe it’s an error. (IRS, Payment Plans)
  2. Bring the account current. Paying the missed amount and any returned‑payment fees and penalties may reinstate the plan in some situations.
  3. Request a modification or new installment agreement. If your financial situation changed, apply for a revised plan online or by phone; you may need to submit updated financial information. See “How to Request a Modification to an Existing Installment Agreement.”
  4. Ask for Currently Not Collectible (CNC) status if you cannot pay at all; IRS may temporarily pause collection while your financial hardship is documented.
  5. Consider an Offer in Compromise if you can prove you can’t pay the full tax debt and meet the strict eligibility rules.

Alternatives if you can’t make payments

  • Reapply for a different payment plan (shorter or longer term depending on your ability to pay).
  • Request CNC status to stop levies temporarily while you get back on your feet.
  • Explore an Offer in Compromise as a last resort. Each option has criteria; a tax professional can help evaluate them.

Practical tips to avoid or recover from default

  • Set up direct debit (automated payments) and keep sufficient funds in the account; returned debits often trigger IRS follow‑up.
  • Keep all required tax returns filed — falling out of filing compliance can cause automatic termination.
  • If you see a missed payment coming, call the IRS immediately to explain and request a short delay or temporary modification.
  • Work with a qualified tax pro if your debt is large or you face lien/levy threats.

When to get professional help

If the IRS has filed a lien, issued levies, or terminated your plan and you can’t bring the account current quickly, consult an enrolled agent, CPA, or tax attorney. In my practice I’ve found early, documented communication with the IRS and a realistic budget make reinstatement or a workable alternative far more likely.

Related FinHelp resources

Sources

Disclaimer

This article is educational and does not constitute tax advice. For guidance tailored to your situation, consult a tax professional or the IRS directly.