What happens if I default on my installment agreement?

Getting a installment agreement can be a trying and costly experience. Once you've got one, you will keep it in good standing if:
  • You file all future tax returns on time. That includes extensions.
  • You pay all taxes when they are due. 
  • No payments are refused by your bank.
What happens when an installment agreement is defaulted?

If your installment agreement is defaulted, the IRS has the option to reinstate it upon request. If the default is not resolved, your case will become the responsibility of the IRS Collection Division. This is the part of the IRS that has the authority to levy (seize) your wages, retirement income (even Social Security) and bank and investment accounts. Such actions can be stopped or limited if the taxpayer contacts the IRS. The conditions for success depend on factors that will be determined by the IRS.


A levy is when the IRS seizes assets which a taxpayer owns or income to which a taxpayer is entitled. Here are some examples:
  • Pay check
  • Bank account
  • Investment account
  • Retirement account
  • Social Security benefit
  • Vehicle
  • Boat
  • Account or loan receivable

A federal tax lien is a claim on, but not seizure of, a taxpayer's property. It comes into existence when there is unpaid tax. At that point the lien is not in the public record.

Liens in the public record

Liens become public record when the IRS files a Notice of Federal Lien Filing with the state or county official that maintains public records in locations where the IRS believes the taxpayer might have property. 

A significant effect of a lien is that property cannot be sold unless the debt underlying the lien is paid off. There are circumstances under which the IRS can remove or reduce a lien.
There are rules that require the IRS to file liens. Some rules are based on the amount of the unpaid taxes. In other cases, liens will be filed when the taxes are not paid after:
  • The IRS has made a demand for payment. This is usually the first billing notice.
  • The taxpayer has neglected or refused to pay it.