Can the IRS levy you while you have an installment agreement? Generally, no. If you have an active IRS installment agreement covering your outstanding federal tax liability, the Internal Revenue Service is generally prohibited from issuing a new levy to collect that liability while the agreement remains in effect.
However, an IRS payment plan does not provide unlimited protection against collection enforcement. New tax liabilities, defaulted agreements, previously issued levies, and certain statutory exceptions can create serious complications.
For taxpayers who have already experienced an IRS bank levy or wage garnishment, understanding these distinctions is particularly important.
I am Gregory M. Dzialo, Esq., LL.M. in Tax, and I represent individuals and business owners facing IRS collection enforcement through GMD Tax Law.
If you are concerned about an existing IRS installment agreement, a threatened bank levy, or a Revenue Officer collection matter, contact GMD Tax Law to discuss your situation.
IRS Levy Installment Agreement Rules: Does a Payment Plan Stop Levies?
Yes, an active IRS installment agreement generally protects a taxpayer from new levies involving the federal tax liabilities covered by that agreement.
Internal Revenue Code Section 6331(k)(2) restricts the IRS from levying a taxpayer’s property while an installment agreement for the relevant tax liability is in effect.
These restrictions can apply to collection actions involving:
- Bank accounts and other financial assets.
- Wages and certain other income.
- Business accounts and receivables.
- Other property or rights to property that would otherwise be subject to levy.
The protection is significant because an installment agreement is more than an arrangement to make monthly payments. It also changes the IRS’s ability to pursue certain enforced collection measures.
Nevertheless, the protection generally applies to the liabilities covered by the agreement. It should not be interpreted as a blanket prohibition against every possible IRS collection action.
For a broader explanation of payment plans, read What Is an IRS Installment Agreement?
What Does the Law Say About IRS Levies During an Installment Agreement?
Internal Revenue Code Section 6331(k) establishes important restrictions on levy enforcement when an installment agreement is pending or in effect.
Under the statute and applicable Treasury regulations, levy restrictions generally apply during several periods:
- While a qualifying installment agreement request is pending with the IRS.
- While an approved installment agreement remains in effect.
- For 30 days following rejection of an installment agreement request.
- For 30 days following termination of an installment agreement.
- While a timely administrative appeal of a rejection or termination is pending.
These protections are subject to statutory and regulatory exceptions.
Importantly, the law does not mean that simply discussing a payment plan with the IRS automatically prevents all collection enforcement.
Whether a request is considered pending, whether an agreement is in effect, and which liabilities are covered can determine whether a particular levy is prohibited.
The governing rules appear in Internal Revenue Code Section 6331 and Treasury Regulation Section 301.6331-4.
Can the IRS Levy Your Bank Account While You Are Making Monthly Payments?
Generally, the IRS cannot issue a new bank levy to collect taxes covered by an installment agreement that remains in effect.
Consider a taxpayer who owes $45,000 in federal income taxes and has an approved installment agreement requiring monthly payments of $650.
If the agreement covers the outstanding liabilities and remains in effect, the IRS is generally prohibited from issuing a new bank levy to collect those covered taxes.
However, several complications may arise.
For example, the taxpayer may incur additional tax liabilities that are not covered by the agreement. The existing payment plan may also enter default status because of missed payments or failure to satisfy current tax obligations.
Another complication arises when a bank levy was issued before the installment agreement became effective.
These circumstances require a closer examination of the taxpayer’s IRS account and collection history.
For information about bank levy representation, visit my IRS Bank Levy Help service page.
What if the IRS Levied Your Bank Account Before Approving the Installment Agreement?
This is an important distinction.
A bank levy issued before an installment agreement becomes effective does not necessarily disappear merely because the taxpayer subsequently requests a payment plan.
Under IRS collection procedures, a levy that was already served generally does not have to be released simply because an installment agreement request is pending.
Once an installment agreement is entered into, however, the IRS generally must release the existing levy unless the agreement provides otherwise.
That distinction can be especially important when a financial institution is holding money subject to an IRS levy.
An ordinary bank levy generally requires the financial institution to hold the affected funds for 21 days before surrendering them to the IRS.
Whether the money remains at the bank or has already been transferred can affect the available legal remedies.
Taxpayers should also distinguish between the release of an existing levy and the return of funds already collected.
For a detailed discussion of the bank levy process, read What Happens After an IRS Bank Levy? Will They Take More Money?
Can the IRS Garnish Your Wages While You Have an Installment Agreement?
An active installment agreement generally prohibits the IRS from issuing a new wage levy to collect the federal tax liabilities covered by that agreement.
However, wage levies and bank levies operate differently.
An ordinary bank levy generally attaches to funds held by a financial institution when the levy is received.
A wage levy, by contrast, generally continues against covered wages until the levy is released or otherwise terminates under applicable law.
If a wage levy was issued before the installment agreement became effective, the status of that existing levy must be considered separately.
In appropriate circumstances, entering into an installment agreement may require the IRS to release an existing levy.
However, the terms of the agreement and the circumstances of the collection case remain important.
For someone whose wages are already being levied, the issue is not merely whether an installment agreement exists. It is also whether the IRS has taken the necessary action concerning the existing levy.
Can the IRS Levy You While an Installment Agreement Request Is Pending?
A qualifying installment agreement request that is pending with the IRS generally provides protection against new levies for the liabilities involved.
This protection can be important when a taxpayer is attempting to resolve an existing tax liability but has not yet received formal approval of a payment plan.
However, not every conversation, informal proposal, or incomplete submission necessarily qualifies as a pending installment agreement for purposes of the statutory levy restrictions.
The IRS applies specific criteria to determine when an installment agreement request is accepted for processing and considered pending.
Additionally, an installment agreement request submitted solely to delay collection may not provide the usual levy protection.
Consequently, taxpayers facing active enforcement should not assume that merely proposing monthly payments automatically prevents a bank levy or wage garnishment.
What Happens if You Default on an IRS Installment Agreement?
Default is one of the most significant risks associated with an IRS payment plan.
When an installment agreement defaults and is ultimately terminated, the taxpayer may again become exposed to enforced collection action.
Common reasons an installment agreement may default include:
- Missing required monthly payments.
- Failing to file required federal tax returns.
- Failing to pay newly incurred federal taxes when due.
- Failing to provide financial information required under the agreement.
- Failing to satisfy other applicable terms of the installment agreement.
For example, a taxpayer may consistently make the agreed monthly payments toward an older tax debt but subsequently file a new federal income tax return showing a substantial unpaid balance.
That new liability can jeopardize the existing installment agreement.
Similarly, a self-employed taxpayer who fails to remain current with required estimated tax payments may encounter compliance problems affecting the payment plan.
The IRS generally must comply with applicable notice and termination procedures before resuming levy enforcement based on termination of an installment agreement.
However, the existence of those procedures should not be mistaken for permanent protection against collection.
Can the IRS Levy You Immediately After Terminating an Installment Agreement?
Generally, no.
Internal Revenue Code Section 6331(k)(2) ordinarily prohibits levy for 30 days following the termination of an installment agreement covering the liability.
If the taxpayer files a timely administrative appeal, the levy restriction generally continues while the appeal is being considered.
Similar protections generally apply following rejection of a proposed installment agreement.
However, the precise timing of a default notice, proposed termination, actual termination, and any administrative appeal can be important.
These events should not be treated as interchangeable.
Furthermore, statutory exceptions may permit levy enforcement despite the ordinary restrictions.
For taxpayers with substantial federal tax liabilities, a defaulted installment agreement can place bank accounts, wages, and business operations at renewed risk.
Can the IRS Levy You for New Taxes Not Included in Your Payment Plan?
Potentially, yes.
The statutory levy prohibition generally concerns the tax liabilities that are the subject of the installment agreement.
It does not automatically protect a taxpayer from collection of every other federal tax liability.
Consider a business owner who has an installment agreement covering unpaid individual income taxes for prior years.
If the business subsequently incurs unpaid federal employment taxes, those new liabilities may present a separate collection problem.
Depending on the facts, the IRS may pursue collection remedies involving liabilities that are not covered by the existing agreement, subject to applicable legal restrictions.
New liabilities may also threaten the continued effectiveness of the original installment agreement.
This is particularly important for taxpayers with ongoing business tax obligations, including employment taxes and trust fund liabilities.
An existing personal installment agreement should never be assumed to resolve separate business collection issues.
Can the IRS File a Federal Tax Lien While You Have an Installment Agreement?
Yes.
An installment agreement generally restricts certain levy actions, but it does not automatically prevent the IRS from filing a Notice of Federal Tax Lien.
A federal tax lien and a federal tax levy serve different purposes.
A tax lien generally protects the government’s legal claim against the taxpayer’s property and rights to property.
A levy is an enforcement action used to seize property or rights to property to collect a tax liability.
Under Treasury Regulation Section 301.6331-4, the IRS may take certain actions to protect the government’s interests even while levy enforcement is restricted.
These actions can include filing or refiling a Notice of Federal Tax Lien.
Consequently, a taxpayer may have an approved installment agreement and still face complications involving real estate, refinancing, or other property transactions because of a federal tax lien.
The existence of an installment agreement does not automatically require the IRS to withdraw an existing Notice of Federal Tax Lien.
Can the IRS Take Your Tax Refund While You Have an Installment Agreement?
Yes.
An installment agreement generally does not prevent the IRS from applying an available federal tax overpayment toward an outstanding tax liability.
This is an important distinction because applying a tax refund through an offset is not the same as issuing a levy against a bank account or wages.
For example, a taxpayer may have an approved installment agreement requiring monthly payments toward an outstanding federal tax balance.
If the taxpayer subsequently becomes entitled to a federal income tax refund, the IRS may apply that refund toward the outstanding liability.
The taxpayer generally remains obligated to make the required installment payments unless the agreement is modified or the liability is fully satisfied.
Therefore, an installment agreement should not be understood as guaranteeing that future federal tax refunds will be paid directly to the taxpayer.
Are There Exceptions That Allow the IRS to Levy During an Installment Agreement?
Yes. The statutory and regulatory restrictions on levies are subject to important exceptions.
Under Treasury Regulation Section 301.6331-4, certain circumstances may permit levy enforcement despite the ordinary protections associated with an installment agreement or pending request.
These can include:
- A taxpayer’s written waiver of the applicable levy restriction.
- An IRS determination that collection of the tax is in jeopardy.
- An IRS determination that a proposed installment agreement was submitted solely to delay collection.
Other issues may arise when the liability being collected is not covered by the installment agreement or the person against whom collection is pursued is not protected by the particular agreement.
These exceptions are not routine features of every installment agreement.
Nevertheless, they demonstrate why the existence of a payment plan should not be treated as an absolute guarantee against every form of collection enforcement.
What if You Cannot Afford Your IRS Installment Agreement Payments?
Some taxpayers enter into installment agreements when their finances are relatively stable but later experience a significant reduction in income or an increase in necessary living expenses.
Others agree to monthly payments that become increasingly difficult to maintain.
When a payment plan becomes unaffordable, the risk of default can become a serious concern.
Depending on the taxpayer’s circumstances, potential alternatives may include modification of an existing installment agreement, evaluation of a Partial Payment Installment Agreement, or consideration of Currently Not Collectible status.
In some cases, an Offer in Compromise may warrant evaluation.
However, the availability of these alternatives depends on the taxpayer’s financial circumstances, compliance history, outstanding liabilities, and applicable IRS collection rules.
Not every taxpayer qualifies for a reduced payment or suspension of collection.
For additional information, read What Happens If You Can’t Afford the IRS Monthly Payment?
Does an Installment Agreement Stop an IRS Revenue Officer From Contacting You?
Not necessarily.
An installment agreement does not automatically eliminate every reason an IRS Revenue Officer may contact a taxpayer.
Revenue Officers may be involved in evaluating payment arrangements, reviewing compliance, examining financial circumstances, or addressing other outstanding federal tax liabilities.
For taxpayers with substantial tax debts, business tax problems, or multiple outstanding periods, an installment agreement may be only one component of the overall collection matter.
For example, a taxpayer may have an agreement covering certain individual income tax liabilities while separate employment tax issues remain unresolved.
Alternatively, a Revenue Officer may need to address compliance matters relevant to the continuation or modification of an existing agreement.
The presence of a Revenue Officer does not, by itself, mean that an active installment agreement has been terminated or that levy enforcement is immediately authorized.
However, it may indicate that the IRS collection situation requires closer attention.
Frequently Asked Questions About IRS Levies and Installment Agreements
Can the IRS levy my bank account if I have a payment plan?
Generally, the IRS cannot issue a new bank levy to collect tax liabilities covered by an installment agreement while the agreement remains in effect. However, separate liabilities, existing levies, and statutory exceptions can complicate the situation.
Does an IRS installment agreement prevent wage garnishment?
An active installment agreement generally prohibits new wage levies for the covered liabilities. A wage levy issued before the agreement became effective must be evaluated separately.
Can the IRS levy me while my installment agreement is pending?
A qualifying installment agreement request that is pending with the IRS generally provides levy protection for the liabilities involved, subject to applicable exceptions.
Can the IRS levy me if I miss one installment agreement payment?
A missed payment may place an agreement at risk of default, but it does not necessarily mean the IRS can immediately issue a levy. Applicable default, notice, termination, and levy restriction rules must be considered.
How long after an installment agreement is terminated can the IRS levy?
The IRS generally must observe a 30-day levy restriction following termination of an installment agreement. A timely administrative appeal may extend the protection while the appeal is being considered, subject to applicable exceptions.
Can the IRS file a tax lien even if I am making payments?
Yes. An installment agreement does not automatically prohibit the filing or refiling of a Notice of Federal Tax Lien.
Will the IRS keep my tax refund if I have an installment agreement?
The IRS may apply a federal tax overpayment toward outstanding liabilities despite an installment agreement. A refund offset is different from a levy.
Does an installment agreement protect me from new tax debts?
Not automatically. The protection generally concerns the liabilities covered by the agreement. Newly incurred tax liabilities may also jeopardize the existing payment plan.
Massachusetts Tax Attorney for IRS Installment Agreement and Levy Problems
GMD Tax Law represents individuals and businesses facing IRS installment agreement problems, bank levies, wage garnishments, federal tax liens, and Revenue Officer collection matters.
I am Gregory M. Dzialo, Esq., LL.M. in Tax, and I work directly with clients to evaluate their federal tax liabilities, collection status, and available resolution options.
Depending on the circumstances, representation may include:
- Reviewing the status and terms of an existing IRS installment agreement.
- Evaluating whether outstanding liabilities are covered by the agreement.
- Examining bank levies, wage levies, and other collection enforcement.
- Communicating directly with IRS collection personnel and Revenue Officers.
- Evaluating default notices and potential collection consequences.
- Considering modification of an existing installment agreement.
- Analyzing financial circumstances relevant to collection alternatives.
- Evaluating whether levy release or other collection relief may be available.
Clients work directly with me rather than a non-attorney case manager or sales representative.
For additional information about representation, visit my IRS Tax Relief service page.
Concerned About an IRS Levy While You Have an Installment Agreement?
An IRS installment agreement can provide meaningful protection against levy enforcement, but that protection depends on the status of the agreement, the liabilities covered, and the circumstances of the collection case.
A defaulted payment plan, new federal tax liabilities, an existing bank levy, or unresolved business tax obligations may create risks that are not immediately apparent.
For taxpayers facing substantial IRS tax debt, these issues can affect bank accounts, wages, property, and business operations.
GMD Tax Law represents taxpayers facing IRS collection enforcement and installment agreement complications.
Contact GMD Tax Law to discuss your IRS installment agreement or levy situation.
Call 617-237-6347 to inquire about representation.
