What Happens If You Default on an IRS Installment Agreement?
Missed a Payment? Here’s What Happens Next
An IRS Installment Agreement is often a taxpayer’s best option for handling back taxes—until you miss a payment, skip a return, or fall behind on new tax obligations. When that happens, your agreement may be terminated, and IRS collections can come roaring back to life.
If you’ve received a default notice or missed a scheduled payment, you’re not out of options—but you must act quickly.
In this guide, we explain what triggers an IRS Installment Agreement default, what the IRS will do next, and how you can protect yourself and get back on track.
What Causes a Default?
Your IRS Installment Agreement can default for any of the following reasons:
- Missing a scheduled monthly payment
- Failing to file new tax returns on time
- Owing new taxes while the agreement is active
- Submitting a payment that bounces
- Failing to update your agreement after a modification
The IRS expects full compliance with current and future obligations during an agreement. Defaulting on any part can trigger immediate consequences.
Related: How to Set Up a Payment Plan with the IRS (Installment Agreement Guide)
What Happens After a Default?
Once the IRS flags your account as in default:
- You may receive Notice CP523, stating the agreement will be terminated
- The IRS may file or enforce a federal tax lien
- Collection actions such as wage garnishment or a California FTB bank levy may resume
- Interest and penalties will continue to grow
- You may lose eligibility for future streamlined agreements
In most cases, you’ll have 30 days from the notice date to fix the issue before the IRS acts.
Can You Reinstate Your Agreement?
Yes. In many cases, you can reinstate a defaulted agreement without starting over. You may need to:
- Pay the missed installment(s)
- Prove that your situation has changed
- Re-file IRS Form 9465 (Installment Agreement Request)
- Provide updated financial information
Related: How to Qualify for IRS Hardship Status (Currently Not Collectible)
When to Renegotiate vs. Reinstate
If your financial situation has worsened—or if you defaulted more than once—it may be better to negotiate a new agreement altogether. Options include:
- A new monthly payment based on updated income and expenses
- A Partial Pay agreement
- An IRS Offer in Compromise, which allows you to settle your balance through an Offer in Compromise if you qualify
- Transitioning into How to Qualify for IRS Hardship Status (Currently Not Collectible)
In some cases, taxpayers can only resolve tax debt through compliance—meaning they must file all returns and pay all current taxes to show the IRS good faith. That’s why resolving tax debt through compliance is often the first step toward regaining IRS approval.
What If the IRS Starts Collections?
If you don’t resolve the default in time, the IRS can:
- Issue a wage garnishment
- Freeze your bank account
- Offset your refunds
- Place a lien on your property
If you’re facing aggressive enforcement, you may be searching for find IRS tax relief near you to connect with a local professional who can protect your assets.
How to Avoid Defaulting Again
To stay compliant and avoid future disruption:
- Automate payments using direct debit (DDIA)
- File all returns on time
- Pay new tax liabilities in full
- Contact the IRS early if you're struggling to pay
This is especially critical for businesses falling behind on payroll taxes, since the IRS takes payroll tax defaults very seriously.
We Help Orange County Taxpayers Reinstate or Renegotiate IRS Agreements
At Boulanger CPA and Consulting PC, we help clients:
- Reinstate defaulted IRS agreements
- Stop IRS collections in their tracks
- Qualify for more affordable tax resolutions
- Avoid the cycle of repeat default and enforcement
If you need professional guidance, we also recommend reading Defend What’s Yours book by attorney Jeffrey Boulanger, which offers insights on protecting your rights against IRS collections.
Call (657) 218-5700 or schedule online at www.orangecounty.cpa
We offer virtual consults and serve taxpayers throughout Orange County and California.
Frequently Asked Questions
What does it mean to “default” on an IRS Installment Agreement?
Default means you broke the terms of your payment plan—usually by missing a payment, filing a tax return late, or not paying a new balance on time. The IRS typically issues Notice CP523 before terminating the agreement and resuming collections.
What is IRS Notice CP523?
CP523 is a warning that your installment agreement is in default and will be terminated if you don’t cure the issue by the deadline. After termination, levies, liens, and other enforced collection can resume.
Can I reinstate a defaulted installment agreement?
Often, yes. You can request reinstatement by catching up missed payments and fixing the cause of default. If your finances changed, you may need to update your plan terms or consider another option such as an Offer in Compromise (OIC) or Currently Not Collectible (CNC) status.
What happens to penalties and interest after default?
Penalties and interest continue to accrue on any unpaid balance. Default can also trigger enforced collection (levies, liens) if the agreement is terminated and not reinstated quickly.
How fast must I act after receiving CP523?
Immediately. The notice gives a short window to cure the default. Responding before the deadline greatly improves your chances to reinstate and avoid levies.
What if I can’t afford the original payment anymore?
If your ability to pay has changed, ask the IRS to modify the agreement based on current financials, or explore alternatives such as OIC, partial-pay installment agreements, or CNC status.
Will a defaulted IRS agreement affect my California state taxes?
The IRS and California FTB are separate. However, if you have California balances, the FTB may also pursue collection. Coordinating strategies for both agencies is often necessary.
Should I try to fix a default myself or hire a professional?
If your case is simple (one missed payment) you may be able to cure it yourself. If you received CP523, have multiple missing returns, or can’t afford the payment, professional help can prevent costly mistakes and speed resolution.
📣 About the Author
Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, a boutique tax resolution firm based in Orange County, California and trusted by high-income individuals and business owners across Southern California.
With over a decade of experience resolving high-stakes IRS and State tax matters, Marc brings strategic insight to complex cases involving wage garnishments, bank levies, unfiled returns, and six-figure tax debts. He is known for helping clients reduce or eliminate tax liabilities through expertly negotiated settlements and compliance plans.
Marc is a Certified Public Accountant licensed in California and Oklahoma and holds the designation of Certified Tax Representation Consultant. He is a member of the American Society of Tax Problem Solvers (ASTPS) — the national organization founded by the educators and practitioners who have trained thousands of CPAs, EAs, and tax attorneys in IRS representation strategy.
Every case is handled with discretion, proven methodology, and direct CPA-led representation — not call center scripts.
📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.
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