If you owe the IRS and cannot pay in full, an installment agreement is the most straightforward resolution available. It is a formal payment arrangement between you and the IRS that allows you to pay your tax debt in monthly installments rather than all at once — and critically, it suspends active collection activity while the agreement is in place.
No levies. No wage garnishments. No bank account seizures. As long as you remain in compliance with the terms of your agreement, the IRS’s enforcement tools are off the table.
What an installment agreement does not do is stop penalties and interest. The meter keeps running on your outstanding balance throughout the repayment period. This is why getting the right type of agreement — at the right payment amount, structured correctly from the start — matters more than most people realize. An agreement that is too aggressive collapses. An agreement that runs longer than necessary means paying more in accrued interest than you needed to. And an agreement that should have been a Partial Payment Installment Agreement or an Offer in Compromise can leave money on the table that a different structure would have saved.
My name is Philip Falco. I am a tax attorney and a licensed CPA practicing in downtown Denver. When I evaluate an installment agreement case, I analyze the full picture: the balance, the remaining collection statute, your financial position, and every alternative available. Then I recommend the structure that actually serves your interests — which is sometimes a simple payment plan, and sometimes something more sophisticated.
Call (303) 626-7000 to discuss your situation.
One Immediate Benefit — The Penalty Rate Drops in Half
Here is something most people do not know when they set up an installment agreement: the moment the IRS approves your agreement, your failure-to-pay penalty rate drops from 0.5% per month to 0.25% per month — a 50% reduction that continues for the entire life of the agreement.
On a $60,000 balance, that difference is $150 per month in penalty accrual that simply stops. Over a 60-month repayment period, that is $9,000 in penalties that would have accrued without the agreement. The interest rate does not change, but the penalty reduction alone makes getting a formal agreement in place — rather than ignoring the balance — a meaningful financial decision.
2025–2026 Update — The IRS Expanded Simple Payment Plans
The IRS has made installment agreements more accessible in recent years, particularly for balances under $50,000. The key developments:
Simple Payment Plans (expanded 2026): For individuals with a total balance of $50,000 or less in combined tax, penalties, and interest, the IRS now offers Simple Payment Plans with up to 72 months to repay, no financial disclosure statement required, and online setup available. The IRS removed the previous 72-month cap for agreements handled through a Revenue Officer — if you owe under $50,000 and are working with a Revenue Officer, you can now pay over the remaining collection statute period rather than being capped at 72 months.
Short-Term Plans: Individuals with a total balance under $100,000 can request up to 180 days to pay in full with no setup fee. Interest and the full failure-to-pay penalty continue to accrue during this period, but no formal installment agreement is required. This is worth considering when you can realistically pay the full balance within six months.
Non-Streamlined Agreements (balances $50,000–$250,000): If you owe between $50,000 and $250,000 and your case has not been assigned to a Revenue Officer, the IRS generally does not require a financial disclosure statement. However, the IRS will almost certainly file a Notice of Federal Tax Lien at these balance levels. Above $250,000, or when a Revenue Officer is assigned, a full Collection Information Statement (Form 433-A or 433-F) is required.
Types of IRS Installment Agreements
Simple Payment Plan (Under $50,000)
The most accessible option for most individuals. Requirements:
- All required tax returns must be filed
- Total balance including penalties and interest at or under $50,000
- No active bankruptcy
No financial disclosure. No lien determination required (though the IRS retains discretion). Can be set up online through the IRS Online Payment Agreement tool, which provides immediate approval. Setup fees are lowest with direct debit — approximately $22 for direct debit agreements versus $69 for non-direct debit.
The minimum monthly payment is determined by dividing the total balance by 72 months. A $36,000 balance produces a minimum payment of $500 per month before interest accrual is factored in.
Non-Streamlined Agreement ($50,000–$250,000)
For balances between $50,000 and $250,000, the IRS generally approves agreements without a formal financial statement if no Revenue Officer is assigned. The repayment term must satisfy the balance before the Collection Statute Expiration Date — typically 10 years from the date of assessment.
At these balance levels, expect the IRS to file a Notice of Federal Tax Lien. A federal tax lien is a public record that attaches to all your property and encumbers your credit. It does not mean the IRS is about to seize your assets, but it affects your ability to sell or refinance real estate and is visible to credit bureaus. If avoiding a lien is a priority, paying the balance below $50,000 before establishing the agreement — if possible — keeps you in Simple Plan territory.
High-Balance and Revenue Officer Cases ($250,000+)
Balances above $250,000, or any case assigned to a Revenue Officer, require a full financial disclosure. The IRS uses your Collection Information Statement (Form 433-A for individuals, Form 433-B for businesses) to verify income, expenses, and assets, and determines a payment based on your actual disposable income after allowable expenses.
This is where the CPA credential does specific work. The IRS applies National Standards and Local Standards for Denver when evaluating your expenses — and knowing those standards, and documenting your actual expenses correctly against them, directly affects what your required payment is. An incorrectly prepared 433-A can result in a payment that is higher than required, sometimes significantly so.
Partial Payment Installment Agreement (PPIA)
The PPIA is one of the most underused and least understood tools in IRS collection resolution. It is available when your financial situation — documented income, allowable expenses, and asset values — demonstrates that you cannot pay the full balance before the Collection Statute Expiration Date even with an installment agreement.
Under a PPIA, you pay what you can actually afford each month. When the 10-year collection statute expires, whatever balance remains is extinguished. You do not pay the rest.
This makes the PPIA functionally similar to an Offer in Compromise, but with monthly payments rather than a lump sum. For taxpayers who do not qualify for an OIC (perhaps because of home equity or retirement account balances) but who genuinely cannot pay the full balance within the collection window, the PPIA is often the most practical resolution available.
The IRS reviews PPIA cases approximately every two years. If your income increases materially, your payment will increase. If your situation has not changed, the agreement continues on its current terms.
A PPIA requires full financial disclosure (Form 433-A) and generally takes longer to establish than a simple payment plan. It is also subject to managerial approval within the IRS, not just automated processing. But when the math supports it, the outcome — paying a fraction of the total balance over time — is substantially better than a standard installment agreement.
The Tax Lien — Understanding the Risk
A Notice of Federal Tax Lien is the IRS’s legal claim against all of your current and future property. It is filed in the county where you live or do business and is a public record.
When the IRS files a lien:
- Generally when a balance exceeds $10,000 and is not being actively resolved
- Almost automatically at balances over $50,000
- Even with an installment agreement in place for balances above the Simple Plan threshold
What a lien does:
- Attaches to all real and personal property, including property acquired after the lien is filed
- Appears on your credit report and affects your credit score
- Encumbers real estate — you cannot sell or refinance without addressing the lien
- Can affect your ability to obtain financing for business or personal purposes
What a lien does not do:
- Force an immediate sale of your property
- Give the IRS the right to enter your home
- Prevent you from using your property
A lien can be released when the balance is paid in full. It can be subordinated (allowing a mortgage lender to take priority) when you are refinancing to access equity to pay the IRS. It can be withdrawn — removed from the public record entirely — in certain circumstances, including after a Direct Debit Installment Agreement is established on a balance that originally qualified for a streamlined agreement.
Lien withdrawal is a meaningful benefit for taxpayers whose lien is affecting their credit or their ability to obtain financing. It is available by request and is not automatic — but it is available.
The Default Trap — The Most Common Way Installment Agreements Fail
Getting an installment agreement approved is step one. Keeping it is step two — and step two is where a surprising number of people fail.
An installment agreement defaults — and the full balance becomes immediately collectible — if you:
- Miss a monthly payment
- Fail to file a required tax return for any subsequent year
- Fail to pay tax due for any subsequent year
- Provide materially inaccurate financial information in your application
The last three are the ones people don’t expect. Many taxpayers get an installment agreement, make their payments faithfully, and then have the agreement terminated because they didn’t pay their estimated taxes for the current year or filed a return with a balance they couldn’t pay. The IRS then reinstates the full original balance, adds the new year’s liability, and resumes collection.
Before finalizing any installment agreement, I make sure you understand exactly what ongoing compliance looks like — estimated tax payments, withholding adjustments, and timely filing — so the agreement you worked to get stays in place.
When an agreement defaults, it can sometimes be reinstated. But reinstatement is not guaranteed, and a defaulted agreement history makes the IRS less flexible in future negotiations.
The Collection Statute Expiration Date — Why Timing Matters
The IRS generally has 10 years from the date a tax is assessed to collect it. This is called the Collection Statute Expiration Date (CSED). When the CSED expires on a balance, that balance is legally extinguished — the IRS can no longer collect it.
The CSED affects installment agreement strategy in two important ways:
How much time is left on the statute determines what resolution makes sense. If you have eight years remaining on a $40,000 balance, a standard installment agreement paying $500 per month will satisfy the debt with time to spare. If you have three years remaining on a $120,000 balance, a standard installment agreement cannot possibly satisfy it — which means either a PPIA or an OIC should be explored.
Certain actions toll (pause) the CSED. Filing an OIC suspends the clock for the duration of the review plus 30 days. A pending installment agreement request also tolls the statute temporarily. An agreed CSED extension is sometimes required as a condition of a PPIA. Understanding where the clock stands — and what actions will move it — is part of any serious collection resolution analysis.
I pull IRS account transcripts for every client before recommending a resolution path. The transcripts tell me exactly when each year’s liability was assessed and how much time remains on each CSED. For clients with multiple years of debt assessed at different times, this analysis can meaningfully affect which resolution structure makes the most sense.
Installment Agreement vs. Offer in Compromise vs. Currently Not Collectible
These three options are not mutually exclusive and are not always clear-cut alternatives. Here is a practical framework:
Installment Agreement makes sense when: you have stable income, your monthly disposable income after allowable expenses is sufficient to pay the balance before the CSED expires, and you do not have significant asset equity that would support an OIC. This covers the majority of IRS collection cases.
Offer in Compromise makes sense when: your Reasonable Collection Potential — assets plus future income stream — is genuinely less than the total balance owed. This requires limited liquid assets, limited home equity, and a monthly disposable income that does not support full repayment within the collection window. Learn more about Offer in Compromise →
Partial Payment Installment Agreement makes sense when: you can pay something monthly but cannot pay the full balance before the CSED — and either an OIC is not available (because of asset equity) or you prefer monthly payments to a lump-sum settlement.
Currently Not Collectible (CNC) makes sense when: your allowable expenses equal or exceed your income, leaving no disposable income. The IRS suspends collection entirely in CNC status, but interest and penalties continue to accrue and the IRS revisits the determination periodically.
Penalty abatement is not an alternative to these options — it is a supplement. Reducing the penalty component of your balance before establishing any of the above reduces what you actually have to pay. Learn more about penalty abatement →
Colorado Department of Revenue Installment Agreements
If you owe both federal and Colorado state income taxes, each balance requires a separate resolution. The Colorado Department of Revenue has its own installment agreement program, operated independently of the IRS.
Colorado DOR installment agreements are negotiated directly with the state and do not automatically mirror federal terms. Colorado will also file a state tax lien against your property when a balance is unresolved. State collection tools include wage garnishments, bank levies, and referral to the state’s debt collection program.
When I handle installment agreement cases involving both federal and state debt, I address both simultaneously — coordinating the payment terms and compliance requirements so that resolving one does not inadvertently create a problem with the other.
How I Structure an Installment Agreement Engagement
Step 1 — Transcript analysis. Before recommending any resolution, I pull your IRS account transcripts. I need to know the assessed balance by year, the CSED for each assessment, whether a lien has been filed, and whether a Revenue Officer has been assigned. This information determines which type of agreement is available and what the realistic payment range looks like.
Step 2 — Financial analysis. For cases requiring financial disclosure — non-streamlined agreements, high-balance cases, and PPIAs — I prepare the Collection Information Statement (Form 433-A) myself as a CPA. I apply IRS National and Local Standards for the Denver metro area and ensure every allowable expense is documented. The difference between a correctly and incorrectly prepared 433-A is often hundreds of dollars per month in required payment.
Step 3 — Penalty abatement evaluation. Before finalizing the agreement, I evaluate whether First-Time Abatement or Reasonable Cause relief can reduce the outstanding balance. Abating penalties reduces the principal, which reduces the minimum payment and the total interest that accrues over the life of the agreement. This step is often skipped by practitioners who treat installment agreements as purely a collection matter.
Step 4 — Agreement negotiation and submission. I submit the agreement request — Form 9465 for standard requests, or direct negotiation with a Revenue Officer for complex cases — and handle all IRS communication during the review period.
Step 5 — Ongoing compliance planning. Before the agreement is finalized, I make sure you understand the compliance requirements: estimated tax payments, withholding adjustments, and timely filing for all subsequent years. An installment agreement that defaults is worse than not having one — it resets your position and makes the IRS less flexible going forward.
Frequently Asked Questions
Does setting up an installment agreement stop IRS levies?
Yes. Once the IRS approves an installment agreement, it is prohibited from issuing new levies while the agreement is in effect. If a levy has already been issued, an approved installment agreement is grounds to request a levy release. Learn more about IRS bank levies →
Will the IRS file a tax lien if I set up an installment agreement?
For Simple Payment Plans on balances under $50,000, the IRS generally does not file a lien. For balances above $50,000, a Notice of Federal Tax Lien is commonly filed even with an installment agreement in place. In some cases, a lien can be withdrawn after a Direct Debit Installment Agreement is established — this requires a separate withdrawal request and is not automatic.
Can I set up a payment plan if I have unfiled tax returns?
No. All required tax returns must be filed before the IRS will approve an installment agreement. If you have unfiled returns, those need to be addressed first. Learn more about unfiled tax returns →
What happens if I can’t make my monthly payment one month?
A single missed payment triggers a default notice. The IRS sends a written notice granting 30 days to cure the default before the agreement is terminated. If you anticipate a payment problem, contact me before missing the payment — there are options for modifying or temporarily adjusting an agreement, but they are far easier to pursue before a default than after.
Can I get an installment agreement if I already defaulted on one?
Yes, though it is more difficult. A defaulted installment agreement history makes the IRS less flexible, particularly regarding the payment amount and lien filing. Reinstatement of a defaulted agreement is possible but not guaranteed. New agreements after a default typically require more documentation and Revenue Officer involvement.
Does an installment agreement affect my credit score?
The installment agreement itself does not appear on your credit report. However, the Notice of Federal Tax Lien — which the IRS commonly files for balances above $50,000 — does affect your credit. Paying the balance in full releases the lien, and a released lien can be removed from your credit report by requesting removal from the credit bureaus.
Can my installment agreement payment be reduced if my income drops?
Yes. If your financial situation changes materially — job loss, reduced income, significant medical expenses — you can request a modification to reduce your monthly payment. The IRS will require updated financial documentation. A PPIA is already structured to be reviewed periodically and adjusted to reflect current circumstances.
What about the passport revocation threshold?
The IRS certifies “seriously delinquent” tax debt to the State Department, which can result in passport denial or revocation. The seriously delinquent threshold is currently $66,000 (adjusted annually for inflation). An active installment agreement — or OIC, or innocent spouse relief — prevents certification even if your balance exceeds the threshold. If you are planning international travel and have a significant IRS balance, getting a formal resolution in place before your travel date is important.
The Right Agreement at the Right Payment
The IRS installment agreement is a tool, not a solution in itself. The right agreement — correctly structured, with the penalty situation evaluated, at a payment you can actually sustain, with ongoing compliance built in — is a path to getting the IRS permanently resolved and behind you.
The wrong agreement — one that defaults, or that should have been a PPIA, or that left penalty abatement on the table — is a detour that costs time, money, and leverage.
Call (303) 626-7000 to discuss what the right structure looks like for your situation.
Philip Falco, Tax Attorney & CPA
730 17th Street, Suite 900 · Denver, CO 80202
phil@coloradolegal.com
This page is for general informational purposes and does not constitute legal advice. Installment agreement terms and eligibility depend on individual facts and IRS policy in effect at the time of application. Contact our office to discuss your specific circumstances.