How an IRS Payment Plan Stops Levies: IRC 6331(k) and Its Limits

People set up payment plans for many reasons, but the one that gets them on the phone is usually a levy, actual or threatened. A bank account frozen. A Final Notice of Intent to Levy on the kitchen table. A wage levy taking half a paycheck.

A payment plan is the most common way to stop that, because Congress wrote a levy bar directly into the Internal Revenue Code. Here is what the bar covers, when it starts, when it ends, and the gaps around it.

The statute

IRC 6331(k)(2) says no levy may be made on the property or rights to property of any person with respect to any unpaid tax:

• during the period that an offer by that person for an installment agreement under section 6159 for payment of the tax is pending with the IRS;
• if the offer is rejected, during the 30 days afterward, and, if an appeal of the rejection is filed within those 30 days, while the appeal is pending;
• during the period that the installment agreement is in effect; and
• if the agreement is terminated, during the 30 days afterward, and, if an appeal of the termination is filed within those 30 days, while the appeal is pending.

Treas. Reg. 301.6159-1(f)(1) restates the same four periods and adds a limit: the rule does not prohibit levy to collect the liability of any person other than the person or persons named in the agreement. IRM 5.14.1.5 repeats the list for revenue officers, word for word in substance, and IRM 5.14.1.1.1 states it in the background section of the installment agreement chapter.

When protection starts: pending, not requested

The bar starts when a request is pending, and pending has a specific meaning. Treas. Reg. 301.6159-1(b)(2) says a proposed agreement becomes pending when it is accepted for processing. The IRS marks that moment on your account with a transaction code, and IRM 5.14.1.3 requires employees to input it within 24 hours of a request that meets the pending criteria. Those criteria include a specific proposed payment, the periods to be covered, filing compliance, and a financial statement when one is required.

A call that says I want to work something out is not a pending request. Neither is a request with a missing return. The details are in when a payment plan request becomes pending. Get the request into pending status and the bar is in place.

The three exceptions

Treas. Reg. 301.6159-1(f)(2) lists the situations where the bar does not apply:

• You file a written notice waiving the restriction. The IRS form for this is Form 13623, Waiver of Restriction of Levy During a Pending or Active Installment Agreement, which IRM Exhibit 5.14.1-3 describes as identifying assets and levy sources the taxpayer asks to have levied. Some taxpayers use it deliberately, for example to let a levy on a specific account continue as part of the deal.
• The IRS determines the request was submitted solely to delay collection. See requests the IRS treats as made to delay.
• The IRS determines collection of the tax is in jeopardy. IRM 5.14.1.5 ties this to the conditions that would justify a jeopardy assessment.

What the IRS can still do

The bar is on levy. It is not a freeze on everything. Treas. Reg. 301.6159-1(f)(3) lists actions the IRS may take while levy is prohibited:

• Credit an overpayment against the liability under IRC 6402. Your refunds can still be applied. See your tax refund and your payment plan.
• File or refile a Notice of Federal Tax Lien. See payment plans and the federal tax lien.
• Take action to collect from any person who is not named in the agreement but is liable for the tax.

On lawsuits, the regulation says the IRS will not refer a case to the Department of Justice to start a court proceeding against a person named in the agreement while levy is barred. But the government can still file counterclaims or join you in proceedings such as a suit involving the property, and can file claims in bankruptcy. Any claim it files is for the full amount owed.

Levies already in place

Here is a gap people miss. The bar prevents new levies. What about a levy served before your request?

IRC 6343(a)(1)(C) requires the IRS to release a levy if the taxpayer has entered into an installment agreement to satisfy the liability, unless the agreement provides otherwise, and adds that release is not required if it would jeopardize the government's secured creditor status. IRM 5.14.1.5 draws the line in time: if a request is merely pending, an outstanding levy may be released but release is not required. Once the agreement is approved, the levy must be released unless the agreement says otherwise.

Unless the agreement says otherwise matters. The IRM gives examples where a levy stays in place by agreement, such as a bank levy that already attached funds, or a continuous levy on mineral royalties or intermittent income not counted in the payment analysis. Those terms go in the Additional Conditions block of Form 433-D. Read that block before you sign.

Practical advice: when you set up a plan to stop a levy, ask for the release in the same conversation, and confirm the IRS has sent the release to the bank or employer. For a wage levy, the earlier guide on stopping an IRS wage seizure covers the release side.

Two more limits

• Periods not in the plan. The bar protects the tax covered by the agreement. IRM 5.14.1.5 gives the example of a business whose agreement covers two payroll quarters; a later quarter outside the agreement, with all due process notices sent, can be levied even while the agreement is in default status.
• Property already seized. IRM 5.14.3.3 notes that an installment agreement request does not prohibit the sale of property seized before the request became pending. If a sale is scheduled, it may go forward.

The collection statute while you are protected

There is a trade-off built into the bar. IRC 6331(k)(3) applies the statute suspension rule of IRC 6331(i)(5), which suspends the collection period while levy is prohibited, to installment agreements, with one exception: it does not apply while the agreement is in effect. Treas. Reg. 301.6159-1(g) spells it out. The collection statute is suspended while a proposed agreement is pending, for 30 days after a rejection, for 30 days after a termination, and while a timely appeal of a rejection or termination is under consideration. It keeps running while an approved agreement is in effect.

So a long pending period adds time to the IRS's collection clock. An approved plan does not. That is one more reason to get from pending to approved promptly.

If a levy arrives after your request is pending

Mistakes happen, usually because the pending code was not input or was input on some periods and not others. If a levy shows up after you made a request that met the pending criteria, call the IRS right away with the date of your request, the name or ID number of the employee, and the periods covered. Ask the IRS to confirm the pending code on every period and to release the levy. If the problem cannot be fixed quickly and the levy is causing hardship, the Taxpayer Advocate Service takes requests on Form 911, and IRM 5.14.9.4 tells employees to refer taxpayers to TAS when a case meets its criteria.

No warnings while you are pending

One last protection, from the IRS's own manual. IRM 5.14.1.4 tells employees not to warn taxpayers of enforcement action if installment agreements are pending or in effect, and specifically says issuing Letter 1058, the field version of the final notice of intent to levy, is prohibited while an agreement is pending. If you receive enforcement warnings after your request is pending, raise it, in writing, with the employee and the manager.

The levy bar is real protection. Know where it starts, know its exceptions, and make sure any levy already in place is actually released. That is how a payment plan does what you set it up to do.