What Is an LT39 Notice?
An LT39 is a notice from the Internal Revenue Service informing you that your installment agreement — the payment plan you established with the IRS to pay your tax debt in monthly installments — has been terminated. The agreement is no longer active. The monthly payment arrangement you were relying on to manage your debt has ended. And the protections that agreement provided against levy action — wage garnishment, bank account seizures, and other enforcement — are immediately suspended.
The LT39 is one of the more consequential notices the IRS issues because it signals a sudden reversal of the taxpayer's protected status. One day you are in an installment agreement and protected from levy action; the next day, the LT39 arrives and that protection is gone. The IRS can now proceed toward enforcement notice more quickly than it could for an account entering collection for the first time — because the earlier collection sequence has already been completed, and the account's history means the IRS is not starting from the beginning.
The notice arrives on IRS letterhead and will include your name, address, the tax years covered by the defaulted agreement, the remaining balance as of the default date, the specific reason the agreement was terminated, and instructions for requesting reinstatement or establishing a new agreement.
Why Did You Receive an LT39?
An installment agreement can default for several distinct reasons, and the LT39 will specify which one caused the termination of your agreement.
Missed payment. This is the most common cause of installment agreement default and the most frequently surprising to taxpayers. When you establish an installment agreement, you are committing to a specific monthly payment amount by a specific date each month. Missing even a single payment — or making a payment that is less than the required amount — can trigger default. The IRS does not automatically provide a grace period before issuing the LT39, though in practice some accounts receive a brief informal pause before the notice is generated.
Direct debit installment agreements — where payments are automatically withdrawn from your bank account — are less vulnerable to missed payment defaults, but they can still default if the bank account has insufficient funds, if the account is closed, or if the banking information changes and the IRS is not updated.
New tax balance from a subsequent year. This is the default cause that surprises taxpayers most frequently, because it is not about the installment payment at all. When you enter into an installment agreement, one of its standard terms requires you to file all required tax returns and pay all taxes owed in subsequent years on time. If you file a return for any year after the agreement was established that shows a balance due — and you do not immediately pay that balance — the new balance constitutes a default of the existing agreement, even if you have been making your installment payments flawlessly.
This means that being perfectly current on your installment agreement payments while simultaneously underpaying your current year taxes results in an LT39. The two obligations are not independent under the agreement's terms.
Failure to file a required return. Most installment agreements require that you file all required federal tax returns on time going forward. Missing a filing deadline — for a personal return, a business return, or an information return — after the agreement was established can constitute a breach of the agreement terms even if no tax is owed for the missed year. The IRS checks compliance with the filing requirement separately from the payment requirement.
Inaccurate financial information at origination. If the IRS later determines that the financial information you provided when applying for the installment agreement was materially inaccurate — for example, if assets or income were understated in a way that would have changed the agreement terms — the IRS can terminate the agreement on the basis that it was established on false information.
The IRS determines your ability to pay has improved substantially. In some cases, if the IRS gathers information suggesting your financial situation has improved significantly since the agreement was established — a substantial increase in income, inheritance of assets, sale of property — it may modify or terminate the agreement and require updated terms.
What the LT39 Means for Your Account Immediately
The effects of the LT39 are immediate:
The agreement's levy protection ends. The IRS's policy is to refrain from taking levy action while a taxpayer is in compliance with an installment agreement. Once the agreement is in default, that policy protection disappears. The IRS can proceed toward issuing the Final Notice of Intent to Levy without sending the full preliminary notice sequence again in many cases — because the account has already been through the full sequence prior to the agreement being established.
The full balance becomes due. The installment agreement's monthly payment structure is no longer operative. The entire remaining balance — the original amount minus all payments made under the agreement — is due in full. This does not mean the IRS will immediately demand the full balance before considering any arrangement, but it is the account's legal status after default.
Interest and penalties continue. Throughout the period the installment agreement was in effect, interest was accruing on the unpaid balance (installment agreements do not stop interest accrual). After default, that continues. The failure-to-pay penalty, which is reduced to 0.25% per month while a taxpayer is in an approved installment agreement, may return to the higher 0.5% per month rate.
The account re-enters active collection. From the IRS's perspective, the account has gone from protected status back to active collection status. The collection timeline compresses because the prior sequence has already been completed.
Can the Installment Agreement Be Reinstated?
Yes — in many cases, and particularly on a first default, reinstatement is available.
First-time default reinstatement. If this is the first time the agreement has defaulted, the IRS will typically reinstate the agreement if the cause of the default is resolved and you request reinstatement promptly. For a missed payment, this means making the missed payment and any payment that has since come due. For a new tax balance, it means paying the new balance or including it in a revised agreement. For an unfiled return, it means filing the return. There is a reinstatement fee of $89.
The reinstatement request must be made explicitly. Resolving the cause of the default — for example, making the missed payment — does not automatically reinstate the agreement. You must separately contact the IRS to request that the agreement be formally reinstated. Simply making the missed payment without requesting reinstatement results in the payment being credited to your balance without restoring the agreement's protective status.
Repeat defaults. If the agreement has defaulted on a prior occasion, reinstatement may still be possible but the IRS may be less willing to grant it on the same terms. The IRS may require a new financial review, impose stricter payment terms, or require a larger payment to establish reinstatement.
New agreement. If reinstatement is not granted — because the default is too significant, the prior compliance history is poor, or the terms are no longer appropriate — you may be able to apply for a new installment agreement with terms based on your current financial situation. The terms of a new agreement may differ from the original.
Appeal. If you believe the LT39 was issued in error — the payment was made on time but not credited, the filing was submitted but not processed by the IRS, or the new balance the IRS cites does not actually exist — you have the right to appeal the termination through the IRS Collection Appeals Program (CAP) or through the Collection Due Process process.
The 30-Day Window — Why It Matters
The LT39 will include a date by which reinstatement must be requested or a new arrangement established. This date is typically 30 days from the notice date. Acting within this window is not just important — it is critical.
After the reinstatement window closes without resolution, the IRS will proceed toward the Final Notice of Intent to Levy. Once the Final Notice (LT11 or Letter 1058) is issued, a 30-day Collection Due Process window begins, after which levy action can begin. At that stage, the reinstating or negotiating an agreement becomes possible but more complex and time-pressured.
Acting promptly after receiving the LT39 — ideally within the first week — gives you the maximum amount of time to resolve the cause of the default and make the reinstatement request before the window closes.
Who Receives LT39 Most Often?
Taxpayers who experienced unexpected financial disruptions. Job loss, medical expenses, divorce, or other sudden changes in financial circumstances can make installment agreement payments unsustainable even for taxpayers who were fully committed to the arrangement. Missing payments out of necessity rather than neglect is the most sympathetic LT39 scenario — and it is the most common one.
Taxpayers who were current on installment payments but fell behind on current year taxes. The two-stream obligation — making installment payments while also meeting current year tax obligations — catches many taxpayers off guard. They focus on the installment payment because that is the obligation they are most conscious of, and they underpay or fail to pay the current year without realizing it constitutes a default.
Taxpayers who set up automatic payments through direct debit and changed bank accounts. Closing an account or opening a new one without updating the IRS banking information for the installment agreement is a frequent cause of missed payment defaults.
Taxpayers whose agreements were established without full professional oversight. Agreements set up without a complete understanding of all compliance requirements — particularly the requirement to file and pay all future obligations — are more likely to inadvertently default.
Related IRS Notices
- CP14 — Balance Due Notice — what the account reverts toward after installment agreement default
- LT16 — Contact Required or Collection Begins — the demand for contact that may follow if the LT39 is not addressed
- Letter 1058 / LT11 — Final Notice of Intent to Levy — the final step before levy action begins
Frequently Asked Questions
How long do I have to reinstate my installment agreement after receiving an LT39?
The LT39 will specify a date, but generally you have 30 days from the notice date to request reinstatement. Contacting the IRS as early in that window as possible is strongly advisable — the earlier you engage, the more straightforward the reinstatement process typically is.
If I make the missed payment immediately, will the agreement automatically be reinstated?
No. Making the missed payment is the necessary first step but is not sufficient on its own to reinstate the agreement. You must also explicitly request that the agreement be reinstated. Call the IRS using the number on the LT39 or the general IRS number for ACS (Automated Collection System) and specifically request reinstatement, referencing the LT39 and the payment you made.
Can I change the payment amount when requesting reinstatement?
In some cases, yes. If your financial situation has changed since the original agreement was established, you may be able to negotiate revised terms — including a different monthly payment amount — when requesting reinstatement. The IRS will typically require updated financial information, including income documentation and an updated statement of monthly expenses.
Does the LT39 default appear on my credit report?
The LT39 notice itself is not reported to credit bureaus. However, if the defaulted balance leads to the IRS filing a Notice of Federal Tax Lien — which can happen as part of the collection sequence that follows an unresolved default — that lien is a public record that can appear in credit reporting.
What if I disagree with the reason for default stated on the LT39?
If the notice states the agreement defaulted for a reason you believe is incorrect — a payment you made that was not credited, a return you filed that the IRS does not have a record of, or a new balance you believe does not exist — gather documentation and file an appeal. The Collection Appeals Program (CAP) provides a relatively fast appeals process. For more complex disputes, the Collection Due Process process provides a hearing with an independent IRS Appeals officer.
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If you received an LT39 and want to understand your options for reinstating your arrangement or finding an alternative resolution path, the FreshStartGuide eligibility tool can help.