Most business owners who fall behind on taxes assume the same thing: once you've asked the IRS for a payment plan, collection activity pauses while the request is under review. The IRS itself even seems to promise as much — its own internal guidance tells revenue officers not to take enforcement action while an installment agreement is pending.
A June 2026 Tax Court decision says that promise has a large asterisk. In Novak v. Commissioner, the court ruled that the IRS can file a Notice of Federal Tax Lien against you while your installment agreement request is still being considered — and doing so isn't a due-process violation, an abuse of discretion, or even unusual. It's standard procedure once you owe more than a modest amount.
If you're a business owner carrying tax debt and hoping a payment-plan request buys you breathing room, this case is worth fifteen minutes of your attention.
What Happened in Novak v. Commissioner
The taxpayer, Jon Novak, had his 2017, 2018, and 2019 returns examined and agreed to the resulting adjustments — roughly $1.5 million in additional tax plus about $200,000 in interest across the three years. At the close of the exam, he asked the IRS for an installment agreement, submitting Form 9465 (Installment Agreement Request) along with Form 433-F, the IRS's Collection Information Statement.
That financial disclosure worked against him. It showed more than $15 million in bank and brokerage accounts, stock holdings worth roughly $60 million combined, and well over $3 million in home and other real estate equity. Based on that picture, the IRS's Collection function concluded he could pay the liability outright and wasn't a candidate for a payment plan. A revenue officer warned his representative that if the balance wasn't paid promptly, the IRS would file a lien — and it did, a few weeks later.
Novak requested a Collection Due Process (CDP) hearing to challenge the lien. During the hearing, his representative argued the timing violated his due-process rights: how could the IRS file a lien before formally rejecting the installment agreement? The IRS Appeals officer disagreed, sustained the lien, and Novak took the case to Tax Court.
The Tax Court sided with the IRS. The opinion (T.C. Memo. 2026-52) is worth understanding in plain terms, because the reasoning applies well beyond taxpayers with eight-figure brokerage accounts.
The Core Ruling: A Pending Request Doesn't Freeze Collection
The court pointed to the IRS's own Internal Revenue Manual, which does two things that sound contradictory but aren't:
- It tells revenue officers not to reject an installment agreement outright without independent review, and not to take enforcement action — like a levy — while a request is genuinely pending.
- It separately instructs that a Notice of Federal Tax Lien should generally still be filed once the total unpaid balance across all assessments reaches $10,000, specifically to protect the government's interest — and that this can happen while an installment agreement is pending or in the process of being rejected.
In other words, a lien filing and an installment agreement decision are two different tracks. One protects the government's claim on your assets; the other determines how you'll pay it off. The IRS is allowed to run them in parallel. As long as the agency (a) tells you a lien is coming, (b) gives you a chance to pay before it files, and (c) still lets you dispute the lien through a CDP hearing afterward, the sequencing itself isn't a violation of your rights.
The court also rejected the argument that this was unfair because Novak hadn't yet been formally told his installment agreement was denied. The revenue officer had communicated the intent to reject — which the IRM treats as sufficient notice before a lien can follow.
Why the IRS Rejected the Payment Plan in the First Place
Separately from the lien-timing question, the court examined whether it was reasonable for Appeals to reject the installment agreement at all. Here the ruling reinforces something IRS collections attorneys have said for years: an installment agreement is not a right — it's a discretionary accommodation, and the IRS can decline it if it believes you can pay from existing assets.
Novak's representative argued during the CDP hearing that his financial situation had changed and that he planned to sell part of his business to raise cash. But when the Appeals officer asked for documentation to support that claim — updated collection statements, brokerage statements, proof of the pending sale — none arrived, even after two extensions. The court's conclusion was blunt: it is not an abuse of discretion for the IRS to reject a payment plan when the taxpayer has been given ample opportunity to substantiate a change in circumstances and simply doesn't.
That's the pattern collections professionals see constantly, just usually with smaller numbers attached: the taxpayer verbally asserts hardship, the IRS asks for the numbers to back it up, and the numbers never show up — sometimes because the business genuinely lacks organized records, not because the hardship isn't real.
What This Means If You're a Business Owner With a Balance Due
You don't need Novak's balance sheet for these lessons to apply. Here's what changes in practice once you owe the IRS money and are trying to negotiate a payment plan.
A lien can show up before you get an answer on your payment plan. Don't treat a pending Form 9465 as a shield. If your total balance (tax, penalties, and interest combined) crosses roughly $10,000, budget for the possibility of a Notice of Federal Tax Lien landing in your mailbox regardless of where your negotiation stands.
The $50,000 line matters. Individual taxpayers who owe $50,000 or less in combined tax, penalties, and interest can generally use a streamlined installment agreement without submitting exhaustive financial documentation, and the IRS is more likely to hold off on filing a lien if you're on direct debit. Cross $50,000, and a lien becomes close to automatic even with a payment plan in place — you'll also need to submit full financial statements (Form 433-A or 433-F) and expect closer scrutiny of your assets, exactly as Novak experienced.
You get a formal chance to contest the lien — use it, and use it on time. Once the IRS files a Notice of Federal Tax Lien, you have 30 days from the notice to request a CDP hearing (Form 12153) under IRC §6320. That hearing is your venue to raise collection alternatives, dispute procedural defects, or negotiate terms — but as Novak's case shows, you need to raise your actual objections at that hearing. The Tax Court held that arguments never presented to the Appeals officer generally can't be raised for the first time in court.
A lien doesn't have to be permanent, even mid-negotiation. If a lien is genuinely obstructing your ability to sell an asset or refinance to pay the liability — which is exactly what Novak claimed but never documented — you can request a lien withdrawal under IRC §6323(j) using Form 12277, particularly once you're in a compliant installment agreement. Novak's court record notes he never pursued this option, despite having the opening to do so.
The paperwork determines the outcome, not the story. Every extension the Appeals officer in Novak granted was met with silence rather than documents. If you're asking the IRS to treat your business as cash-strapped, bring the bank statements, the aging accounts receivable, the loan applications you've been rejected for — whatever proves it. Assertions without documentation get rejected, and the court will back that rejection.
The Business Cost of a Filed Lien
Even a fully justified lien is expensive to live with. It attaches to virtually everything you own or acquire while it's in place, and — while it no longer appears on personal consumer credit reports — it still surfaces in commercial credit reports and standard lender due-diligence searches like LexisNexis. Business lenders that find an active lien typically respond with meaningfully higher rates, stricter terms, smaller loan amounts, and demands for personal guarantees, on top of the practical problem of a lien complicating any sale of business assets or real estate.
That's the real cost of losing the "the IRS won't act while I'm negotiating" assumption: a lien filed mid-negotiation can quietly foreclose financing options you were counting on to solve the underlying problem.
Keep Records That Make the Case for You
The single thread running through Novak is that the IRS's collection decisions turn on documented financial reality, not verbal claims. When a revenue officer or Appeals officer asks "can you pay this from your assets, yes or no," you need a current, accurate financial picture ready to hand over — not a scramble to reconstruct account balances and receivables under a 14-day deadline.
That's where day-to-day bookkeeping discipline pays off well before you're ever in a collections dispute. Beancount.io gives you plain-text, version-controlled accounting that stays current and auditable, so if you ever need to substantiate cash flow, asset values, or a genuine inability to pay, the numbers are already there — not something you're piecing together under pressure. Get started for free and see how transparent, always-current books make conversations with the IRS — or anyone else asking hard financial questions — far less stressful.