The Two-Year Review of a Partial Payment Installment Agreement: CP 522 and What Follows

A partial payment installment agreement is built on a bet: that your finances will not improve enough to pay more before the collection statute expires. The government protects its side of that bet with a review. IRC 6159(d) says that for any agreement for partial collection, the IRS shall review the agreement at least once every two years.

Treas. Reg. 301.6159-1(i) explains the purpose: to determine whether the taxpayer's financial condition has significantly changed so as to warrant an increase in the payments or termination of the agreement. That is the question the review asks. Here is how it works in practice.

Who runs the review and what you receive

The campus procedures in IRM 5.19.1.6.5.4 say the review is conducted by the IRS Centralized Case Processing organization. Taxpayers subject to it may receive CP 522, Installment Agreement - Review Financial Condition, or CP 522P, Notice of Periodic Review of Your Current Installment Agreement. Taxpayers who receive either notice are told to call Centralized Case Processing at 800-831-0273 to provide the requested financial information.

When the agreement is set up, the IRS sets a review date two years out. IRM 5.19.1.6.5.3.1 tells employees to inform taxpayers that the agreement is reviewed every two years, at which time the IRS may request new information about their financial situation. It should not be a surprise. Put the date on your calendar the day the plan starts.

Do not ignore the notice

IRM 5.4.11.9 says that when a review letter is mailed, the IRS system sets a 30-day follow-up, and if no response has been received, the IRS follows default procedures. Failing to provide a financial condition update when requested is a listed reason for default under IRC 6159(b)(4)(C) and IRM 5.14.11.3. The review is the easiest way to lose a partial payment plan, simply by not answering.

If you need more time to gather documents, ask. IRM 5.4.11.9.1 allows no more than 14 additional days, and only one extension, with the review cycle updated so the account does not default while you gather them.

What you will be asked for

IRM 5.4.11.9.1 says businesses are asked for a completed Form 433-A or 433-B. Individual accounts with an aggregate balance of $250,000 or more are asked for a completed Form 433-A within 14 days. For individual accounts under $250,000, Centralized Case Processing conducts the review using its own financial analysis system when the taxpayer or representative calls in.

The reviewer looks at income, expenses, assets and equity to decide among four outcomes: the liability can be paid in full; the payment needs to change; the agreement should continue without change; or the taxpayer is unable to pay.

Compliance is checked too. The IRM tells the reviewer to confirm all individual and business returns are filed, and to advise taxpayers that no change in terms can be considered until all required returns are filed.

The 20 percent rule

This is the most useful detail in the review procedures. IRM 5.4.11.9.1 says that if there is no significant change in the taxpayer's financial situation, meaning the payment would increase or decrease by 20 percent or less of the established amount, the agreement continues as originally established and the taxpayer is notified there is no change.

If the review shows the payment should increase by more than 20 percent, the IRS notifies you and revises the agreement. If the review shows a reduction of more than 20 percent, the case goes for managerial review. And if you ask for your current payment to be reduced, the IRM says a 20 percent reduction can be allowed.

In other words, small changes in your finances do not move your payment. Modest raises, normal cost-of-living changes and minor shifts in expenses generally leave the plan where it is.

If your finances improved a lot

If the review shows you can now pay in full, the IRM says the IRS will demand full payment. If it shows you can borrow against an asset, the IRS will require you to use the equity before it continues the plan on the remaining balance, and it will ask for proof of loan approval or denial within 30 days.

A big improvement is good news for you, even if it means a bigger payment. The plan was always a partial payment because your finances were limited. If they are not limited any more, the IRS expects more. Plan for that possibility when you get a raise, inherit money or sell an asset.

If your finances got worse

The review can also lower the payment or end it. If the review shows you have no ability to pay, the IRM says Centralized Case Processing proceeds with currently not collectible procedures for accounts that did not originate with a revenue officer. Court-ordered payments such as child support or alimony, and other expenses such as state tax payments or student loans in certain circumstances, can be allowed with substantiation.

You do not have to wait for the review to ask for relief. Treas. Reg. 301.6159-1(e)(3) lets you request a modification any time your financial condition has significantly changed, as long as you keep paying under the existing terms while the IRS considers it. See changing your IRS payment plan.

Your rights if the IRS changes the plan

A modification after review is appealable. IRM 5.4.11.9.1 says taxpayers may request a Collection Appeals Program hearing for both proposed and actual modifications, with 30 days from the proposed modification to appeal, and must continue to comply with the agreement in the meantime. The IRS sends Letter 5259, Notice of Installment Agreement Modification. IRC 6159(b)(5) separately requires 30 days' notice, with an explanation, before the IRS modifies an agreement based on a change in financial condition. See appealing through the Collection Appeals Program.

Preparing for the review

• Start the file early. Keep the last three months of pay stubs, bank statements and bills current from the moment the review date approaches.
• Bring proof of anything that changed: a reduction in hours, a new medical expense, a child support order, a loan that ended.
• Make sure every return is filed and this year's withholding or estimated payments are current before you call.
• If you are on direct debit and the payment will increase or your bank details changed, expect to sign a new Form 433-D; IRM 5.4.11.9.1 requires one in those situations.
• If you have a representative, make sure the power of attorney on file covers every period in the agreement so the representative can speak for you on the call.

Business and large balance reviews

For business accounts, IRM 5.4.11.9.1 says the review notice refers the taxpayer to the IRS field office resource team for financial analysis, and the IRS asks for a completed Form 433-A or 433-B. The same applies to individual accounts of $250,000 or more. These reviews take longer and look more like the original financial analysis, including equity in assets. If the review identifies equity you can borrow against, the IRS will ask you to use it before continuing the plan on the rest, with 30 days to show a loan approval or denial.

Two more things the review cannot do

• It cannot add a collection statute waiver to your existing plan. IRM 5.14.2.2.3 says a waiver can be secured only at the start of a partial payment agreement, not during the two-year review, unless your finances have improved, the agreement is terminated, and a new one is granted. See Form 900 waivers.
• It does not restart your collection statute. The statute keeps running while an agreement is in effect; the review is an update, not a new beginning.

Answer on time, document what changed and what did not, and keep filing every return. For most people on a partial payment plan, the two-year review is a phone call and a stack of documents, and the payment stays where it was.