Before the IRS Rejects a Payment Plan: Independent Review and Letter 4052

If the IRS employee handling your payment plan request decides it should be rejected, the employee cannot simply say no. Congress required a review first. IRC 7122(e)(1) directs the IRS to establish procedures for an independent administrative review of any rejection of a proposed installment agreement before the rejection is communicated to the taxpayer. Treas. Reg. 301.6159-1(d)(2) repeats it: the IRS may not notify a taxpayer of a rejection until the independent review of the proposed rejection is completed.

This page covers what triggers the review, how it works inside the IRS, what you will receive if the rejection stands, and what to do next.

Who gets the review

IRM 5.14.9.2 says only requests that meet all the pending criteria are required to have an independent review before rejection. That is one more reason pending status matters; see when a payment plan request becomes pending.

The IRM lists the only situations in which a taxpayer who requested an agreement does not get the review or appeal rights:

• The taxpayer withdraws the request.
• The taxpayer pays the liability in full.
• The request was made to delay collection. See requests the IRS treats as made to delay.
• The pending indicator was input in error.

Why requests get recommended for rejection

The IRM's review criteria point to the usual reasons. The proposed payment would not pay the balance before the collection statute expiration date, and a partial payment agreement is not appropriate. The proposed payment is too low compared with the ability to pay shown on the financial statement. You have equity or cash that could pay in full or make a significant partial payment, and you did not use it by the deadline. Or you did not provide information the IRS requested within a reasonable time, which the regulation itself lists as grounds for rejection.

IRM 5.14.1.4 tells employees to inform you that rejection is being recommended, that the request remains pending, that the proposed rejection is subject to independent review, and that you will have appeal rights if it is rejected. If you hear those words, you still have time to change the outcome.

How the review works

IRM 5.14.9.2.1 describes the revenue officer's side. Before the case goes to review, the revenue officer confirms the pending code was input correctly, records the proposed payment, due date and date of referral, prepares Form 12233, Request for Installment Agreement - Independent Review Prior to Rejection, and gets the manager's concurrence. The form goes to the reviewer with a statement of the reasons for rejection and any documents you submitted that support it. The IRM reminds employees that the basis for a rejection can become the subject of an appeal or a later collection due process hearing, so it must be documented.

IRM 5.14.9.2.2 describes the reviewer's side. The independent administrative reviewer adds the case to the IRS system within five business days of receipt and must make a determination no later than 15 business days after opening it. The reviewer checks whether the pending code was correct, whether you were told about the proposed rejection, whether the proposal would pay before the collection statute, whether the payment you proposed is adequate given your ability to pay, and whether your positions were considered.

The reviewer can do four things: recommend that the agreement be granted, at the amount you proposed or a different amount; concur with the rejection; suggest modifications or conditions; or request more information, with 10 days allowed for a response. If the reviewer disagrees with the rejection and the revenue officer still disagrees after resubmitting, the case goes to second-level management.

Missed deadlines and missing information

Many rejections start with a deadline. Revenue officers set dates for returns, documents, loan applications and payments, and IRM 5.14.3.2 covers how those deadlines are set. If you miss one, the IRM does not treat that as permission to levy. IRM 5.14.1.4.4 says that if an action date is missed, the case is referred for independent review before the rejection is conveyed, and in general no enforcement action may be taken as a consequence of missed action dates, apart from the delay and jeopardy situations.

The regulation is consistent. Treas. Reg. 301.6159-1(b)(2) says if a pending proposal lacks information and the taxpayer does not provide it within a reasonable time after a request, the IRS may reject the proposal. Rejection, with the review and appeal that follow, is the consequence. Still, the cleanest outcome is to meet the deadline or ask for more time before it passes, in writing.

Another common ground is the collection statute. The reviewer checks whether the proposal would pay in full before the collection statute expiration date. If it would not, the right answer is often not rejection but a partial payment installment agreement. Raise that option yourself if the revenue officer has not.

Collection stays on hold

While this is happening, your request remains pending, and IRC 6331(k)(2)(A) continues to bar levy. IRM 5.14.9.2.1 tells revenue officers to advise taxpayers that collection actions remain suspended until a decision on the proposed rejection is given and appeal rights are issued, and that collection remains suspended during the appeal period and any appeal.

Letter 4052

If the reviewer concurs, IRM 5.14.9.2.3 says the rejection is communicated on Letter 4052, Rejection of Proposed Installment Agreement. The letter must include the reason for rejection, the action you need to take for the agreement to be accepted, a firm date for taking that action, and your Collection Appeals Program rights, with Publication 594, The IRS Collection Process, and Publication 1660, Collection Appeal Rights.

Read the second item twice. The rejection letter tells you what would make the agreement acceptable. That is a roadmap, not just a refusal.

The IRM also allows the IRS to send a notice of intent to levy, Letter 1058 or Letter 3174, at the same time as the rejection when levy is the next intended action. But it adds a firm limit: no levy may be issued until 45 days have passed since the rejection was communicated, subject to the exceptions for jeopardy and waivers. The 45 days reflect the 30-day appeal window under IRC 6331(k)(2)(B) plus time for mailing.

Your three options after rejection

• Do what the letter asks. If you complete the actions requested for acceptance by the date in the letter, IRM 5.14.9.2.3 says the agreement is input.
• Revise in good faith within 30 days. Under Treas. Reg. 301.6159-1(b)(3), a good faith revision submitted within 30 days of the rejection gets the full protection of the regulation. A revision that is not in good faith does not, and the appeal clock keeps running from the original rejection.
• Appeal within 30 days. Under Treas. Reg. 301.6159-1(d)(3) and IRC 7122(e)(2), you may appeal the rejection to the IRS Independent Office of Appeals within the 30-day period beginning the day after you are notified. The usual vehicle is Form 9423 under the Collection Appeals Program. See appealing through the Collection Appeals Program.

Those options are not mutually exclusive. If you are revising, consider appealing at the same time so the appeal window does not close while the IRS decides whether your revision was in good faith.

How to influence the review

The review is internal, but you shape the record it reviews. When you are told rejection will be recommended, respond in writing before the case goes to review. Address each reason the revenue officer gave. Attach documents. If the issue is the payment amount, show your calculation. If it is equity, show why the equity is not available, using the exceptions in IRM 5.14.2.2.2. See what the IRS expects you to do with equity.

The reviewer is told to determine whether positions expressed by the taxpayer were considered. Make sure your positions are in the file to be considered. A rejection that reaches Appeals will be judged on that same record, so building it now pays off twice.