IRS Rejected Your Payment Plan? Your Appeal Rights

Getting a letter that says the IRS rejected your payment plan request is discouraging. But a rejection is not final, and it does not mean the IRS can immediately take your bank account. The law builds in a review step, an appeal right, and a period of protection from levies. You need to use them on time.

Why payment plans get rejected

Many people never face a rejection, because some plans are close to automatic. A guaranteed installment agreement under Internal Revenue Code section 6159(c) must be approved if you meet its conditions. A Simple Payment Plan (formerly called a streamlined installment agreement) for balances of $50,000 or less does not require a financial statement (IRM 5.14.5.2). See which payment plan you qualify for.

Rejections usually come up with larger balances or unusual facts. The Internal Revenue Manual (IRM 5.19.1.6.4.9) lists the main reasons the IRS may uphold a rejection:

• Your financial statement shows you can pay the balance in full.
• Your financial statement shows you can pay more than you offered, and you will not agree to the higher amount.
• You did not provide complete financial information, or the proof the IRS asked for, and your request does not meet Simple Payment Plan rules.
• You are not making required estimated tax payments or federal tax deposits. (The IRM says Simple Payment Plans and guaranteed agreements should not be rejected for missed estimated payments.)
• You promised a lump-sum payment to get under a threshold and did not make it.
• You will not agree to a condition of the plan, such as direct debit after a recent default on a partial payment plan.

Unfiled returns are another common problem. To be treated as a pending request, you generally must be in compliance with all filing requirements (IRM 5.19.1.6.4.7). See why you need to file before you ask for a plan.

Independent review before the rejection reaches you

Section 7122(e)(1) requires an independent administrative review of a proposed rejection before the IRS communicates it to you. The IRM (5.14.9.2) explains that the reviewer can agree with the rejection, recommend granting the plan at your amount or a different amount, or suggest changes. So by the time you get a rejection letter, a second IRS employee has already looked at it.

The rejection letter should tell you the reason, what you would need to do for the plan to be accepted, and your appeal rights (IRM 5.14.9.2.3).

Your appeal right: the Collection Appeals Program

You can appeal a rejected installment agreement to the IRS Independent Office of Appeals under section 7122(e)(2). The IRM (5.14.1.1.5; 5.14.9.3) says rejections, proposed terminations and terminations are appealed through the Collection Appeals Program, known as CAP, using Form 9423, Collection Appeal Request.

The deadline is 30 days, and it cannot be extended (IRM 5.14.9.3). Mark the date on your rejection letter and count forward.

Levies stay on hold during this time

Section 6331(k)(2) bars a levy for 30 days after a rejection, and during an appeal of that rejection if you file it within those 30 days. The IRM (5.14.9.2.3) tells employees not to levy until 45 days after the rejection is communicated, which allows extra time for a mailed appeal to arrive.

The collection statute (generally 10 years from assessment under section 6502) is suspended during that same period under sections 6331(k)(3) and 6331(i)(5). That extends the time the IRS has to collect, which is the tradeoff for the protection.

When there are no appeal rights

A few situations do not come with independent review or a CAP appeal:

• Requests made solely to delay collection. The IRM (5.19.1.6.4.7.2.1) gives examples: repeatedly defaulting and asking again with no change in circumstances, sending a second request after a rejection without fixing the problems, or offering a token amount like $1 a month with no financial information. These requests are not processable and carry no appeal rights. The IRM says a request should not be treated this way if you are dealing with an extraordinary circumstance, such as a chronic health condition or an unexpected job loss.
• Short-term payment plans. A plan to pay in full within 180 days is not an installment agreement, so installment agreement appeal rights do not apply (IRM 5.19.1.6.3). See short-term payment plans.
• Withdrawn requests or full payment. If you withdraw the request or pay in full, there is nothing to review (IRM 5.14.9.2).

Your options after a rejection

Option	When it fits
Fix the problem and resubmit	The letter names something you can do: file a missing return, send documents, agree to a higher payment or to direct debit.
Appeal through CAP (Form 9423)	You believe the IRS got your finances wrong, or the payment it wants would leave you unable to cover necessary expenses.
Pay down to a simpler plan	A partial payment could bring an individual balance to $50,000 or less, which qualifies for a Simple Payment Plan (IRM 5.14.5.2).
Partial payment installment agreement	You can pay something, but not enough to pay in full before the collection statute runs out (IRM 5.14.2). See partial payment installment agreements.
Currently not collectible status	You cannot pay anything without being unable to meet basic living expenses. See currently not collectible status.
Offer in compromise	You cannot realistically pay the full balance. See offer in compromise or payment plan.

A note on the IRS's numbers

For balances that need a financial statement, the IRS compares your income to allowable living expenses (IRM 5.14.1.4). If the IRS says you can afford more, ask how it got there. Common issues include expenses that were left out, income counted that has since ended, or a one-time deposit treated as regular income. For plans over $50,000, the "Six-Year Rule" (IRM 5.14.1.4.1) lets the IRS allow all reasonable expenses without proof if the balance will be paid in full within six years and before the collection statute expires. Asking about it can change the result. Try the payment plan calculator to test different payment amounts.

What to do this week

1. Find the date on the rejection letter. Your 30-day appeal window runs from there.
2. Read the reason for rejection and the action the IRS says would make the plan acceptable.
3. Decide quickly whether to fix and resubmit, or appeal. If the fix is simple, do it. If you disagree with the IRS's analysis, file Form 9423.
4. Check for other deadlines. The IRS may send a final notice of intent to levy with your rejection (IRM 5.14.9.2.3). That notice carries its own 30-day Collection Due Process hearing deadline under section 6330.
5. Keep copies of everything you send and note who you speak with.

Getting help

A rejection usually means the case now turns on your financial statement, and that is where careful preparation pays off. If you have a rejection letter, a large balance, or a final notice of intent to levy, talk to a tax attorney before the 30 days run out. You can reach our office through GetIRSHelp.com or at (813) 229-7100.