Agreements for Payment of Tax Liabilities in Installments

DEPARTMENT OF THE TREASURY

26 CFR Part 301

[TD 8583]

RIN 1545-AM66

Agreements for Payment of Tax Liabilities in Installments

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations regarding agreements

for the payment of federal tax liabilities in installments under

section 6159 of the Internal Revenue Code of 1986. These regulations

reflect changes to the law made by section 6234 of the Technical and

Miscellaneous Revenue Act of 1988 (TAMRA) (Pub. L. 100-647, 102 Stat.

3573), which authorizes the use of written installment agreements if

the Secretary determines that an installment agreement will facilitate

collection of federal tax liabilities. These regulations affect persons

who wish to enter into agreements to pay their tax liability in

installments.

EFFECTIVE DATE: December 23, 1994.

FOR FURTHER INFORMATION CONTACT: Kevin Connelly, (202) 622-3640 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On December 2, 1993, a notice of proposed rulemaking was published

in the Federal Register (56 FR 63541). No public hearing was requested

or held.

Written comments responding to the notice were received. After

consideration of all the comments, the proposed regulations are adopted

as revised by this Treasury decision.

Explanation of Revisions and Summary of Comments

An explanation of the regulations is contained in the preamble of

the notice of proposed rulemaking, published in the Federal Register

(56 FR 63541) on December 2, 1993. The following is an explanation of

the comments that were received and the revisions that were made in

response to the comments.

The proposed regulations authorize the IRS to alter, modify, or

terminate an installment agreement if a district director, a director

of a service center, or a director of a compliance center (the

director) determines that the financial condition of the taxpayer has

significantly improved. Two commenters have suggested amending this

provision to also authorize the IRS to alter or modify an agreement if

the taxpayer's financial condition has deteriorated.

The provision in the proposed regulations is intended to prohibit

the IRS from amending or terminating an installment agreement

unilaterally if a taxpayer's financial condition has deteriorated as

long as the taxpayer continues to make timely payments. In order to

preserve this prohibition and at the same time respond to the

commenters' concern, a new provision has been added to the final

regulations which allows the director, upon request by a taxpayer, to

amend or terminate an installment agreement because of a deterioration

(or other change) in the taxpayer's financial condition.

The proposed regulations require the IRS to give notice at least 30

days prior to altering, modifying, or terminating an installment

agreement. One commenter has suggested that the IRS also should be

required to give the taxpayer a 30-day written notification of any

intent to deny an agreement and the opportunity to appeal. The Internal

Revenue Code does not require the IRS to give 30 days notice of its

intent to deny an installment agreement. Such a notice requirement

would enable taxpayers to stop collection actions for 30 days simply by

requesting an installment agreement. For these reasons, the commenters'

suggestion has not been adopted.

The proposed regulations provide that a written installment

agreement may take the form of a document signed by the taxpayer and

the director or a written confirmation of a verbal agreement entered

into by the taxpayer and the IRS. A commenter has suggested that

written installment agreements should be allowed only on standardized

forms such as Forms 433-D or 9465, because agreements other than those

on standardized forms may cause confusion or abuse.

The IRS enters into two types of installment agreements. Written

agreements on Forms 433-D, 433-G, and 2159, which are negotiated face-

to-face, are generally based on an exhaustive, written financial

statement, and are signed by both the taxpayer and an employee of the

IRS who has ``examined or approved'' the agreement. Other agreements

are entered into by the Automated Collection System (ACS), the Service

Center Collection Branch (SCCB), or Taxpayer Services (TS) either over

the telephone or in response to a letter from a taxpayer. The

agreements entered into by ACS, SCCB, or TS, which are neither

negotiated face-to- face nor based on an in-depth examination of the

taxpayer's financial condition, are confirmed in a letter from the IRS.

The confirmation letter is signed by the IRS but not by the taxpayer.

A provision requiring all written installment agreements to be on

standardized forms signed by both parties would severely hamper the

ability of ACS, SCCB, and TS to enter into installment agreements. The

ACS, SCCB, and TS are bulk processing centers where installment

agreements generally are entered into on the basis of a single contact

with the taxpayer. If installment agreements entered into by ACS, SCCB,

or TS had to be on standardized forms signed by both the IRS and the

taxpayer, finalization of each agreement would have to be monitored by

the ACS, SCCB, or TS contact employee, or by some other employee. Once

an agreement were made, a confirmation letter would have to be

forwarded to the taxpayer for signature. If the confirmation letter

were not returned in a timely manner, the employee would have to send a

follow-up letter. Once a signed letter were returned, the employee

would have to associate the letter with the taxpayer's file, fill out

proper paperwork, and perhaps send a final follow-up letter to the

taxpayer. This would defeat the very purpose of bulk processing.

Although the agreements entered into by ACS, SCCB, and TS are not

on Forms 433-D, 433-G, or 9465, the confirmation letters sent by ACS,

SCCB, and TS are based on model letters drafted by the IRS for the

purpose of setting forth what is expected of the taxpayer. These

letters, which set forth the terms of payment and the conditions on

which the agreement is based, contain essentially the same information

as the installment agreement forms. Therefore, there should be little

or no confusion caused by the confirmation letters.

Although a provision requiring all installment agreements to be on

standardized forms has not been adopted, the final regulations have

been amended to allow installment agreements to take the form of a

written confirmation of an agreement proposed in writing by the

taxpayer and accepted by the IRS, as well as a written confirmation of

a verbal agreement entered into between the taxpayer and the IRS.

A commenter has suggested that the proposed regulations be amended

to make it clear that the IRS must give a 30-day notice of an intent to

alter, modify, or terminate an agreement in all cases except where

collection of the liability to which the installment agreement applies

is in jeopardy. This suggestion has been adopted.

It also has been suggested that the regulations should state

explicitly that during the 30-day period the taxpayer may cure a

default, correct inaccurate information, or provide additional

information which will generally allow continuation of the original

agreement. However, the reason for requiring written notification of an

intent to alter, modify, or terminate an agreement is to give taxpayers

the opportunity to show that the IRS has made a mistake. For example,

if the IRS intends to terminate an agreement because it believes the

taxpayer has given the IRS incorrect or incomplete information, the

taxpayer will have thirty days to prove to the IRS that the taxpayer's

information was correct and complete. The reason for the notification

is not to allow the taxpayer to cure a default by correcting inaccurate

information that the taxpayer gave the IRS during negotiations for an

installment agreement. The regulations have been amended to provide

that upon receiving notification that the IRS intends to alter, modify,

or terminate an agreement the taxpayer may provide information to show

that the IRS has made a mistake.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to

these regulations, and, therefore, a Regulatory Flexibility Analysis is

not required. Pursuant to section 7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking preceding these regulations was

submitted to the Small Business Administration for comment on its

impact on small business.

Drafting Information

The principal author of these regulations is Kevin Connelly, Office

of Assistant Chief Counsel (General Litigation), IRS. However, other

personnel from the IRS and Treasury Department participated in their

development.

List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income

taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read

in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6159-1 is added under the undesignated center

heading ``Place and Due Date for Payment of Tax'' to read as follows:

Sec. 301.6159-1 Agreements for payment of tax liability in

installments.

(a) Authority and definition. A district director, a director of a

service center, or a director of a compliance center (the director) is

authorized to enter into a written agreement with a taxpayer that

allows the taxpayer to satisfy a tax liability by making scheduled

periodic payments until the liability is fully paid if the director

determines that such an installment agreement will facilitate the

collection of the tax liability.

(b) Acceptance, form, and term of installment agreement--(1) (i)

Acceptance or rejection of installment agreement. The director has the

discretion to accept or reject any proposed installment agreement. As a

condition to entering into an installment agreement with a taxpayer,

the director may require that--

(A) The taxpayer agree to a reasonable extension of the period of

limitations on collection; and

(B) The agreement contain terms and conditions that protect the

interests of the government.

(ii) Example. The director may require that a taxpayer authorize

direct debit bank transfers as the method of making installment

payments under the agreement.

(2) Form of installment agreement. A written installment agreement

may take the form of a document signed by the taxpayer and the director

or a written confirmation of an agreement entered into by the taxpayer

and the director that is mailed or personally delivered to the

taxpayer.

(3) Term of accepted installment agreement. Except as otherwise

provided in this section, an installment agreement is effective from

the day the director signs the agreement to the day the agreement ends

by its terms.

(c) Alteration, modification, or termination of installment

agreements by the Internal Revenue Service--(1) Inadequate information

or jeopardy. The director may terminate an installment agreement if--

(i) The director determines that the taxpayer or the taxpayer's

representative has provided to the Internal Revenue Service information

that is inaccurate or incomplete in any material respect in connection

with the granting of the installment agreement; or

(ii) The director determines that collection of any tax liability

to which the installment agreement applies is in jeopardy.

(2) Subsequent change in financial condition, failure to timely pay

an installment or another Federal tax liability, or failure to provide

requested financial information. The director may alter, modify, or

terminate the terms of an installment agreement if--

(i) The director determines that the financial condition of a

taxpayer that is a party to the installment agreement has significantly

improved; or

(ii) The taxpayer that is a party to the installment agreement

fails--

(A) To timely pay any installment in accordance with the terms of

the installment agreement;

(B) To pay any other Federal tax liability when the liability

becomes due; or

(C) To provide updated financial information requested by the

director.

(3) Request by taxpayer. Upon request by a taxpayer that is a party

to the installment agreement, the director may alter, modify, or

terminate the terms of an installment agreement if the director

determines that the financial condition of the taxpayer has

significantly changed.

(4) Notice. Unless the director determines that collection of the

tax is in jeopardy, the director will notify the taxpayer in writing at

least 30 days before altering, modifying, or terminating an installment

agreement pursuant to paragraph (c)(1) or (2) of this section. A notice

provided pursuant to this paragraph must briefly describe the reason

for the intended alteration, modification, or termination. Upon

receiving notice, the taxpayer may provide information showing that the

reason for the intended alteration, modification, or termination is

incorrect.

(d) Actions by the Internal Revenue Service during the term of the

installment agreement. Except as otherwise provided by the installment

agreement, during the term of the agreement the director may take

actions to protect the interests of the government with regard to the

unpaid balance of the tax liability to which the installment agreement

applies (other than actions pursuant to subchapter D of chapter 64 of

subtitle F of the Internal Revenue Code against a person that is a

party to the agreement), including any actions enumerated in the

agreement. The actions include, for example--

(1) Requesting updated financial information from any party to the

agreement;

(2) Conducting further investigations (including the issuance and

enforcement of summonses) in connection with the tax liability to which

the installment agreement applies;

(3) Filing or refiling notices of federal tax lien; and

(4) Taking collection action against any person who is not a party

to the agreement but who is liable for the tax to which the agreement

applies.

(e) Termination. If an installment agreement is terminated by the

director, the director may pursue collection of the unpaid balance of

the tax liability.

(f) Cross-reference. Pursuant to section 6601(b)(1), the last day

prescribed for payment is determined without regard to any installment

agreement, including for purposes of computing penalties and interest

provided by the Internal Revenue Code.

(g) Effective date. This section is effective December 23, 1994.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: November 28, 1994.

Leslie Samuels,

Assistant Secretary of Treasury.

[FR Doc. 94-31425 Filed 12-22-94; 8:45 am]

BILLING CODE 4830-01-U