Final Regs on Tax Installment Payment Agreements

 [4830-01-u]

 AGENCY: Internal Revenue Service (IRS), Treasury.

 ACTION: Final regulations.

 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.

Treasury Decision 8583

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 centerheading "Place and Due Date for Payment of Tax" to read as follows:

SECTION 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].