[Federal Register Volume 67, Number 74 (Wednesday, April 17, 2002)]
[Proposed Rules]
[Pages 18839-18842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9237]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-104762-00]
RIN 1545-AX89


Levy Restrictions During Installment Agreements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations relating to 
restrictions on levy during the period that an installment agreement is 
proposed or in effect. The proposed regulations reflect changes to the 
law made by the Internal Revenue Service Restructuring and Reform Act 
of 1998.

[[Page 18840]]


DATE: Written or electronically generated comments and requests for a 
public hearing must be received by July 16, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-104762-00), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG-104762-00), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the IRS Internet site at www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Frederick 
W. Schindler, (202) 622-3620; concerning submissions of comments or 
requests for a hearing Treena Garret, (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Procedure and 
Administration Regulations (26 CFR part 301) under section 6331 of the 
Internal Revenue Code (Code). The proposed regulations reflect the 
amendment of section 6331 by section 3462 of the Internal Revenue 
Service Restructuring and Reform Act of 1998 Public Law, 105-206, (112 
Stat. 685, 764) (RRA 1998). New subsection 6331(k) codifies the IRS 
practice of withholding collection during consideration of a taxpayer's 
offer to compromise and extends that practice to proposed installment 
agreements. The proposed regulations deal principally with the effect 
of subsection 6331(k) when an installment agreement has been proposed 
and is pending, is in effect, or has been rejected or terminated.
    Prior to the enactment of RRA 1998, the IRS had a long-standing 
practice of staying action to collect a liability while an offer to 
compromise that liability was being evaluated and considered, unless 
the interests of the United States would be jeopardized by doing so. 
See Policy Statement P-5-97 (Approved July 10, 1959), reprinted at IRM 
1.5.17. To insure that the interests of the United States would not be 
jeopardized while collection was withheld, the IRS required that 
taxpayers execute a waiver of the statute of limitations for collection 
of the liabilities the taxpayer was attempting to compromise.
    Section 3462 of RRA 1998 added subsection 6331(k) to the Code. 
Paragraph (1) of the new subsection codifies the IRS policy of 
withholding collection during the pendency of an offer to compromise by 
prohibiting levy while an offer to compromise is pending, for thirty 
days after a rejection, and during any appeal of that rejection. 
Temporary regulations published in the Federal Register on July 21, 
1999, contained provisions governing the effects of subsection 6331(k) 
when taxpayers submit offers to compromise. See Sec. 301.7122-1T.
    Prior to RRA 1998, the IRS did not stay collection when a taxpayer 
submitted an offer of an installment agreement. Because installment 
agreements provide for the full payment of the tax liabilities at 
issue, the processing of requests for installment agreements is less 
formal and most requests were accepted or rejected within several days 
of receipt. Once an installment agreement took effect, regulations 
prohibited levy, as well as certain other enforced collection measures, 
unless the installment agreement provided otherwise. See Sec. 301.6159-
1(d).
    Paragraph 6331(k)(2) prohibits levy while a taxpayer's proposal of 
an installment agreement is pending with the IRS, for thirty days after 
rejection of such a proposal, while an installment agreement is in 
effect, for thirty days after termination of an installment agreement 
by the IRS, and during a timely filed appeal by the taxpayer to the IRS 
Office of Appeals of a rejection or termination decision.
    Paragraph 6331(k)(3) provides that ``rules similar to'' those 
contained in paragraphs (3), (4), and (5) of subsection 6331(i) shall 
apply generally for the purposes of subsection 6331(k). Subsection 
6331(i) governs the prohibition on levy during the pendency of a 
proceeding for refund of a divisible tax. The cross-referenced 
provisions provide exceptions to the prohibitions on levy, prohibit the 
initiation by the IRS of court proceedings to collect while the refund 
proceeding is pending, and provide that the statute of limitations for 
collection is suspended while levy is prohibited.
    The proposed regulations implement the provisions of subsection 
6331(k) as they relate to installment agreements. In addition to 
setting forth the periods during which levy is prohibited, they adapt 
the rules of paragraphs (3), (4), and (5) of subsection 6331(i) in a 
manner tailored to the installment agreement process. The legislative 
history accompanying RRA 1998 explains that Congress did not intend 
that levy would be prohibited if the IRS determined that an offer to 
compromise was submitted solely to delay collection. H.R. Conf. Rep. 
No. 509, 105th Cong., 2d Sess. 288 (1998). Because the legislative 
history indicates that Congress intended the same restrictions on levy 
with respect to offers in compromise be applicable to installment 
agreements, these proposed regulations adopt the same rule with respect 
to proposed installment agreements that are submitted solely to delay 
collection.

Explanation of Provisions

    The proposed regulations provide that, subject to certain 
exceptions, the IRS may not levy to collect a liability while a 
proposal to enter into an installment agreement for payment of that 
liability is pending, for thirty days after rejection of such a 
proposal, while an installment agreement is in effect, for thirty days 
after termination of an installment agreement by the IRS, and during a 
timely filed appeal of a rejection or termination by the IRS. A 
proposed installment agreement is considered pending when it is 
accepted for processing by the IRS, and remains pending until the IRS 
accepts or rejects it or the taxpayer withdraws the proposal. If a 
proposed installment agreement does not contain sufficient information 
for the IRS to determine whether the proposal should be accepted, the 
IRS will request the additional necessary information from the taxpayer 
and provide a reasonable time period for the taxpayer to respond. The 
IRS may reject the proposed installment agreement if the requested 
information is not provided.
    Collection by levy is not prohibited if the taxpayer waives the 
restriction on levy in writing, if the IRS determines that the proposed 
installment agreement was submitted solely to delay collection, or if 
the IRS determines that collection of the tax liability is in jeopardy.
    The proposed regulations provide that the IRS may take actions 
other than levy to protect the interests of the United States with 
respect to collection of the liability to which an installment 
agreement or proposed installment agreement relates. Those actions 
include, but are not limited to: crediting an overpayment against the 
liability pursuant to section 6402, filing or refiling notices of 
Federal tax lien, and taking action to collect from persons liable for 
the tax but not named in the installment agreement.
    Under the proposed regulations, the IRS cannot institute a court 
proceeding against the taxpayer named in the installment agreement to 
collect the tax covered by the installment agreement. The IRS, however, 
may file a claim in

[[Page 18841]]

any bankruptcy proceeding, insolvency action, or interpleader case 
commenced by other creditors of the taxpayer. The IRS also may join the 
taxpayer in any suit instituted by or against another person liable for 
payment of the same liability--i.e., in situations where the liability 
for the tax may be established or disputed. Such proceedings may 
involve taxes for which more than one person may be jointly and 
severally liable for the same tax, or may involve persons liable for 
related liabilities, such as a trust fund recovery penalty under 
section 6672 or a personal liability for excise tax under section 4103.
    While an installment agreement allows the IRS to accept the payment 
of tax in installments, the agreement does not conclusively establish 
the taxpayer's liability. A taxpayer therefore is not prohibited from 
seeking a refund of taxes paid pursuant to an installment agreement. 
Allowing the IRS to join the taxpayer in a proceeding where the 
liability for the tax may be established or disputed will protect the 
Government from having to litigate the same tax in multiple forums only 
to face the argument in each separate case (including, potentially, 
from the taxpayer named in an installment agreement) that the person or 
persons not party to that suit were solely or principally liable for 
non-payment of the taxes at issue. The proposed regulations provide, 
however, that if a taxpayer named in an installment agreement is joined 
in a proceeding and the IRS obtains a judgment against that person, 
then collection will continue to occur pursuant to the terms of the 
installment agreement.
    The regulations provide that the statute of limitations for 
collection under section 6502 is suspended while a proposed installment 
agreement is pending, for thirty days after rejection or termination of 
an installment agreement, and during a timely filed appeal of the 
rejection or termination decision. The running of the collection 
statute resumes, however, after an installment agreement takes effect. 
The statute of limitations for collection shall continue to run if an 
exception under this section applies and levy is not prohibited with 
respect to the taxpayer.
    These regulations apply to installment agreements proposed or 
entered into on or after the date final regulations are published in 
the Federal Register. However, the rules set forth in these regulations 
mirror practices the IRS has been following administratively since the 
enactment of RRA 1998.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
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) does not apply to these regulations, and because 
the regulation does not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronically generated comments that are 
submitted timely to the IRS. The IRS generally requests any comments on 
the clarity of the proposed rule and how it may be made easier to 
understand.
    All comments will be available for public inspection and copying.
    A public hearing may be scheduled if requested in writing by a 
person that timely submits written comments. If a public hearing is 
scheduled, notice of the date, time, and place for the hearing will be 
published in the Federal Register.

Drafting Information

    The principal author of these regulations is Frederick W. 
Schindler, Office of the Associate Chief Counsel (Procedure & 
Administration), Collection, Bankruptcy & Summonses Division.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR Part 301 is proposed to be 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. Sections 301.6331-3 and 301.6331-4 are added to read as 
follows:


Sec. 301.6331-3  Restrictions on levy while offers to compromise are 
pending.

    Cross-reference. For provisions relating to the making of levies 
while an offer to compromise is pending, see Sec. 301.7122-1T.


Sec. 301.6331-4  Restrictions on levy while installment agreements are 
pending or in effect.

    (a) Prohibition on levy--(1) In general. No levy may be made to 
collect a tax liability that is the subject of an installment agreement 
during the period that a proposed installment agreement is pending with 
the Internal Revenue Service (IRS), for 30 days immediately following 
the rejection of a proposed installment agreement, during the period 
that an installment agreement is in effect, and for 30 days immediately 
following the termination of an installment agreement. If, within the 
30 days following the rejection or termination of an installment 
agreement, the taxpayer files an appeal with the IRS Office of Appeals, 
no levy may be made while the rejection or termination is being 
considered by Appeals.
    (2) When a proposed installment agreement becomes pending. A 
proposed installment agreement becomes pending when it is accepted for 
processing. The proposed installment agreement remains pending until 
the IRS accepts the proposal, the IRS notifies the taxpayer that the 
proposal has been rejected, or the proposal is withdrawn by the 
taxpayer. If a proposed installment agreement that has been accepted 
for processing does not contain sufficient information to permit the 
IRS to evaluate whether the proposal should be accepted, the IRS will 
request the taxpayer to provide the needed additional information. If 
the taxpayer does not submit the additional information that the IRS 
has requested within a reasonable time period after such a request, the 
IRS may reject the proposed installment agreement.
    (3) Revised proposals of installment agreements submitted following 
rejection. If, following the rejection of a proposed installment 
agreement, the taxpayer makes a good faith revision of the proposal and 
submits the revision within 30 days of the date of rejection, no levy 
may be made while the IRS considers the revised proposal of an 
installment agreement.
    (4) Exceptions. Paragraph (a)(1) of this section shall not prohibit 
levy if the taxpayer files a written notice with the IRS that waives 
the restriction on levy

[[Page 18842]]

imposed by this section, the IRS determines that the proposed 
installment agreement was submitted solely to delay collection, or the 
IRS determines that collection of the tax to which the installment 
agreement or proposed installment agreement relates is in jeopardy. 
This section will not prohibit levy to collect from any person other 
than the person named on the installment agreement.
    (b) Other actions by the IRS while levy is prohibited--(1) In 
general. The IRS may take actions other than levy to protect the 
interests of the Government with regard to the liability named in an 
installment agreement or proposed installment agreement. Those actions 
include, for example--
    (i) Crediting an overpayment against the liability pursuant to 
section 6402;
    (ii) Filing or refiling notices of Federal tax lien; and
    (iii) Taking action to collect from any person who is not named on 
the installment agreement or proposed installment agreement but who is 
liable for the tax to which the installment agreement relates.
    (2) Proceedings in court. The IRS will not begin a proceeding in 
court for the collection of any liability to which an installment 
agreement or proposed installment agreement relates against a person 
named in that installment agreement while levy is prohibited by 
paragraph (a)(1) of this section. In any refund action, however, the 
IRS may file a counterclaim or third-party complaint against a person 
without regard to whether that person is named in an installment 
agreement or proposed installment agreement. In addition, the IRS may 
join a person named in an installment agreement in any other proceeding 
in which liability for the tax that is the subject of the installment 
agreement may be established or disputed, and may file a claim in any 
bankruptcy proceeding, insolvency action, or interpleader case 
commenced by other creditors of the taxpayer. If a person named in an 
installment agreement is joined in a proceeding and the IRS obtains a 
judgment against that person, collection will continue to occur 
pursuant to the terms of the installment agreement.
    (c) Statute of limitations--(1) Suspension of the statute of 
limitations on collection. The statute of limitations under section 
6502 for collection of any liability shall be suspended during the 
period that a proposed installment agreement is pending with the IRS, 
for 30 days immediately following the rejection of a proposed 
installment agreement, and for 30 days immediately following the 
termination of an installment agreement. If, within the 30 days 
following the rejection or termination of an installment agreement, the 
taxpayer files an appeal with the IRS Office of Appeals, the statute of 
limitations for collection shall be suspended while the rejection or 
termination is being considered by Appeals. The statute of limitations 
for collection shall continue to run if an exception under paragraph 
(a)(4) of this section applies and levy is not prohibited with respect 
to the taxpayer.
    (2) Waivers of the statute of limitations on collection. The IRS 
may continue to request, to the extent permissible under section 6502 
and Sec. 301.6159-1, that the taxpayer agree to a reasonable extension 
of the statute of limitations for collection.
    (d) Effective date. This section is applicable on the date final 
regulations are published in the Federal Register.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-9237 Filed 4-16-02; 8:45 am]
BILLING CODE 4830-01-P