[Federal Register Volume 67, Number 243 (Wednesday, December 18, 2002)]
[Rules and Regulations]
[Pages 77416-77418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31856]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9027]
RIN 1545-AX89


Levy Restrictions During Installment Agreements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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

EFFECTIVE DATE: These regulations are effective December 18, 2002.

FOR FURTHER INFORMATION CONTACT: Frederick W. Schindler, (202) 622-3620 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations amending the Procedure and 
Administration Regulations (26 CFR part 301) under section 6331 of the 
Internal Revenue Code (Code). The regulations reflect the amendment of 
section 6331 by section 3462 of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (RRA 1998), Public Law 105-206 
(112 Stat. 685, 764). New section 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. These 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. On April 
17, 2002, a notice of proposed rulemaking (REG-104762-00; 67 FR 18839) 
reflecting these changes was published in the Federal Register. No 
written comments on the proposed regulations were received. No public 
hearing was scheduled or held.

Explanation of Provisions

    The regulations provide that, subject to certain exceptions, the 
IRS may not levy to collect a liability while a taxpayer's proposal to 
enter into an installment agreement for payment of that liability is 
pending, for 30 days after rejection of such a proposal, while an 
installment agreement is in effect, for 30 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. The final regulations clarify that the IRS may 
not accept a proposed installment agreement for processing if 
jurisdiction over the tax liability at issue has been transferred to 
the Department of Justice for prosecution or defense. 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 collection 
of the tax liability is in jeopardy, or if the IRS determines that the 
proposed installment agreement was submitted solely to delay 
collection. The exception for proposals submitted solely to delay 
collection is based on the legislative history accompanying RRA 1998, 
which explained 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 
regulations adopt the same rule with respect to proposed installment 
agreements.
    The 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.
    The proposed regulations provided that the IRS cannot institute a 
court proceeding against the taxpayer named in the installment 
agreement to collect the tax covered by the installment agreement. In 
the final regulations, this provision has been clarified. It now states 
that the IRS may not refer a case to the Department of Justice to 
collect an unpaid tax through a judicial proceeding while levy is 
prohibited by these regulations. The IRS may, however, authorize the 
Department of Justice to file a counterclaim in any refund proceeding 
commenced by a taxpayer, participate in bankruptcy or insolvency cases 
commenced by or against the taxpayer, or join a taxpayer in any other 
proceeding in which liability for the tax at issue 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

[[Page 77417]]

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 
notice of proposed rulemaking stated that if a judgment was obtained 
against a taxpayer named in an installment agreement, collection would 
continue to occur pursuant to the terms of the installment agreement. 
The final regulations clarify that this statement applies only when the 
Department of Justice refers the case back to the IRS for collection 
after the judgment is obtained. Section 6331(k) does not limit the 
collection options of the Department of Justice once a case has been 
referred to the Department by the IRS.
    The regulations provide that the statute of limitations for 
collection under section 6502 is suspended while a proposed installment 
agreement is pending, for 30 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 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, the preceding notice of 
proposed rulemaking was submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on its impact on small 
business.

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.

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. 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.  301.7122-1.


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. This section will not prohibit levy to collect 
the liability of any person other than the person or persons named in 
the installment agreement.
    (2) When a proposed installment agreement becomes pending. A 
proposed installment agreement becomes pending when it is accepted for 
processing. The IRS may not accept a proposed installment agreement for 
processing following reference of a case involving the liability that 
is the subject of the proposed installment agreement to the Department 
of Justice for prosecution or defense. 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, the 
provisions of this section shall apply to that revised proposal.
    (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 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.
    (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 identified 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 in 
the installment agreement or proposed installment agreement but who is 
liable for the tax to which the installment agreement relates.
    (2) Proceedings in court. Except as otherwise provided in this 
paragraph (b)(2), the IRS will not refer a case to the Department of 
Justice for the commencement of a proceeding in court, against a person 
named in an installment agreement or proposed installment agreement, if 
levy to collect the liability is prohibited by paragraph

[[Page 77418]]

(a)(1) of this section. Without regard to whether a person is named in 
an installment agreement or proposed installment agreement, however, 
the IRS may authorize the Department of Justice to file a counterclaim 
or third-party complaint in a refund action or to join that person in 
any other proceeding in which liability for the tax that is the subject 
of the installment agreement or proposed installment agreement may be 
established or disputed, including a suit against the United States 
under 28 U.S.C. 2410. In addition, the United States may file a claim 
in any bankruptcy proceeding or insolvency action brought by or against 
such person. If a person named in an installment agreement is joined in 
a proceeding, the United States obtains a judgment against that person, 
and the case is referred back to the IRS for collection, 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 relating to that liability 
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 December 18, 
2002.

David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
    Approved: December 11, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 02-31856 Filed 12-17-02; 8:45 am]
BILLING CODE 4830-01-P