[Federal Register Volume 72, Number 42 (Monday, March 5, 2007)]
[Proposed Rules]
[Pages 9712-9716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-3730]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-100841-97]
RIN 1545-AU97


Agreements for Payment of Tax Liabilities in Installments

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking and notice of 
proposed rulemaking.

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SUMMARY: This document withdraws the notice of proposed rulemaking 
published in the Federal Register on December 31, 1997 (62 FR 68241) 
and contains proposed regulations relating to the payment of tax 
liabilities in installments. The proposed regulations reflect changes 
to the law made by the Taxpayer Bill of Rights II, the Internal Revenue 
Service Restructuring and Reform Act of 1998, and the American Jobs 
Creation Act of 2004.

DATES: Written or electronic comments and requests for a public hearing 
must be received by June 4, 2007.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-100841-97), room 
5203, 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 4 p.m. to: CC:PA:LPD:PR (REG-
100841-97), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit 
comments electronically directly to the IRS Internet site at http://www.irs.gov/regs or via the Federal eRulemaking Portal at http://www.regulations.gov (indicate IRS and REG-100841-97).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, G. William 
Beard, (202) 622-3620; concerning submissions of comments or requests 
for a hearing, Kelly Banks, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    On December 31, 1997, a notice of proposed rulemaking (REG-100841-
97; 62 FR 68241) reflecting changes made to section 6159 of the 
Internal Revenue Code (Code) by section 202 of the Taxpayer Bill of 
Rights II, Pub. L. 104-168 (110 Stat. 1452, 1457) was published in the 
Federal Register. That proposed rule was not acted upon prior to the 
enactment of the Internal Revenue Service Restructuring and Reform Act 
of 1998 (RRA 1998), Pub. L. 105-206, section 3462 (112 Stat. 685, 764), 
which made further amendments to section 6159. Section 843 of the 
American Jobs Creation Act of 2004 (AJCA), Pub. L. 108-357 (118 Stat. 
1418, 1600), also made changes to section 6159. This document amends 
the prior notice of proposed rulemaking. It contains proposed 
amendments to the Procedure and Administration Regulations (26 CFR part 
301) under section 6159 reflecting

[[Page 9713]]

the amendment of the Code by RRA 1998, the Taxpayer Bill of Rights II, 
and the AJCA.

Installment Agreements Under Section 6159

    Consistent with its mission of applying the tax laws with integrity 
and fairness to all, the IRS generally expects that all taxpayers will 
pay the total amount due, regardless of amount, at the time the Code 
requires that the tax be paid. See Policy Statement P-5-2, Collecting 
Principles (Approved February 17, 2000), reprinted at IRM 1.2.1.5.2. 
When attempting to resolve a tax delinquency, the IRS will work with 
taxpayers to achieve full payment of all tax, penalties, and interest. 
Where payment in full cannot immediately be achieved, the IRS may allow 
taxpayers to pay over time through installment agreements.

Explanation of Provisions

    The proposed regulations allow the IRS to enter into agreements for 
the full or partial payment of any unpaid tax in installments. The 
regulations provide rules for the submission of proposed installment 
agreements, the processing, acceptance, and rejection of such 
agreements by the IRS, the termination or modification of existing 
agreements, and the appeal of rejections, modifications, and 
terminations to the IRS Office of Appeals (Appeals). The majority of 
these provisions are unchanged from what was contained in the prior 
regulations or reflect longstanding IRS administrative practice. The 
rules regarding when a proposed installment agreement becomes pending, 
restrictions on collection activity while an agreement is pending or in 
effect, and the suspension of the statute of limitations for collection 
are nearly identical to the provisions in existing Sec.  301.6331-4. 
The only change was a clarification that the IRS will not be precluded 
from filing suit or a proof of claim in bankruptcy for the full amount 
of the liabilities owed, regardless of whether the installment 
agreement provides for full or partial payment of the liabilities at 
issue.
    Taxpayers may request administrative review of IRS decisions to 
modify or terminate installment agreements pursuant to section 6159(e), 
added to the Code by section 202 of the Taxpayer Bill of Rights II. 
Taxpayers may appeal rejections of proposed installment agreements 
under section 7122(d), added to the Code by section 3462 of RRA 1998. 
The proposed regulations allow taxpayers to appeal a termination, 
modification, or rejection of an installment agreement to Appeals 
provided they request the appeal in the manner specified by the IRS.
    The previous notice of proposed rulemaking contained a more 
detailed procedure for seeking review of decisions to terminate or 
modify agreements. That proposed regulation has not been adopted. These 
regulations contain a less detailed procedure because procedures for 
appealing differ depending on the IRS operating division handling the 
case, the size of the tax liability, or the type of tax at issue. For 
example, some taxpayers may be able to request an appeal by telephone 
while others will be required to submit a formal written request. See 
Publication 1660, Collection Appeal Rights.
    The proposed regulations incorporate the provisions of section 
6159(c), added to the Code by section 3467 of RRA 1998. That section 
requires the IRS to accept a proposed installment agreement for income 
taxes under certain circumstances. The regulations also incorporate 
section 3506 of RRA 1998, which requires the IRS to send each taxpayer 
with an installment agreement an annual statement showing the balance 
due at the beginning of the year, the payments made during the year, 
and the remaining balance due at the end of the year.
    Section 843 of the AJCA amended section 6159(a) to allow the IRS to 
enter into installment agreements that provide for partial (as well as 
full) payment of a tax liability. The proposed regulations incorporate 
this change. Because a partial payment installment agreement could be 
confused with a compromise of the liability, the proposed regulations 
clarify that an installment agreement does not reduce the amount of 
taxes, interest, or penalties owed. See H. Rep. No. 108-755, 108th 
Cong., 2d Sess., 2005 U.S.C.C.A.N. 1341 (October 7, 2004).
    The proposed regulations also clarify that the IRS may enter into 
an installment agreement that, by its terms, ends upon the expiration 
of the period of limitations on collection in section 6502 and Sec.  
301.6502-1, or at some prior date. A partial payment installment 
agreement that ends prior to the expiration of the collection period of 
limitations would allow the IRS to collect the balance of the tax 
liability against any property belonging to the taxpayer or request the 
Department of Justice to institute a judicial action to reduce the 
liability to judgment or take other actions to enforce the federal tax 
lien. The proposed regulations do not limit the authority of the IRS to 
enter into partial payment installment agreements that run to the end 
of the collection period.
    Section 843 of the AJCA amended section 6159(c) to exclude partial 
payment installment agreements from the scope of installment agreements 
that must be accepted by the IRS. The proposed regulations provide that 
installment agreements guaranteed under section 6159(c) must provide 
for the full payment of the liabilities.
    Section 843 of the AJCA added new section 6159(d), requiring the 
IRS to review partial payment installment agreements every two years. 
(Former subsections (d) and (e) were redesignated (e) and (f).) The 
primary purpose of the review is to determine whether the financial 
condition of the taxpayer has significantly changed so as to warrant an 
increase in the value of the payments being made. See H. Rep. No. 108-
755, 108th Cong., 2d Sess., 2005 U.S.C.C.A.N. 1341 (October 7, 2004). 
The proposed regulations reflect this requirement.
    The proposed regulations clarify the application of payments made 
pursuant to installment agreements. Consistent with Revenue Procedure 
2002-26 (2002-1 C.B. 746), all payments will be applied in the best 
interests of the Government, unless the installment agreement provides 
otherwise. Current regulations provide rules for when the IRS may 
terminate an agreement but do not expressly provide that a taxpayer and 
the IRS may agree to end an agreement. The proposed regulations clarify 
that an installment agreement may be terminated by agreement between 
the taxpayer and the IRS, or may be superceded by a new agreement.

Proposed Effective Date

    These regulations are proposed to be effective upon publication in 
the Federal Register of the final regulations.

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 
these regulations do not impose a collection of information under the 
Paperwork Reduction Act (44 U.S.C. 3501), the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) does not apply to these regulations. 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

[[Page 9714]]

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 electronic 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 or electronic 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 G. William Beard, 
Office of Associate Chief Counsel (Procedure and 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.

Withdrawal of Proposed Regulations

    Accordingly, under the authority of 26 U.S.C. 7805, the notice of 
proposed rulemaking (REG-100841-97) that was published in theFederal 
Register on December 31, 1997 (62 FR 68241) is withdrawn.

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. Section 301.6159-0 is added to read as follows:


Sec.  301.6159-0  Table of contents.

    This section lists the major captions that appear in the 
regulations under Sec.  301.6159-1.


Sec.  301.6159-1  Agreements for the payment of tax liabilities in 
installments.

(a) Authority.
(b) Procedures for submission and consideration of proposed 
installment agreements.
(c) Acceptance, form, and terms of installment agreements.
(d) Rejection of a proposed installment agreement.
(e) Modification or termination of installment agreements by the 
Internal Revenue Service.
(f) Effect of installment agreement or pending installment agreement 
on collection activity.
(g) Suspension of the statute of limitations on collection.
(h) Annual statement.
(i) Biannual review of partial payment installment agreements.
(j) Cross reference.
(k) Effective date.

    Par. 3. Section 301.6159-1 is revised to read as follows:


Sec.  301.6159-1  Agreements for payment of tax liabilities in 
installments.

    (a) Authority. The Commissioner may enter into a written agreement 
with a taxpayer that allows the taxpayer to make scheduled periodic 
payments of any tax liability if the Commissioner determines that such 
agreement will facilitate full or partial collection of the tax 
liability.
    (b) Procedures for submission and consideration of proposed 
installment agreements--(1) In general. A proposed installment 
agreement must be submitted according to the procedures, and in the 
form and manner, prescribed by the Commissioner.
    (2) When a proposed installment agreement becomes pending. A 
proposed installment agreement becomes pending when it is accepted for 
processing. The Internal Revenue Service (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 IRS determines that the taxpayer made a good faith 
revision of the proposal and submitted the revision within 30 days of 
the date of rejection, the provisions of this section shall apply to 
that revised proposal. If, however, the IRS determines that a revision 
was not made in good faith, the provisions of this section do not apply 
to the revision and the appeal period in paragraph (d)(3) of this 
section continues to run from the date of the original rejection.
    (c) Acceptance, form, and terms of installment agreements--(1) 
Acceptance of an installment agreement--(i) In general. A proposed 
installment agreement has not been accepted until the IRS notifies the 
taxpayer or the taxpayer's representative of the acceptance. Except as 
provided in paragraph (c)(1)(iii) of this section, the Commissioner has 
the discretion to accept or reject any proposed installment agreement.
    (ii) Acceptance does not reduce liabilities. The acceptance of an 
installment agreement by the IRS does not reduce the amount of taxes, 
interest, or penalties owed. (However, penalties may continue to accrue 
at a reduced rate pursuant to section 6651(h).)
    (iii) Guaranteed installment agreements. In the case of a liability 
of an individual for income tax, the Commissioner shall accept a 
proposed installment agreement if, as of the date the individual 
proposes the installment agreement--
    (A) The aggregate amount of the liability (not including interest, 
penalties, additions to tax, and additional amounts) does not exceed 
$10,000;
    (B) The taxpayer (and, if the liability relates to a joint return, 
the taxpayer's spouse) has not, during any of the preceding five 
taxable years--
    (1) Failed to file any income tax return;
    (2) Failed to pay any required income tax; or
    (3) Entered into an installment agreement for the payment of any 
income tax;
    (C) The Commissioner determines that the taxpayer is financially 
unable to pay the liability in full when due (and the taxpayer submits 
any information the Commissioner requires to make that determination);
    (D) The installment agreement requires full payment of the 
liability within three years; and
    (E) The taxpayer agrees to comply with the provisions of the 
Internal Revenue Code for the period the agreement is in effect.

[[Page 9715]]

    (2) Form of installment agreements. An installment agreement must 
be in writing. A written installment agreement may take the form of a 
document signed by the taxpayer and the Commissioner or a written 
confirmation of an agreement entered into by the taxpayer and the 
Commissioner that is mailed or personally delivered to the taxpayer.
    (3) Terms of installment agreements. (i) Except as otherwise 
provided in this section, an installment agreement is effective from 
the date the IRS notifies the taxpayer or the taxpayer's representative 
of its acceptance until the date the agreement ends by its terms or 
until it is superceded by a new installment agreement.
    (ii) By its terms, an installment agreement may end upon the 
expiration of the period of limitations on collection in section 6502 
and Sec.  301.6502-1, or at some prior date.
    (iii) As a condition to entering into an installment agreement with 
a taxpayer, the Commissioner may require that--
    (A) The taxpayer agree to a reasonable extension of the period of 
limitations on collection; and
    (B) The agreement contain terms that protect the interests of the 
Government.
    (iv) Except as otherwise provided in an installment agreement, all 
payments made under the installment agreement will be applied in the 
best interests of the Government.
    (v) While an installment agreement is in effect, the Commissioner 
may request, and the taxpayer must provide, a financial condition 
update at any time.
    (vi) At any time after entering into an installment agreement, the 
Commissioner and the taxpayer may agree to modify or terminate an 
installment agreement or may agree to a new installment agreement that 
supercedes the existing agreement.
    (d) Rejection of a proposed installment agreement--(1) When a 
proposed installment agreement becomes rejected. A proposed installment 
agreement has not been rejected until the IRS notifies the taxpayer or 
the taxpayer's representative of the rejection, the reason(s) for 
rejection, and the right to an appeal.
    (2) Independent administrative review. The IRS may not notify a 
taxpayer or taxpayer's representative of the rejection of an 
installment agreement until an independent administrative review of the 
proposed rejection is completed.
    (3) Appeal of rejection of a proposed installment agreement. The 
taxpayer may administratively appeal a rejection of a proposed 
installment agreement to the IRS Office of Appeals (Appeals) if, within 
the 30-day period commencing the day after the taxpayer is notified of 
the rejection, the taxpayer requests an appeal in the manner provided 
by the Commissioner.
    (e) Modification or termination of installment agreements by the 
Internal Revenue Service--(1) Inadequate information or jeopardy. The 
Commissioner may terminate an installment agreement if the Commissioner 
determines that--
    (i) Information which was provided to the IRS by the taxpayer or 
the taxpayer's representative in connection with the granting of the 
installment agreement was inaccurate or incomplete in any material 
respect; or
    (ii) Collection of any liability to which the installment agreement 
applies is in jeopardy.
    (2) Change in financial condition, failure to timely pay an 
installment or another Federal tax liability, or failure to provide 
requested financial information. The Commissioner may modify or 
terminate an installment agreement if--
    (i) The Commissioner determines that the financial condition of a 
taxpayer that is party to the agreement has significantly changed; or
    (ii) A taxpayer that is party to the installment agreement fails 
to--
    (A) Timely pay an installment in accordance with the terms of the 
installment agreement;
    (B) Pay any other Federal tax liability when the liability becomes 
due; or
    (C) Provide a financial condition update requested by the 
Commissioner.
    (3) Notice. Unless the Commissioner determines that collection of 
the tax is in jeopardy, the Commissioner will notify the taxpayer in 
writing at least 30 days prior to modifying or terminating an 
installment agreement pursuant to paragraph (e)(1) or (2) of this 
section. The notice provided pursuant to this section must briefly 
describe the reason for the intended modification or termination. Upon 
receiving notice, the taxpayer may provide information showing that the 
reason for the proposed modification or termination is incorrect.
    (4) Appeal of modification or termination of an installment 
agreement. The taxpayer may administratively appeal the modification or 
termination of an installment agreement to Appeals if, following 
issuance of the notice required by paragraph (e)(3) of this section and 
prior to the expiration of the 30-day period commencing the day after 
the modification or termination is to take effect, the taxpayer 
requests an appeal in the manner provided by the Commissioner.
    (f) Effect of installment agreement or pending installment 
agreement on collection activity--(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 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, prior to the 
expiration of the 30-day period following the rejection or termination 
of an installment agreement, the taxpayer appeals the rejection or 
termination decision, 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) Exceptions. Paragraph (f)(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.
    (3) Other actions by the IRS while levy is prohibited--(i) 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--
    (A) Crediting an overpayment against the liability pursuant to 
section 6402;
    (B) Filing or refiling notices of Federal tax lien; and
    (C) 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.
    (ii) Proceedings in court. Except as otherwise provided in this 
paragraph (f)(3)(ii), 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 
(f)(1) of this section. Without regard to whether a person is named in 
an installment agreement or proposed

[[Page 9716]]

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. 
Notwithstanding the installment agreement, any claim or suit permitted 
will be for the full amount of the liabilities owed.
    (g) 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 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 (f)(2) of this 
section applies and levy is not prohibited with respect to the 
taxpayer.
    (h) Annual statement. The Commissioner shall provide each taxpayer 
who is party to an installment agreement under this section with an 
annual statement setting forth the initial balance owed at the 
beginning of the year, the payments made during the year, and the 
remaining balance as of the end of the year.
    (i) Biannual review of partial payment installment agreements. The 
Commissioner shall perform a review of the taxpayer's financial 
condition in the case of a partial payment installment agreement at 
least once every two years. The purpose of this review is to determine 
whether the taxpayer's financial condition has significantly changed so 
as to warrant an increase in the value of the payments being made or 
termination of the agreement.
    (j) 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. For special rules regarding the 
computation of the failure to pay penalty while certain installment 
agreements are in effect, see section 6651(h) and Sec.  301.6651-
1(a)(4).
    (k) Effective date. This section is applicable on the date final 
regulations are published in the Federal Register.
    Par. 4. Section 301.6331-4 is revised to read as follows:


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

    Cross-reference. For provisions relating to the making of levies 
while an installment agreement is pending or in effect, see Sec.  
301.6159-1.

 Mark E. Matthews,
Deputy Commissioner of Services and Enforcement.
 [FR Doc. E7-3730 Filed 3-2-07; 8:45 am]
BILLING CODE 4830-01-P