[Federal Register Volume 74, Number 226 (Wednesday, November 25, 2009)]
[Rules and Regulations]
[Pages 61525-61531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28330]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9473]
RIN 1545-AU97


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 relating to the 
payment of tax liabilities in installments. The 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. The regulations will affect taxpayers 
submitting installment agreements to the IRS.

DATES: Effective Date: These regulations are effective on November 25, 
2009.
    Applicability Date: For the date of applicability, see Sec.  
301.6159(k).

FOR FURTHER INFORMATION CONTACT: Walter Ryan, (202) 622-3620 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Procedure and 
Administration Regulations (26 CFR part 301) under section 6159 of the 
Internal Revenue Code (Code). Section 6159 allows the IRS to enter into 
agreements for the payment of any unpaid tax in installments. Taxpayers 
may request administrative review of IRS decisions to terminate 
installment agreements pursuant to section 6159(e), added to the Code 
by section 202 of the Taxpayer Bill of Rights II, Public Law 104-168 
(110 Stat. 1452, 1457 (1996)). Taxpayers may appeal rejections of 
proposed installment agreements under section 7122(e), added to the 
Code by section 3462 of Internal Revenue Service Restructuring and 
Reform Act of 1998 (RRA 98), Public Law 105-206 (112 Stat. 685, 764 
(1998)). Section 6159(c), added to the Code by section 3467 of RRA 
1998, requires the IRS to accept a proposed installment agreement for 
income taxes under certain circumstances. Section 3506 of RRA 1998 
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 American Jobs Creation Act of 2004 (AJCA), 
Public Law 108-357 (118 Stat. 1418, 1600 (2004)), 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, but 
excludes partial payment installment agreements from the scope of 
installment agreements that must be accepted by the IRS. Section 843 of 
the AJCA also added new section 6159(d), requiring the IRS to review 
partial payment installment agreements every two years. 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).
    On March 5, 2007, a notice of proposed rulemaking (REG-100841-97; 
72 FR 9712) was published in the Federal Register. The proposed 
regulations reflected the changes made to section 6159 by the Taxpayer 
Bill of Rights II, the RRA 98, and the AJCA. The proposed regulations 
reflected current IRS administrative practice. The IRS received one set 
of written comments with numerous recommendations. No public hearing 
was requested or held. After consideration of the comments, the 
proposed regulations are adopted as revised by this Treasury decision.

Summary of Comments and Explanation of Revisions

    The final regulations adopt certain recommendations contained in 
the comments by clarifying two provisions of the proposed regulations. 
As explained in this preamble, Sec.  301.6159-1(e)(3) was amended to 
clarify that the taxpayer may submit a request to modify or terminate 
the installment agreement. Section 301.6159-1(e)(3) further clarifies 
that such a request will not suspend the statute of limitations on 
collection and the taxpayer must comply with the existing installment 
agreement while the request is being considered. As also explained in 
this preamble, Sec.  301.6159-1(e)(1)(i) clarifies that the IRS may 
terminate an installment agreement if the taxpayer provides materially 
incomplete or inaccurate information in response to an IRS request for 
a financial update.
    The following is a section-by-section analysis of the comments.

Section 301.6159-1(b): Procedures for Submission and Consideration of 
Proposed Installment Agreements

    Section 301.6159-1(b) of the proposed regulations provided that an 
installment agreement request must be submitted according to procedures 
prescribed by the IRS. It did not require the IRS to accept or reject 
the request within a specific time frame. The commenter proposed to 
limit the IRS's time to consider an installment agreement to 90 days; 
if the IRS fails to act in that time, the agreement would be granted 
automatically. The commenter reasoned that the limited time frame would 
benefit the IRS because more installments agreements would be 
automatically allowed, thereby increasing revenues, and would benefit 
the taxpayer by allowing payments to begin quickly and efficiently. The 
recommendation was not adopted for two reasons. First, the IRS already 
grants installment agreements quickly and automatically in the vast 
majority of

[[Page 61526]]

cases. If the taxpayer owes less than $25,000 and offers to pay the 
liabilities in full within 5 years, the agreement can be granted 
automatically under the IRS's ``streamlined'' installment agreement 
procedures. See Internal Revenue Manual 5.14.5.2 at http://www.irs.gov/irm/part5/irm_05-014-005.html. The IRS granted over 2.62 million 
installment agreements in fiscal year 2008, of which over 2.51 million 
were granted through the IRS's streamlined procedures. In cases that do 
not meet the streamlined criteria, the IRS has determined that a more 
detailed review of the taxpayer's financial situation is warranted. 
Second, the IRS generally responds to non-streamlined installment 
agreement requests in a timely manner. During the filing season, 
however, inventory fluctuations may cause delays. The automatic 
allowance of installment agreements in such cases would not be 
appropriate.
    Proposed Sec.  301.6159-1(b)(2) provided that an installment 
agreement request becomes pending when it is accepted for processing. 
The commenter recommended that the IRS send an automatically-generated 
response acknowledging the date of acceptance for processing to the 
taxpayer and the taxpayer's representative. This recommendation was not 
adopted. The vast majority of installment agreements are streamlined 
agreements, which the IRS accepts very quickly. The IRS will, however, 
consider adopting an administrative procedure for the minority of cases 
where it anticipates a time lag between acceptance for processing and 
the acceptance or rejection of the installment agreement.
    Proposed Sec.  301.6159-1(b)(2) also provided that if an 
installment agreement request does not contain sufficient information 
to permit the IRS to evaluate whether the request should be accepted, 
the IRS will request the needed information. The commenter recommended 
that all requests for additional information should be reasonably 
necessary. The proposed regulations already address this recommendation 
by directing that requests be for ``needed'' information.
    Proposed Sec.  301.6159-1(b)(3) allowed a taxpayer to submit a good 
faith revision of a rejected installment agreement request within 30 
days of rejection. The commenter recommended that the time for 
taxpayers to submit a good faith revision should be extended to 60 days 
because taxpayers often have difficulty obtaining the necessary 
documents within 30 days. This recommendation was not adopted. The 
recommendation would apply to a small number of installment agreement 
requests that are not accepted under the IRS's streamlined procedures. 
In these cases, the IRS requests the information necessary for a 
financial analysis before rejecting the installment agreement request. 
See Internal Revenue Manual 5.15.1.6 at http://www.irs.gov/irm/part5/irm_05-015-001.html. Allowing 60 days following the rejection would 
encourage untimely responses and delay case resolution.

Section 301.6159-1(c): Acceptance, Form, and Terms of Installment 
Agreements

    Section 301.6159-1(c)(1) of the proposed regulations provided that 
an installment agreement request has not been accepted until the IRS 
notifies the taxpayer or the taxpayer's representative of the 
acceptance. Section 6159(a) requires that an installment agreement be 
in writing, and proposed Sec.  301.6159-1(c)(2) provided that the 
writing may take the form of a document signed by the taxpayer and the 
IRS or the written confirmation of an agreement entered into by the 
taxpayer and the IRS that is mailed or personally delivered to the 
taxpayer. The commenter recommended that the IRS's notification of the 
acceptance or rejection of a proposed installment agreement also be 
directed to the taxpayer's representative and include the terms of the 
agreement and payment submission information. These recommendations 
were not adopted in the regulations because they are more appropriately 
addressed in the IRS's procedures. The IRS currently does, however, 
provide written notification to the taxpayer and the taxpayer's 
representative of the acceptance or rejection of an installment 
agreement and the suggested information.
    The commenter was concerned that the IRS intended to change its 
streamlined procedures and recommended that the procedures be retained. 
The commenter was also concerned that proposed Sec.  301.6159-
1(c)(3)(iii)(A) may represent a departure from the IRS's current policy 
that limits the acceptance of extensions of the collection statute of 
limitations in connection with installment agreements to the narrow 
subset of partial payment installment agreements in which the liability 
will not be paid in full under the agreement before the collection 
statute expires. As stated in the preamble to the notice of proposed 
rulemaking, the regulations were intended to reflect existing 
practices. The regulations will have no effect on the IRS's streamlined 
procedures or its policy with regard to waivers of the collection 
statute.
    The commenter stated that the proposed regulations did not explain 
the inclusion of Sec.  301.6159-1(c)(3)(ii), which provided that an 
installment agreement may, by its terms, end upon the expiration of the 
period of limitations on collection, or at some prior date. As 
explained in the preamble to the proposed regulations, this provision 
clarifies that the IRS may enter into partial payment installment 
agreements that end upon the running of the collection statute, or that 
end prior to that time so that the IRS may collect the balance of the 
tax liability against any property belonging to the taxpayer before the 
collection period expires. The IRS does not currently enter into 
partial payment installment agreements that expire before the end of 
the collection statute and has no plans to do so routinely in the 
future.
    Proposed Sec.  301.6159-1(c)(3)(v) provided that while an 
installment agreement is in effect, the IRS may request a financial 
condition update from the taxpayer at any time. The commenter 
recommended that the IRS be permitted to request only one financial 
condition update per year. This recommendation was not adopted. The IRS 
very rarely requests updates more than once a year. In certain rare 
circumstances, more frequent updates may be appropriate, such as when 
the IRS has reason to believe that the taxpayer's financial condition 
has improved.

Section 301.6159-1(d): Rejection of a Proposed Installment Agreement

    Section 301.6159-1(d)(2) of the proposed regulations provided that 
the IRS may not notify a taxpayer or the taxpayer's representative of 
the rejection of an installment agreement until an independent review 
of proposed rejection is completed. The commenter was concerned that 
the proposed regulations did not provide any guidance as to how the 
independent administrative review will be assured. The commenter 
recommended that the review be undertaken by an IRS office located in a 
different territory. The recommendation was not adopted. Managers in 
the IRS offices in San Jose, California, and Jacksonville, Florida, 
supervise employees throughout the United States who review rejected 
installment agreements. An independent review is assured by assigning 
these cases to an employee who has no prior involvement in the case and 
who reports to a supervisor in either of these two offices.
    The commenter recommended that the determination that the taxpayer 
did not submit a good faith revision be

[[Page 61527]]

subject to independent administrative review. This recommendation was 
not adopted because it would delay case resolution and would, in 
effect, treat requests that were not made in good faith as valid 
requests. The commenter also recommended that the rejection of 
revisions that were made in good faith receive independent review. The 
proposed regulation already provided for this review. Proposed Sec.  
301.6159-1(b) stated that if the IRS determines that the taxpayer made 
a good faith revision within 30 days of the rejection, the provisions 
of Sec.  301.6159-1 apply to the revised proposal.
    Proposed Sec.  301.6159-1(d)(3) provided that a taxpayer may appeal 
the rejection of an installment agreement request within 30 days of the 
rejection. The commenter recommended that the 30-day period be tolled 
while a revised proposal of a rejected request is being evaluated so 
that the taxpayer would not have to file an appeal while the revision 
is under consideration. This recommendation was not adopted. The IRS's 
procedures are designed to allow a quick resolution of the taxpayer's 
request; tolling the appeal period would add an unneeded layer of 
complexity to the process and delay case resolution. The commenter also 
recommended that the IRS provide more definitive guidance as to what 
qualifies as a good faith revision. This recommendation was not adopted 
because this guidance is more appropriately left to the IRS procedures.

Section 301.6159-1(e): Modification or Termination of Installment 
Agreements by the Internal Revenue Service

    Proposed Sec.  301.6159-1(e)(2)(i) provided that the IRS may modify 
or terminate an installment agreement if the IRS determines that the 
financial condition of the taxpayer has significantly changed. Proposed 
Sec.  301.6159-1(c)(3)(vi) provided that the IRS and the taxpayer may 
agree to modify or terminate an installment agreement or may agree to a 
new installment agreement that supersedes the existing agreement. The 
commenter recommended that the regulations explicitly allow taxpayers 
to request a modification or termination of an existing installment 
agreement, as was stated in existing Sec.  301.6159-1(c)(3). This 
clarification was adopted in Sec.  301.6159-1(e)(3).
    The commenter recommended that the regulations require the taxpayer 
to comply with the terms of an installment agreement while a request 
for modification is being considered and that a proposed modification 
will not result in a suspension of the statute of limitations on 
collection. These clarifications were also adopted in Sec.  301.6159-
1(e)(3).
    The commenter recommended that a taxpayer's request to modify an 
existing installment agreement should be exempt from user fees under 
regulations Sec. Sec.  300.1 and 300.2. This recommendation was not 
adopted because user fees are outside the scope of this regulation 
project.
    Proposed Sec.  301.6159-1(e)(2)(ii)(C) provided that the IRS may 
modify or terminate an installment agreement if the taxpayer fails to 
provide a financial condition update requested by the IRS. The 
commenter recommended that the regulations provide explicitly whether 
the IRS may terminate an installment agreement if the taxpayer provided 
materially inaccurate or incomplete information. This recommendation 
was adopted. Section 301.6159-1(e)(1)(i) was revised to clarify that 
the IRS may terminate an installment agreement if the taxpayer provided 
materially inaccurate or incomplete information in connection with a 
requested financial update.
    Proposed Sec.  301.6159-1(e)(3) provided that the IRS will 
generally notify the taxpayer in writing at least 30 days prior to 
terminating an installment agreement and describe the reason for the 
termination, after which the taxpayer may provide information showing 
that the IRS's reason is incorrect. Proposed Sec.  301.6159-1(e)(4) 
provided for the administrative appeal of the modification or 
termination of an installment agreement to the Office of Appeals if the 
request is properly made within 30 days after the termination or 
modification is to take effect. The commenter recommended that the 
regulations clarify that an appeal should be made to the Office of 
Appeals within 30 days after the modification or termination will take 
effect, regardless of whether the taxpayer submits additional 
information under Sec.  301.6159-1(e)(3), has filled out Form 9423, 
``Collection Appeal Request,'' or has requested a meeting with a 
Collection Manager. This recommendation was not adopted in the 
regulations because it is more appropriately addressed in IRS forms and 
procedures.
    Proposed Sec.  301.6159-1(e)(4) provided, in part, that the 
taxpayer may administratively appeal the modification or termination of 
an installment agreement to the Office of Appeals. The commenter 
recommended that the taxpayer be allowed to appeal the IRS's 
determination not to modify an installment agreement. This 
recommendation was not adopted. The IRS routinely grants taxpayer 
modification requests that result in agreements within the streamlined 
criteria. See Internal Revenue Manual 5.19.1.5.4.24 at http://www.irs.gov/irm/part5/irm_05-019-001.html. Taxpayers do not have a 
statutory right to appeal rejected modification requests, and the IRS 
has not determined there is a need for additional administrative review 
of the denial of a modification request.

Section 301.6159-1(f): Effect of Installment Agreement or Pending 
Installment Agreement on Collection Activity

    Section 301.6159-1(f)(1) of the proposed regulations stated that 
the IRS may not levy during the time an installment agreement is 
pending. Proposed Sec.  301.6159-1(f)(2) stated that levy is not 
prohibited if an installment agreement request was made solely to delay 
collection. The commenter recommended that the solely to delay 
collection standard in the proposed regulations be replaced with 
language that references the ``frivolous submission'' standard in 
section 6702(b) of the Code. This recommendation was not adopted. Under 
existing IRS procedures, an installment agreement is returned as made 
solely to delay collection when there is no economic reality to the 
request, the request fails to address changes previously requested by 
the IRS in response to a prior request, the request ignores direction 
provided by revenue officers, the request is made by a taxpayer that 
has defaulted prior installment agreements, or the request is made at a 
time that causes it to be classified as a request made to delay 
enforcement action. See Internal Revenue Manual 5.14.3.2 at http://www.irs.gov/irm/part5/irm_05-014-003.html. Section 6702(b) imposes a 
$5,000 penalty for installment agreement requests that reflect a desire 
to delay or impede the administration of the Federal tax laws, and the 
IRS has not yet developed procedures defining the kinds of installment 
agreements that constitute frivolous submissions. The standard in 
section 6702(b) therefore may not be an appropriate standard for 
identifying those installment agreements that fail to qualify for the 
prohibition against levy.
    In the alternative, the commenter recommended that the regulations 
state that a taxpayer may appeal the IRS's levy action when the IRS 
determines that an installment agreement request was made solely to 
delay collection, and that damages may be appropriate under section 
7433 of the Code. These recommendations were not adopted. Taxpayers' 
rights to appeal proposed

[[Page 61528]]

levies and seek damages are provided for in the regulations under 
sections 6330 and 7433 of the Code, respectively.

Section 301.6159-1(g): Suspension of the Statute of Limitations on 
Collection

    Section 301.6159-1(g) of the proposed regulations provided that the 
statute of limitations on collection under section 6502 of the Code is 
suspended for the period that a proposed installment agreement is 
pending, plus 30 days following a rejection, and during any appeal. The 
commenter recommended that the regulations clearly define when an 
installment agreement is pending. This recommendation is already 
addressed by proposed Sec.  301.6159-1(b)(2), which provides a detailed 
explanation of when an installment agreement is pending.

Section 301.6159-1(h): Annual Statement

    Section 301.6159-1(h) of the proposed regulations requires the IRS 
to provide taxpayers with an annual statement setting forth the balance 
owed at the beginning of the year, the payments made during the year, 
and the remaining balance at the end of the year. The commenter 
recommends that the annual statement be as clear as possible and that 
the IRS provide the taxpayer with a single annual statement describing 
all tax liabilities covered by the agreement. Currently, the IRS sends 
an annual statement for each separate liability covered by an 
installment agreement. No change was made to the final regulations 
because this recommendation is more appropriately addressed when the 
IRS updates the forms used for the annual statements.

Section 301.6159-1(i): Biennial Review of Partial Payment Installment 
Agreements

    Section 301.6159-1(i) of the proposed regulations required the IRS 
to perform a review of the taxpayer's financial condition at least once 
every two years in cases of partial payment installment agreements. The 
proposed regulations also stated that the purpose of the review was to 
determine whether an increase in payments is warranted. The commenter 
recommended that Sec.  301.6159-1(i) be rephrased to provide that the 
biennial review of a taxpayer's financial condition may result in a 
decrease, as well as an increase, in the amount of payments being made. 
This recommendation was not adopted. While taxpayers may request a 
decrease in the amount of payments due under an installment agreement, 
the IRS does not have the information to unilaterally make that 
determination. The automatic biennial review done by the IRS does not, 
in every case, result in a request for updated financial information. 
As explained above, taxpayers may request that their payments be 
lowered if their financial condition has worsened.

Section 301.6159-1(k): Effective/Applicability Date

    Section 301.6159-1(k) of the proposed regulations provided that the 
effective date of the final regulations would be the date the final 
regulations are published in the Federal Register. The commenter was 
concerned about how previously proposed or accepted installment 
agreements will be affected by the regulations and recommended that the 
effective date of paragraphs (b), (c), and (d) apply prospectively. 
This recommendation was not adopted. As explained earlier and in the 
preamble to the proposed regulations, the regulations substantially 
reflect existing practices. The regulations will therefore have no 
effect on previously proposed or accepted installment agreements.

Special Analyses

    It has been determined that this Treasury decision 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 
regulations do 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 proposed 
regulations preceding these regulations were 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 Walter Ryan, Office of 
Associate Chief Counsel (Procedure and Administration).

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

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

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


0
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) Biennial review of partial payment installment agreements.
    (j) Cross reference.
    (k) Effective/applicability date.

0
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

[[Page 61529]]

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.
    (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 superseded 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 
supersedes 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 either the granting of 
the installment agreement or a request for a financial update 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) Request by taxpayer. Upon request by a taxpayer that is a party 
to the installment agreement, the Commissioner may terminate or modify 
the terms of an installment agreement if the Commissioner determines 
that the

[[Page 61530]]

financial condition of the taxpayer has significantly changed. The 
taxpayer's request will not suspend the statute of limitations under 
section 6502 for collection of any liability. While the Commissioner is 
considering the request, the taxpayer shall comply with the terms of 
the existing installment agreement.
    (4) 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.
    (5) 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)(4) 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 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) Biennial 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/applicability date. This section is applicable on 
November 25, 2009.r

0
Par. 4. Section 301.6331-4, paragraph (d) is revised and paragraph (e) 
is added to read as follows:


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

* * * * *
    (d) Cross-reference. For provisions relating to the making of 
levies while an installment agreement is pending or in effect, see 
Sec.  301.6159-1.
    (e) Effective/applicability date. Paragraphs (a), (b), and (c) are 
applicable beginning December 18, 2002. Paragraph (d) is applicable 
beginning November 25, 2009.


[[Page 61531]]


    Approved: November 11, 2009.
Steven T. Miller,
Deputy Commissioner of Services and Enforcement.
    Approved: November 11, 2009.
Michael F. Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-28330 Filed 11-24-09; 8:45 am]
BILLING CODE 4830-01-P