[Federal Register Volume 81, Number 162 (Monday, August 22, 2016)]
[Proposed Rules]
[Pages 56543-56550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19836]



[[Page 56543]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[REG-108792-16]
RIN 1545-BN37


User Fees for Installment Agreements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed amendments to the regulations 
that provide user fees for installment agreements. The proposed 
amendments affect taxpayers who wish to pay their liabilities through 
installment agreements. The proposed effective date for these proposed 
amendments to the regulations is January 1, 2017. This document also 
provides a notice of public hearing on these proposed amendments to the 
regulations.

DATES: Written or electronic comments must be received by October 6, 
2016. Outlines of topics to be discussed at the public hearing 
scheduled for October 19, 2016, at 2:00 p.m. must be received by 
October 6, 2016.

ADDRESSES: Send submissions to: Internal Revenue Service, CC:PA:LPD:PR 
(REG-108792-16), Room 5203, Post Office Box 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-
108792-16), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224 or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (indicate IRS and REG-
108792-16). The public hearing will be held in the Main IR Auditorium 
beginning at 2:00 p.m. in the Internal Revenue Service Building, 1111 
Constitution Avenue NW., Washington, DC 20224.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed amendments to 
the regulations, M. Pilar Puerto at (202) 317-5437; concerning 
submissions of comments, the hearing, or to be placed on the building 
access list to attend the hearing, Regina Johnson, at (202) 317-6901; 
concerning cost methodology, Eva Williams, at (202) 803-9728 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed regulations that would amend 
Sec. Sec.  300.1 and 300.2 of the User Fee Regulations (26 CFR part 
300), which provide for a user fee applicable to installment agreements 
under section 6159 of the Internal Revenue Code (Code).
    Section 6159 authorizes the IRS to enter into an agreement with any 
taxpayer for the payment of tax in installments to the extent the IRS 
determines that entering into the installment agreement will facilitate 
the full or partial collection of the tax. Section 301.6159-1(a). 
Installment agreements are voluntary, and taxpayers may request an 
installment agreement in person, by completing the appropriate forms 
and mailing them to the IRS, online, or over the telephone. Before 
entering into an installment agreement, the IRS may examine the 
taxpayer's financial position to determine whether such an agreement is 
appropriate. See Internal Revenue Manual (IRM) 5.14. If the IRS accepts 
the installment agreement, the IRS must process the payments made by 
the taxpayer and monitor the taxpayer's compliance with the terms of 
the agreement. The terms of an agreement generally require the taxpayer 
to pay the minimum monthly payment on time, file all required tax 
returns on time, and pay all taxes in-full and on time. See Form 433-D, 
Installment Agreement. In addition, section 6159(d) requires that the 
IRS review partial payment installment agreements at least once every 
two years.
    Under Sec.  300.1, the IRS currently charges three rates for 
installment agreements. The user fee, in general, is $120 for an 
installment agreement. The user fee is reduced to $52 for a direct 
debit installment agreement, which is an agreement whereby the taxpayer 
authorizes the IRS to request the monthly electronic transfer of funds 
from the taxpayer's bank account to the IRS. The user fee is $43 
notwithstanding the method of payment if the taxpayer is a low-income 
taxpayer, as defined below.
    Under Sec.  300.2, the IRS currently charges $50 for restructuring 
or reinstating an installment agreement that is in default. An 
installment agreement is deemed to be in default when a taxpayer fails 
to meet any of the conditions of the installment agreement. See IRM 
5.14. Currently, there is no exception to this fee for low-income 
taxpayers.

Explanation of Provisions

A. Overview

    To bring user fee rates for installment agreements in line with the 
full cost to the IRS of providing these taxpayer specific services, the 
proposed regulations under Sec. Sec.  300.1 and 300.2 would increase 
the user fee for the existing installment agreement types and introduce 
two new types of online installment agreements, each subject to a 
separate user fee. Five of these proposed user fee rates are based on 
the full cost of establishing and monitoring installment agreements. 
The sixth rate is for low-income taxpayers.
     Regular Installment Agreements--A taxpayer contacts the 
IRS in person, by phone, or by mail and sets up an agreement to make 
manual payments over a period of time either by mailing a check or 
electronically through the Electronic Federal Tax Payment System 
(EFTPS). The proposed fee for entering into a regular installment 
agreement is $225.
     Direct Debit Installment Agreements--A taxpayer contacts 
the IRS by phone or mail and sets up an agreement to make automatic 
payments over a period of time through a direct debit from a bank 
account. The proposed fee for entering into a direct debit installment 
agreement is $107.
     Online Payment Agreements--A taxpayer sets up an 
installment agreement through http://www.irs.gov and agrees to make 
manual payments over a period of time either by mailing a check or 
electronically through the EFTPS. The proposed fee for entering into an 
online payment agreement is $149.
     Direct Debit Online Payment Agreements--A taxpayer sets up 
an installment agreement through http://www.irs.gov and agrees to make 
automatic payments over a period of time through a direct debit from a 
bank account. The proposed fee for entering into a direct debit online 
payment agreement is $31.
     Restructured/Reinstated Installment Agreements--A taxpayer 
modifies a previously established installment agreement or reinstates 
an installment agreement on which the taxpayer has defaulted. The 
proposed fee for restructuring or reinstating an installment agreement 
is $89.
     Low-Income Rate--A rate that applies when a low-income 
taxpayer enters into any type of installment agreement, other than a 
direct debit online payment agreement, and when a low-income taxpayer 
restructures or reinstates any installment agreement. A low-income 
taxpayer is a taxpayer that

[[Page 56544]]

has income at or below 250 percent of the dollar criteria established 
by the poverty guidelines updated annually in the Federal Register by 
the U.S. Department of Health and Human Services. Section 300.1(b)(2). 
The proposed low-income rate is $43.

B. User Fee Authority

    The Independent Offices Appropriations Act (IOAA) (31 U.S.C. 9701) 
authorizes each agency to promulgate regulations establishing the 
charge for services provided by the agency (user fees). The IOAA 
provides that these user fee regulations are subject to policies 
prescribed by the President and shall be as uniform as practicable. 
Those policies are currently set forth in the Office of Management and 
Budget (OMB) Circular A-25, 58 FR 38142 (July 15, 1993; OMB Circular).
    The IOAA states that the services provided by an agency should be 
self-sustaining to the extent possible. 31 U.S.C. 9701(a). The OMB 
Circular states that agencies that provide services that confer special 
benefits on identifiable recipients beyond those accruing to the 
general public are to establish user fees that recover the full cost of 
providing those services. The OMB Circular requires that agencies 
identify all services that confer special benefits and determine 
whether user fees should be assessed for those services.
    Agencies are to review user fees biennially and update them as 
necessary to reflect changes in the cost of providing the underlying 
services. During this biennial review, an agency must calculate the 
full cost of providing each service, taking into account all direct and 
indirect costs to any part of the U.S. government. The full cost of 
providing a service includes, but is not limited to, salaries, 
retirement benefits, rents, utilities, travel, and management costs, as 
well as an appropriate allocation of overhead and other support costs 
associated with providing the service.
    An agency should set the user fee at an amount that recovers the 
full cost of providing the service unless the agency requests, and the 
OMB grants, an exception to the full cost requirement. The OMB may 
grant exceptions only where the cost of collecting the fees would 
represent an unduly large part of the fee for the activity or any other 
condition exists that, in the opinion of the agency head, justifies an 
exception. When the OMB grants an exception, the agency does not 
collect the full cost of providing the service and therefore must fund 
the remaining cost of providing the service from other available 
funding sources. By doing so, the agency subsidizes the cost of the 
service to the recipients of reduced-fee services even though the 
service confers a special benefit on those recipients who should 
otherwise be required to pay the full costs of receiving that benefit 
as provided for by the IOAA and the OMB Circular.

C. Installment Agreement User Fee

    The installment agreement program confers a special benefit on 
identifiable recipients beyond those accruing to the general public. 
Specifically, a taxpayer that is granted an installment agreement is 
allowed to pay an outstanding tax obligation over time without being 
subjected to IRS levy related to these taxes during this term of 
repayment. See section 6331(k)(2) of the Code and Sec.  301.6159-1(f). 
Section 6331(k)(2) generally prohibits the IRS from levying to collect 
taxes while a request to enter into an installment agreement is pending 
with the IRS, for 30 days after the rejection of a proposed installment 
agreement, 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. 
Because of these special benefits the IOAA and the OMB Circular 
authorize the IRS to charge a user fee for an installment agreement 
that reflects the full cost of providing the service of the installment 
agreement program to the taxpayer.
    The installment agreement user fees were last changed in 2014. As 
required by the IOAA and the OMB Circular, the IRS completed its 2015 
biennial review of the installment agreement program and determined 
that the full cost of a regular installment agreement is $225, and the 
full cost of a direct debit installment agreement is $107. The IRS 
determined that the full cost of a regular online payment agreement is 
$149, and the full cost for a direct debit online payment agreement is 
$31. The IRS determined that the full cost of restructuring or 
reinstating an installment agreement is $89.
    The proposed regulations adopt the full cost amounts as the new 
user fees for the various types of installment agreements. 
Historically, the IRS charged a user fee that recovered less than the 
full cost of an installment agreement to make the service more 
accessible to a broader range of taxpayers. However, in light of 
constraints on IRS resources for tax administration, the Treasury 
Department and the IRS have determined that it is necessary to recoup 
the full costs of the installment agreement program. The IRS will 
continue its practice of providing services subject to user fees at 
less than full cost where there is a compelling tax administration 
reason to do so. Therefore, these proposed regulations do not increase 
the reduced user fee for offers submitted by low-income taxpayers and 
introduce a reduced fee for requests by low-income taxpayers to 
restructure or reinstate defaulted installment agreements.
    The proposed fees reflect the IRS's determination to continue to 
provide a wide variety of installment agreement options to taxpayers 
and, as required by the OMB Circular, to determine the full cost for 
each option. Since the enactment of the installment agreement program, 
the IRS has periodically developed new ways for taxpayers to enter into 
and pay for installment agreements, such as through online payment 
agreements and direct debit online payment agreements. These new 
installment agreement types have not had their own separate user fee, 
but instead have been included in the existing user fee structure. In 
recent years, taxpayers' use of the online installment agreement 
options have increased, justifying a separate fee structure for the 
online installment agreement options.
    Consistent with introducing these new fees, the most recent full 
cost analysis of the installment agreement program has been refined to 
more precisely account for the costs associated with administering the 
various types of installment agreements available to taxpayers. 
Requesting installment agreements in person or over the phone and 
receiving payment through means other than direct debit is more costly 
for the IRS to administer, and the proposed user fees reflect these 
costs. Similarly, this recent analysis has resulted in the availability 
of reduced user fees to taxpayers for those options that cost less for 
the IRS to administer. By offering a range of installment agreement 
options at a range of fees, the IRS is assisting taxpayers in coming 
into compliance with their tax payment obligations, which benefits tax 
administration and provides an enhanced service to taxpayers.

D. Calculation of User Fees Generally

    User fee calculations begin by first determining the full cost for 
the service. The IRS follows the guidance provided by the OMB Circular 
to compute the full cost of the service, which includes all indirect 
and direct costs to any part of

[[Page 56545]]

the U.S. government including but not limited to direct and indirect 
personnel costs, physical overhead, rents, utilities, travel, and 
management costs. The IRS's cost methodology is described below.
    Once the total amount of direct and indirect costs associated with 
a service is determined, the IRS follows the guidance in the OMB 
Circular to determine the costs associated with providing the service 
to each recipient, which represents the average per unit cost of that 
service. This average per unit cost is the amount of the user fee that 
will recover the full cost of the service.
    The IRS follows generally accepted accounting principles (GAAP), as 
established by the Federal Accounting Standards Advisory Board (FASAB) 
in calculating the full cost of providing services. The FASAB Handbook 
of Accounting Standards and Other Pronouncements, as amended, which is 
available at http://files.fasab.gov/pdffiles/2015_fasab_handbook.pdf, 
includes the Statement of Federal Financial Accounting Standards No. 4: 
Managerial Cost Accounting Concepts and Standards for the Federal 
Government (SFFAS No.4). SFFAS No. 4 establishes internal costing 
standards under GAAP to accurately measure and manage the full cost of 
federal programs. The methodology described below is in accordance with 
SFFAS No. 4.
1. Cost Center Allocation
    The IRS determines the cost of its services and the activities 
involved in producing them through a cost accounting system that tracks 
costs to organizational units. The lowest organizational unit in the 
IRS's cost accounting system is called a cost center. Cost centers are 
usually separate offices that are distinguished by subject-matter area 
of responsibility or geographic region. All costs of operating a cost 
center are recorded in the IRS's cost accounting system and allocated 
to that cost center. The costs allocated to a cost center are the 
direct costs for the cost center's activities as well as all indirect 
costs, including overhead, associated with that cost center. Each cost 
is recorded in only one cost center.
2. Determining the Per Unit Cost
    To establish the per unit cost, the total cost of providing the 
service is divided by the volume of services provided. The volume of 
services provided includes both services for which a fee is charged as 
well as subsidized services. The subsidized services are those where 
OMB has approved an exception to the full cost requirement, for 
example, to charge a reduced fee to low-income taxpayers. The volume of 
subsidized services is included in the total volume of services 
provided to ensure that the IRS, and not those who are paying full 
cost, subsidizes the cost of the reduced-full cost services.
3. Cost Estimation of Direct Labor and Benefits
    Not all cost centers are fully devoted to only one service for 
which the IRS charges a user fee. Some cost centers work on a number of 
different services. In these cases, the IRS estimates the cost incurred 
in those cost centers attributable to the service for which a user fee 
is being calculated by measuring the time required to accomplish 
activities related to the service, and estimating the average time 
required to accomplish these activities. The average time required to 
accomplish these activities is multiplied by the relevant 
organizational unit's average labor and benefits cost per unit of time 
to determine the labor and benefits cost incurred to provide the 
service. To determine the full cost, the IRS then adds an appropriate 
overhead charge as discussed below.
4. Calculating Overhead
    Overhead is an indirect cost of operating an organization that 
cannot be immediately associated with an activity that the organization 
performs. Overhead includes costs of resources that are jointly or 
commonly consumed by one or more organizational unit's activities but 
are not specifically identifiable to a single activity.
    These costs can include:
     General management and administrative services of 
sustaining and support organizations.
     Facilities management and ground maintenance services 
(security, rent, utilities, and building maintenance).
     Procurement and contracting services.
     Financial management and accounting services.
     Information technology services.
     Services to acquire and operate property, plants and 
equipment.
     Publication, reproduction, and graphics and video 
services.
     Research, analytical, and statistical services.
     Human resources/personnel services.
     Library and legal services.
    To calculate the overhead allocable to a service, the IRS first 
calculates the Corporate Overhead rate and then multiplies the 
Corporate Overhead rate by the direct labor and benefits costs 
determined as discussed above. The IRS calculates the Corporate 
Overhead rate annually based on cost elements underlying the Statement 
of Net Cost included in the IRS Annual Financial Statements, which are 
audited by the Government Accountability Office. The Corporate Overhead 
rate is the ratio of the sum of the IRS's indirect labor and benefits 
costs from the supporting and sustaining organizational units--those 
that do not interact directly with taxpayers--and all non-labor costs 
to the IRS's labor and benefits costs of its organizational units that 
interact directly with taxpayers.
    The Corporate Overhead rate of 65.85 percent for costs reviewed 
during FY 2015 was calculated based on FY 2014 costs as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Indirect Labor and Benefits Costs...................      $1,693,339,843
Non-Labor Costs.....................................    + $2,832,262,970
                                                     -------------------
    Total Indirect Costs............................      $4,525,602,813
Direct Labor and Benefits Costs.....................    + $6,872,934,473
                                                     -------------------
Corporate Overhead Rate.............................              65.85%
------------------------------------------------------------------------

E. Calculation of Installment Agreement User Fee

    The full cost analysis considers the common components of each of 
the five installment agreement types as well as each type's unique cost 
drivers. The costs for each type of installment agreement are broadly 
categorized into two groups: (1) Costs incurred by the IRS to establish 
the installment agreements and (2) costs incurred by the IRS to 
maintain and monitor the installment agreements.
    The upfront costs for establishing installment agreements requested 
in person, in writing, or over the phone are significantly higher than 
those for online payment agreements. For that reason, the upfront costs 
for establishing installment agreements requested in person, in 
writing, or over the phone are determined separately and allocated only 
to installment agreements requested in person, in writing, or over the 
phone. In contrast, the only upfront costs to establish online payment 
agreements through http://www.irs.gov are the costs of the online 
payment agreement system such as annual maintenance and system 
enhancements, which are only allocated to online payment agreements.
    After installment agreements are established, costs to maintain and 
monitor them, including routine notices to the taxpayers, vary 
significantly based on the type of installment agreement. Direct debit 
installment agreements and direct debit online

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payment agreements have lower maintenance and monitoring costs because 
they do not require as much support on an ongoing basis as installment 
agreements not paid via direct debit. Payments under direct debit 
installment agreements and direct debit online payment agreements are 
automatically debited from the taxpayer's bank account. Because 
payments for direct debit installment agreements and direct debit 
online payment agreements are automatically debited from taxpayers' 
accounts without requiring taxpayers to initiate each payment, the IRS 
does not send monthly payment notices and in general sends fewer 
notices related to these agreements compared to installment agreements 
not paid via direct debit. Correspondingly, direct debit installment 
agreements and direct debit online payment agreements require less IRS 
time responding to taxpayer inquiries resulting from these notices than 
do installment agreements not paid via direct debit.
1. Establishing Installment Agreements
    The IRS allocates costs attributed to establishing installment 
agreements based on whether the installment agreement is a non-online 
installment agreement or an online payment agreement.
a. Non-Online Installment Agreements
    For non-online installment agreements, the IRS identified the 
activities conducted across various organizations to establish 
agreements, obtained the time spent on the activities through various 
time tracking systems, obtained the labor and benefits rates for 
employees from the financial system for FY 2013 and 2014 who spent time 
establishing agreements, and averaged those costs to create an 
annualized average cost. The average labor and benefits costs to 
establish non-online installment agreements is $110,143,952, calculated 
as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Collection Field Function...............................     $53,268,552
Compliance Services Collection Operations...............      19,989,943
Automated Collection System.............................      19,377,987
Customer Service Toll-Free..............................       6,183,764
Appeals Staff Labor and Benefits........................       8,624,615
Field Assistance........................................       1,894,976
Examination.............................................         804,115
                                                         ---------------
Average Labor and Benefits Costs to Establish Non-Online     110,143,952
 Installment Agreements.................................
------------------------------------------------------------------------

    Because the non-labor costs for notices and telecommunication, 
which includes the costs of paper, postage and phone service, related 
to installment agreements can be identified, the IRS considered them to 
be direct costs for the installment agreement program. Accordingly, the 
IRS modified the calculation of the Corporate Overhead rate to exclude 
these notices and telecommunication costs from the total indirect costs 
in the calculation of the Corporate Overhead rate used for purposes of 
allocating Corporate Overhead to the installment agreement program 
(adjusted Corporate Overhead). The adjusted Corporate Overhead rate 
used for the entire installment agreement program is 60.89 percent, 
calculated as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Indirect Labor and Benefits Costs...................      $1,693,339,843
Non-Labor Costs.....................................     + 2,832,262,970
Non-Labor Costs for Notices and Telecommunication...       (211,959,052)
                                                     -------------------
Adjusted Total Indirect Costs.......................       4,313,643,761
------------------------------------------------------------------------


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Direct Labor and Benefits Costs.....................      $6,872,934,473
Non-Labor Costs for Notices and Telecommunication...       + 211,959,052
                                                     -------------------
Adjusted Direct Labor and Benefits Costs............       7,084,893,526
Adjusted Total Indirect Costs.......................       4,313,643,761
Adjusted Direct Labor and Benefits Costs............     + 7,084,893,526
Adjusted Corporate Overhead Rate....................              60.89%
------------------------------------------------------------------------

    The IRS applied the adjusted Corporate Overhead rate to the labor 
and benefits costs to calculate the total labor and benefits cost for 
establishing non-online installment agreements as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Labor and Benefits Costs to Establish Non-Online            $110,143,952
 Installment Agreements.............................
Adjusted Corporate Overhead Rate (60.89%)...........          67,066,653
                                                     -------------------
Total Labor and Benefits and Adjusted Overhead Costs         177,210,605
 to Establish Non-Online Installment Agreements.....
------------------------------------------------------------------------

    There are also non-labor costs attributed to establishing non-
online installment agreements. Because these costs are non-labor, the 
IRS does not allocate any overhead to determine the total costs. The 
total non-labor costs for establishing non-online installment 
agreements are $636,046, calculated as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Telecommunications......................................        $145,169
Automated Collection System.............................         274,664
Customer Service Toll-Free..............................         216,213
                                                         ---------------
  Total Non-Labor Costs to Establish Non-Online                  636,046
   Installment Agreements...............................
------------------------------------------------------------------------

    The total costs for establishing non-online installment agreements 
are $177,846,650, calculated as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total Labor and Benefits and Adjusted Overhead Costs to     $177,210,605
 Establish Non-Online Installment Agreements............
Total Non-Labor Costs to Establish Non-Online                    636,046
 Installment Agreements.................................
                                                         ---------------
  Total Costs to Establish Non-Online Installment            177,846,650
   Agreements...........................................
------------------------------------------------------------------------

    To determine the unit cost to establish non-online installment 
agreements, the IRS divided the total cost by the average volume of 
non-online installment agreements. The IRS determined the volume of 
non-online installment agreements by averaging the volumes of new 
agreements entered into in FY 2013 and FY 2014. The unit cost was 
calculated as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total Costs to Establish Non-Online Installment             $177,846,650
 Agreements.............................................
Average Annual Volume...................................       2,175,142
Unit Cost to Establish Non-Online Installment Agreements          $81.76
------------------------------------------------------------------------

b. Online Installment Agreements
    For online payment agreements, the only cost to establish those 
agreements is the cost for the online payment agreement system that 
allows taxpayers to set up the agreements. In FY 2014, the IRS 
performed a substantial enhancement to this system at a cost of 
$4,200,000. The IRS amortizes system enhancements over a six year 
period; therefore, for FY 2014 through FY 2020 the annual amortized 
system cost for online payment agreements is $700,000. In addition to 
the annual amortized cost, the IRS incurs $200,000 in annual system 
maintenance costs for this system. The total annual cost for the online 
payment agreement system is $900,000. The use of online payment

[[Page 56547]]

agreements is trending upward and the IRS expects this upward trend to 
continue as more taxpayers utilize the IRS's online systems. To reflect 
the IRS's expectation of increased use of online systems, the IRS 
adjusted upward the average volume of online payment agreements 
received in FY 2013 and FY 2014 consistent with that expectation. The 
total cost to establish online payment agreements is $6, calculated as 
follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Amortized System Upgrade................................        $700,000
Annual System Maintenance Cost..........................        $200,000
Average Yearly System Cost..............................        $900,000
Average Annual Volume...................................         150,000
Unit Cost to Establish Online Payment Agreement.........              $6
------------------------------------------------------------------------

2. Maintaining and Monitoring Installment Agreements
    The costs for maintaining and monitoring installment agreements 
consist of the costs of monitoring and telecommunications labor and 
benefits, an allocation of overhead to these labor costs, and notice 
and telecommunication non-labor costs.
    The IRS identified the activities conducted across various business 
units to monitor installment agreements, obtained the time spent on the 
activities through various time tracking systems, obtained the labor 
and benefits rates for these personnel from the financial system for FY 
2013 and 2014, and determined the average annual cost for monitoring 
installment agreements.
    The IRS allocated the costs attributed to maintaining and 
monitoring installment agreements based on whether the agreement is a 
direct debit agreement (Direct Debit Installment Agreement or Direct 
Debit Online Payment Agreement), a non-direct debit agreement (Regular 
Agreement or Online Payment Agreement), or a Restructured/Reinstated 
Installment Agreement. The following sections describe the costs 
allocated to various types of installment agreements for maintaining 
and monitoring.
    The IRS continuously monitors all installment agreements for 
accounts not meeting the terms of the agreement, for returned payments, 
and various other circumstances that result in a need to contact the 
taxpayer. When these circumstances arise, the IRS reviews the account 
and sends a notice to the taxpayer, as needed, to resolve the 
condition. The IRS maintains a system that measures the hours of 
correspondence labor by type of notice sent to taxpayers.
    Generally, the IRS uses the costs for two years and averages those 
costs to determine the cost of an activity. However, for this component 
of cost, the IRS used existing data for the hours spent in FY 2014 on 
correspondence labor related to monitoring installment agreements and 
calculated total labor and benefits for those hours. The IRS does not 
believe including an additional year of data would result in a 
significant difference in the result. In the future, the IRS intends to 
use the average cost of two years to calculate this cost component. The 
total annual cost of correspondence for monitoring agreements labor and 
benefits is $5,807,847.
    The IRS divided the total annual labor and benefits cost of 
correspondence for monitoring agreements by the total agreements in 
inventory at the end of FY 2014. The total inventory was 3,973,208, 
resulting in annual labor and benefits cost per agreement of $1.46. The 
IRS converted the annual cost of correspondence for monitoring 
agreements labor and benefits to a per-agreement cost by dividing the 
annual cost per installment agreement by 12 months to calculate the 
monthly cost per installment agreement. The IRS then multiplied the 
monthly cost per installment agreement by 40.31 months, the average 
term of installment agreements (in months), to calculate the unit cost 
over the life of the installment agreement.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total Annual Cost of Correspondence for Monitoring            $5,807,847
 Agreements Labor and Benefits..........................
Total Agreements in Inventory at End of FY 2014.........       3,973,208
Annual Labor and Benefits Cost per Agreement............           $1.46
Monthly Cost Per Agreement (Annual Labor and Benefits              $0.12
 Cost per Agreement divided by 12 months)...............
Average Term of Installment Agreement (in months).......           40.31
Unit Cost of Correspondence for Monitoring Agreements              $4.91
 Labor and Benefits Over the Life of Installment
 Agreement..............................................
------------------------------------------------------------------------

    There is not a significant difference in the cost of monitoring 
regular and direct debit installment agreements; therefore, each type 
of agreement is allocated the same ratio of monitoring costs. 
Restructured/reinstated installment agreements are not allocated any 
monitoring costs because monitoring costs for restructured/reinstated 
agreements are recovered in the original user fee. The unit cost of 
correspondence for monitoring agreements labor and benefits per 
installment agreement is shown below:

----------------------------------------------------------------------------------------------------------------
                                                                                                 Restructured/
                                                                             Direct debit         reinstated
                                                       Regular agreement      installment         installment
                                                                               agreement           agreement
----------------------------------------------------------------------------------------------------------------
Unit Cost of Correspondence for Monitoring                        $4.91               $4.91                  $0
 Agreements Labor and Benefits Over the Life of
 Installment Agreement..............................
----------------------------------------------------------------------------------------------------------------

    The IRS maintains a system that calculates the number of seconds 
spent on the phone by type of call. To determine the telecommunications 
labor and benefits costs to maintain and monitor installment 
agreements, IRS first analyzed the time spent on phone calls related to 
monitoring and maintaining installment agreements, rather than 
establishing one. The total seconds are converted into hours and hourly 
salary and benefits rates are applied.
    The average labor and benefits costs for responding to installment 
agreement questions are $58,917,275 for FY 2013 and FY 2014. These 
costs are accumulated by type of installment agreement. To determine 
the annual unit cost per type of agreement, the IRS used the total 
volume of the corresponding installment agreements in inventory at the 
end of FY 2014 as the baseline for the number of installment agreements 
that generate telecommunications costs of responding to questions. The 
IRS divided the average labor and benefits costs separated by type of 
agreement by the total agreements in inventory at the end of FY 2014 
for each type of agreement. The IRS converted the annual cost of 
correspondence for telecommunications labor and benefits to a per-
agreement cost as follows:

[[Page 56548]]



----------------------------------------------------------------------------------------------------------------
                                                          Non-direct debit     Direct debit      Restructured/
                                                            installment        installment         reinstated
                                                             agreement          agreement          agreement
----------------------------------------------------------------------------------------------------------------
Average Telecommunications Labor and Benefits Costs....        $55,872,940         $2,014,736         $1,029,598
Volume of Installment Agreements in Inventory at end of          3,084,844            888,364          1,082,303
 FY 2014 by Type.......................................
Annual Unit Cost Per Installment Agreement.............             $18.11              $2.27              $0.95
Monthly Cost Per Installment Agreement 4 (Annual Unit                $1.51              $0.19              $0.08
 Cost Per Installment Agreement divided by 12 months)..
Average Term of Installment Agreement (in months)......              40.31              40.31              40.31
Unit Cost for Telecommunications Labor and Benefits                 $60.84              $7.62              $3.20
 Over the Life of the Installment Agreement............
----------------------------------------------------------------------------------------------------------------

    Next, the IRS determined the appropriate allocation of overhead for 
installment agreements. As noted above, the IRS adjusted the Corporate 
Overhead Rate for the installment agreement program down to 60.89 
percent. The IRS applied this adjusted Corporate Overhead rate to the 
total labor and benefits costs for monitoring and telecommunications 
calculated above. The total labor unit cost including the adjusted 
Corporate Overhead allocated to each type installment agreement is as 
follows:

----------------------------------------------------------------------------------------------------------------
                                                                                                 Restructured/
                                                          Non-direct debit     Direct debit        reinstated
                                                            installment        installment        installment
                                                             agreement          agreement          agreement
----------------------------------------------------------------------------------------------------------------
Unit Cost of Correspondence for Monitoring Agreements                $4.91              $4.91                 $0
 Labor and Benefits Over the Life of Installment
 Agreement.............................................
Unit Cost for Telecommunications Labor and Benefits                  60.84               7.62               3.20
 Over the Life of the Installment Agreement............
                                                        --------------------------------------------------------
    Subtotal...........................................              65.75              12.53               3.20
Adjusted Corporate Overhead (60.89%)...................              40.03               7.63               1.95
Maintain and Monitor Labor and Benefits Unit Cost......             105.78              20.16               5.15
----------------------------------------------------------------------------------------------------------------

    The final element of the cost analysis for maintaining and 
monitoring installment agreements is the cost of non-labor notice and 
telecommunications. The IRS maintains a system for tracking notices and 
telecommunication costs. Each type of notice has a known number of 
pages, postage, and telecommunication costs responding to taxpayer 
inquiries related to the notices. The average annual non-labor cost for 
all notices and telecommunication related to installment agreements is 
$36,219,659. The IRS divided the total average notice and 
telecommunication non-labor cost by the total volume of agreements in 
inventory at the end of FY 2014 to determine the annual notice and 
telecommunication non-labor cost per installment agreement. The IRS 
converted the annual cost of notice and telecommunications to a per-
agreement cost as follows:

----------------------------------------------------------------------------------------------------------------
                                                              Regular          Direct debit      Restructured/
                                                            installment        installment         reinstated
                                                             agreement          agreement          agreement
----------------------------------------------------------------------------------------------------------------
Average Annual Non-Labor Cost of All Notices...........        $33,005,331         $1,190,147           $608,206
Average Annual Non-Labor Cost of Telecommunication.....         $1,342,810            $48,421            $24,745
Total Average Notice and Telecommunication Non-Labor           $34,348,141         $1,238,568           $632,950
 Costs.................................................
Total Volume of Agreements in Inventory at end of FY             3,084,844            888,364          1,082,303
 2014..................................................
Annual Notice and Telecommunication Non-Labor Cost Per              $11.13              $1.39              $0.58
 Installment Agreement.................................
Monthly Notice and Telecommunication Non-Labor Cost Per              $0.93              $0.12              $0.05
 Installment Agreement (Annual Notice and
 Telecommunication Non-Labor Cost divided by 12 months)
Average Term of Installment Agreement (in months)......              40.31              40.31              40.31
Unit Cost for Notice and Telecommunication Non-Labor                $37.40              $4.68              $1.96
 Over the Life of the Installment Agreement............
----------------------------------------------------------------------------------------------------------------

    The unit costs for maintaining and monitoring an installment 
agreement based on the total cost of maintaining and monitoring all 
installment agreements are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                                 Restructured/
                                                          Non-direct debit     Direct debit        reinstated
                                                            installment        installment        installment
                                                             agreement          agreement          agreement
----------------------------------------------------------------------------------------------------------------
Maintain and Monitor Labor Unit Costs..................            $105.78             $20.16              $5.15

[[Page 56549]]

 
Maintain and Monitor Non-Labor Unit Cost...............              37.40               4.68               1.96
                                                        --------------------------------------------------------
    Total Maintain and Monitor Unit Cost...............             143.18              24.84               7.11
----------------------------------------------------------------------------------------------------------------

3. Per Unit Full Cost of Each Type of Installment Agreement
    The per unit full cost and rates per each type of installment 
agreement are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                   Restructured/   Direct debit
                                      Regular      Direct debit     reinstated        online          Online
                                     agreement      installment     installment       payment         payment
                                                     agreement       agreement      agreements      agreements
----------------------------------------------------------------------------------------------------------------
Unit Cost to Establish..........          $81.76          $81.76          $81.76           $6.00           $6.00
Unit Cost to Maintain and                 143.18           24.84            7.11           24.84          143.18
 Monitor........................
Per Unit Full Cost..............          224.94          106.60           88.87           30.84          149.18
Rate............................             225             107              89              31             149
----------------------------------------------------------------------------------------------------------------

4. Low Income Installment Agreement User Fee
    The proposed regulations maintain the low-income taxpayer user fee 
of $43 for regular installment agreements and direct debit installment 
agreements and extend the low-income taxpayer user fee of $43 to 
restructured/reinstated installment agreements and online payment 
agreements. When the IRS first instituted the $43 user fee for low-
income taxpayers, it determined that this amount would not unduly 
burden or disproportionately dissuade low-income taxpayers from seeking 
installment agreements. Historically, approximately one-third of all 
installment agreement requests have come from low-income taxpayers, a 
percentage that has remained relatively consistent since the 
introduction of the $43 low-income taxpayer rate. In light of this, the 
IRS has determined to maintain the existing $43 user fee for low-income 
taxpayers and to extend this reduced user fee to restructured/
reinstated installment agreements and online payment agreements 
requested by low-income taxpayers. Because the full cost of direct 
debit online payment agreements of $31 is less than the low-income 
taxpayer user fee, all taxpayers will be charged the same $31 user fee 
for direct debit online payment agreements.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. It is hereby certified that these regulations will not 
have a significant economic impact on a substantial number of small 
entities. This certification is based on the information that follows. 
The economic impact of these regulations on any small entity would 
result from the entity being required to pay a fee prescribed by these 
regulations in order to obtain a particular service. The dollar amount 
of the fee is not, however, substantial enough to have a significant 
economic impact on any entity subject to the fee. Low-income taxpayers 
and taxpayers entering into direct debit online payment agreements will 
be charged a lower fee, which lessens the economic impact of these 
regulations. Accordingly, a regulatory flexibility analysis is not 
required. Pursuant to section 7805(f) of the Internal Revenue 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 Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to any comments that are 
submitted timely to the IRS as prescribed in this preamble under the 
ADDRESSES heading. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations. All comments will be 
available at www.regulations.gov or upon request.
    A public hearing has been scheduled for October 19, 2016, beginning 
at 2:00 p.m. in the Main IR Auditorium of the Internal Revenue Service 
Building, 1111 Constitution Avenue NW., Washington, DC 20224. Due to 
building security procedures, visitors must enter at the Constitution 
Avenue entrance. In addition, all visitors must present photo 
identification to enter the building. Because of access restrictions, 
visitors will not be admitted beyond the immediate entrance area more 
than 30 minutes before the hearing starts. For information about having 
your name placed on the building access list to attend the hearing, see 
the FOR FURTHER INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written 
comments or electronic comments by October 6, 2016 and submit an 
outline of the topics to be discussed and the amount of time to be 
devoted to each topic (a signed original and 8 copies) by October 6, 
2016. A period of 10 minutes will be allotted to each person for making 
comments. An agenda showing the scheduling of the speakers will be 
prepared after the deadline for receiving outlines has passed. Copies 
of the agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Maria Del Pilar Puerto 
of the Office of Associate Chief Counsel (Procedure and 
Administration). Other personnel from the Treasury Department and the 
IRS participated in their development.

[[Page 56550]]

List of Subjects in 26 CFR Part 300

    Reporting and recordkeeping requirements, User fees.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 300 is proposed to be amended as follows:

PART 300--USER FEES

0
Paragraph 1. The authority citation for part 300 continues to read as 
follows:

    Authority: 31 U.S.C. 9701.

0
Par. 2. In Sec.  300.1, paragraphs (b) and (d) are revised to read as 
follows:


Sec.  300.1  Installment agreement fee.

* * * * *
    (b) Fee. The fee for entering into an installment agreement before 
January 1, 2017, is $120. The fee for entering into an installment 
agreement on or after January 1, 2017, is $225. A reduced fee applies 
in the following situations:
    (1) For installment agreements entered into before January 1, 2017, 
the fee is $52 when the taxpayer pays by way of a direct debit from the 
taxpayer's bank account. The fee is $107 when the taxpayer pays by way 
of a direct debit from the taxpayer's bank account for installment 
agreements entered into on or after January 1, 2017;
    (2) For online payment agreements entered into before January 1, 
2017, the fee is $120, except that the fee is $52 when the taxpayer 
pays by way of a direct debit from the taxpayer's bank account. The fee 
is $149 for entering into online payment agreements on or after January 
1, 2017, except that the fee is $31 when the taxpayer pays by way of a 
direct debit from the taxpayer's bank account; and
    (3) Notwithstanding the type of installment agreement and method of 
payment, the fee is $43 if the taxpayer is a low-income taxpayer, that 
is, an individual who falls at or below 250 percent of the dollar 
criteria established by the poverty guidelines updated annually in the 
Federal Register by the U.S. Department of Health and Human Services 
under authority of section 673(2) of the Omnibus Budget Reconciliation 
Act of 1981 (95 Stat. 357, 511), or such other measure that is adopted 
by the Secretary, except that the fee is $31 when the taxpayer pays by 
way of a direct debit from the taxpayer's bank account with respect to 
online payment agreements entered into on or after January 1, 2017;
* * * * *
    (d) Effective/applicability date. This section is applicable 
beginning January 1, 2017.
0
Par. 3. In Sec.  300.2, paragraphs (b) and (d) are revised to read as 
follows:


Sec.  300.2  Restructuring or reinstatement of installment agreement 
fee.

* * * * *
    (b) Fee. The fee for restructuring or reinstating an installment 
agreement before January 1, 2017, is $50. The fee for restructuring or 
reinstating an installment agreement on or after January 1, 2017, is 
$89. If the taxpayer is a low-income taxpayer, that is, an individual 
who falls at or below 250 percent of the dollar criteria established by 
the poverty guidelines updated annually in the Federal Register by the 
U.S. Department of Health and Human Services under authority of section 
673(2) of the Omnibus Budget Reconciliation Act of 1981 (95 Stat. 357, 
511), or such other measure that is adopted by the Secretary, then the 
fee for restructuring or reinstating an installment agreement on or 
after January 1, 2017 is $43.
* * * * *
    (d) Effective/applicability date. This section is applicable 
beginning January 1, 2017.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-19836 Filed 8-19-16; 8:45 am]
 BILLING CODE 4830-01-P