The IRS has issued final regulations relating to the payment of tax liabilities through installment agreements. The regulations reflect changes to the law made by the Taxpayer Bill of Rights II (P.L. 104-168), the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206) and the American Jobs Creation Act of 2004 (P.L. 108-357). The final regulations generally adopt proposed regulations issued in March 2007 (NPRM REG-100841-97), with revisions to two provisions made in response to comments received by the IRS. The regulations are effective November 25, 2009.
The final regulations adopt without change procedures set forth in the proposed regulations regarding submission and consideration by the IRS of proposed installment agreements, and acceptance, form and terms of installment agreements. The regulations provide that a proposed installment agreement must be submitted according to the procedures prescribed by the IRS, and becomes pending when it is accepted for processing. An installment agreement request is not accepted until the IRS notifies the taxpayer or the taxpayer’s representative of the acceptance.
The final regulations clarify that partial payment agreements do not reduce the amount of taxes, interest or penalties owed. They also clarify that the IRS may enter into agreements that end before the expiration of the period of limitations on collection. Thus, a partial payment installment agreement ending before the expiration of the collection period of limitations would allow the IRS to collect the balance of the tax liability after the agreement expired. However, the preamble to the final regulations notes that 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. The final regulations also require the IRS to review partial payment agreements every two years to determine whether the financial condition of the taxpayer has significantly changed. Further, the regulations provide that, while an installment agreement is in effect, the IRS may require the taxpayer to provide updated financial information at any time.
In addition, the final regulations provide that the IRS may not notify a taxpayer of the rejection of an installment agreement until an independent review of the proposed rejection is completed. The final regulations also allow taxpayers to appeal a rejection of an installment agreement to the IRS Office of Appeals within 30 days of being notified of the rejection.
The IRS may modify or terminate an installment agreement if it determines that the taxpayer’s financial condition has significantly changed or if the taxpayer fails to meet certain requirements. The proposed regulations provided that the IRS may modify or terminate an installment agreement if the taxpayer fails to provide a financial condition update requested by the Service. The final regulations clarify that the IRS may terminate an installment agreement only if the taxpayer provides materially inaccurate or incomplete information in connection with a requested financial update. Further, the final regulations modify the rule provided in the proposed regulations to explicitly allow taxpayers to request a modification or termination of an existing installment agreement. Additionally, the final regulations clarify that a taxpayer must comply with the terms of an existing 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.
The final regulations generally prohibit the IRS from taking any collection activity while a proposed installment agreement is pending, while an installment agreement is in effect, or during the 30-day period following the rejection of a proposed installment agreement or the termination of an installment agreement. Further, the final regulations provide that the statute of limitations on collection under Code Sec. 6502 is suspended while a proposed installment agreement is pending, plus 30 days following a rejection of a proposed installment agreement, and during any appeal. The final regulations also provide that each taxpayer with an installment agreement must also be provided with 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.