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Part 4. Examining Process

Chapter 20. Examination Collectibility

Section 4. Installment Agreements

4.20.4  Installment Agreements

4.20.4.1  (05-25-2000)
Overview

  1. This section provides guidance on examination's authority and procedures for securing installment agreements.

4.20.4.2  (12-01-2006)
Examination's Authority

  1. When the taxpayer requests an installment agreement, Form 433–D or Form 9945, (or indicates that he/she would like to pay any resulting deficiency via installments/monthly payments), the examiner will ensure that Transaction Code 971, Action Code 43 (for pending installment agreements), is input to IDRS within 24 hours of the taxpayer's request. These codes should be input regardless of whether Examination secures an Installment Agreement with the taxpayer. These codes are input to IDRS by the examiner faxing Form 3177, Notice of Action for Entry on Masterfile, to Collection Centralized Case Processing. For more information on where employees should fax Form 3177 visit Centralized Case Processing internal Intranet site at http://sbse.web.irs.gov/ccp/Exam/Exam.htm. Examiners should complete the following boxes on Form 3177:

    1. Initiator's name, telephone number, and employee ID

    2. Date

    3. Taxpayer's name

    4. Taxpayer's EIN or SSN

    5. Check the box "Other" and specify TC 971/AC 43, and include MFT and all tax periods that apply.

  2. Installment agreements, Form 433-D, should be considered after full pay attempts have been exhausted. See IRM 4.20.3.2, Tiered Interview Approach, for additional information.

  3. Installment agreements secured by Examination are pre-assessed agreements and limited to Individuals (IMF) without delinquent employment taxes, Out-Of-Business Sole Proprietors (BMF), and In-Business BMF taxpayers (Form 1120 only).

  4. No new installment agreements should be entered into unless the agreement provides a payment schedule that will fully satisfy the tax liability (including interest and penalties) within the earlier of 5 years or the CSED (collection statute expiration date).

  5. Taxpayers must meet the following additional criteria for Examination to secure an installment agreement:

    1. CURRENT IN FILING ALL RETURNS: The taxpayer must be in full compliance with the filing of all returns currently due. IMFOLI/T will be used to check for filing of the current period return, ENMOD will verify the taxpayer's address and record of account, and PMFOL should be checked if the taxpayer is required to file payor returns (1099/941/940). Once all delinquent returns are secured, the taxpayer qualifies for an installment agreement. Other liabilities reflected on the delinquent returns should be included with the examination deficiency in the installment agreement.

      Note:

      It may be impractical to conduct CFOL research in the field. Examiners may prepare the agreement based on the taxpayer’s oral statement that all filing and payment requirements have been met. Explain to the taxpayer that prior to approval of the installment agreement, research of their account will be conducted. Once approved, Part 1 of Form 433-D will be mailed to the taxpayer.

    2. CURRENT IN PAYMENT OF OTHER TAXES: The taxpayer must be current in payment of other taxes, including estimated tax payments on the current period. Command codes SUMRY, IMFOLT, and IMFOLI will be used to check for outstanding liabilities. If the taxpayer is not current, Examination may enter into an installment agreement if all other tax liabilities are included with the examination deficiency in the agreement.

    3. . RETURNS SUBJECT TO INSTALLMENT AGREEMENT MUST BE FILED - All returns open for installment agreement consideration must be filed. Examiners have the responsibility to secure delinquent returns. Once the returns are secured, the taxpayer qualifies for an installment agreement.

  6. Examiners are authorized to set up two types of installment agreements. They are:

    1. STREAMLINED INSTALLMENT AGREEMENTS — For taxpayers with tax deficiencies of $25,000 or less (including tax, penalties, & interest), that can be paid within 60 months.

    2. GUARANTEED INSTALLMENT AGREEMENTS — For taxpayers with income tax deficiencies of $10,000 or less (exclusive of penalties & interest), that can be paid within 36 months.

      Note:

      Because these also fall within the streamlined installment agreement authority, examiners should use streamlined procedures to process any such requests.

  7. Taxpayers not meeting the streamlined or guaranteed installment agreement criteria may be put in contact with a Collection representative using locally established procedures. If no local procedures are in place and the examination manager cannot get the issue resolved by making contact with a local collection group manager, the examination manager should contact the Collection TM that would receive the case in their territory for guidance. A Collection referral is mandatory if the taxpayer requests an installment agreement that does not meet Exam's criteria and for agreed unpaid cases over $100,000. See IRM 4.20.3.4 for additional guidance.

  8. If the taxpayer requests an installment agreement that does not meet Examination's criteria, Form 9465, Installment Agreement Request, should be completed and left in the case file. Exam CCP will forward to Collection CCP in Philadelphia (rather than local campus Collection) upon closure of the case.

  9. If a TC 971, AC 043 was input and:

    1. The taxpayer subsequently does not agree with the proposed deficiency changes, note on Form 3198, Special Handling Notice for Examination Case Processing, that the taxpayer requested an installment agreement. Appeals will be responsible for securing the installment agreement, if it is required, or ensure its reversal if not required.

    2. The agreed deficiency is outside of examination’s installment agreement authority, complete Form 9465 and forward it to the appropriate Campus. Request taxpayers to complete Form 433-F, Collection Information Statement, and attach it to Form 9465. Use Form 433-A/433-F for non-businesses and 433-B for business taxpayers. Verification of information on Form 433 is not required by examiners.

    3. No deficiency is found, request input of TC 972, AC 043 to reverse TC 971 following local procedures.

    4. TC / AC definitions are as follows:
      971 / 043 - Pending Installment Agreement
      972 / 043 - Pending Installment Agreement Reversed (TC 971 AC 043 input in error)
      971 / 063 - Installment Agreement in Effect
      971 /163 - Terminated Installment Agreement (Reverses both TC 971 AC 043 and TC 971 AC 063, both must be present for reversal to occur.)

4.20.4.3  (12-01-2006)
Streamlined Installment Agreements

  1. Streamlined installment agreements are termed "streamlined " because they do not require in-depth financial verification.

  2. Streamlined agreements may be secured where the total tax, penalties, and interest do not exceed $25,000 and may be paid off within a 60 month period.

  3. MINIMUM ACCEPTABLE PAYMENT — The amount of the proposed monthly payment must be equal to or greater than the minimum acceptable payment. The minimum acceptable payment is the greater of $25, or the amount obtained by dividing the total amount of tax, accrued interest & penalties, by 50.

    Note:

    The payment amount is computed by dividing by 50 instead of 60 to allow for payoff of the accruals during the term of the installment agreement.

  4. If the taxpayer has the financial ability to pay off the balance due in less than a 60 month period, the lesser period should be appropriately considered.

  5. A $43 user fee is charged for entering into an installment agreement ($24 if the installment agreement is revised or reinstated). The fee will be taken from the first installment payment. Therefore, the first installment payment should be greater than or equal to the user fee. Examiners should advise the taxpayer that if the first payment is less than the user fee, the first reminder notice they receive will be for the user fee. See IRM 5.19.1.5.4.3. The user fee is non-refundable even if the taxpayer full pays the account prior to the installment agreement ending date.

4.20.4.3.1  (12-01-2006)
Methods of Paying Monthly Installments

  1. There are three methods of paying the tax assessment under the streamlined installment agreement:

    1. Direct Debit

    2. Payroll Deduction

    3. General

      Note:

      Direct debit is the preferred means of payment.

4.20.4.3.2  (12-01-2006)
Payroll Deduction

  1. Payroll deduction is used for having the installment payments withheld from wages and the employer forwards the payment directly to the IRS. This form of payment is encouraged for a wage earner taxpayer, particularly if he/she has defaulted on any prior agreement.

  2. To set up a payroll deduction installment agreement:

    1. Form 2159, Payroll Deduction Agreement, is completed rather than Form 433–D, Installment Agreement. Form 2159 should be completed in the same manner as Form 433–D. See instructions at IRM 4.20.4.5 below.

    2. Request that the taxpayer pay as much as possible upon entering into the installment agreement.

    3. Request the taxpayer sign Form 2159 and then mail it to the employer for signature. Advise the taxpayer that if Part 1 is not signed by both the taxpayer and the employer and sent in, the agreement will be terminated. The form is returned to the examiner for final processing/forwarding.

      Note:

      Form 2159 may be mailed to the employer by either the taxpayer or examiner (based on the quickest mode of response). However, if the examiner mails Form 2159 to the employer, the taxpayer's authorization should be obtained before doing so. If the employer will not execute Form 2159, direct debit or general payment procedures should be followed.

4.20.4.3.3  (12-01-2006)
Direct Debit

  1. Direct Debit is used for having the installment payments directly debited or withheld from a checking account. This is the preferred method of payment, with payroll deduction as a second choice.

  2. To set up a direct debit installment agreement:

    1. Complete Form 433–D as instructed below at IRM 4.20.4.5.

    2. Obtain a blank, voided check from the taxpayer and attach it to Form 433–D;

    3. Provide the "bank copy" of the installment agreement to the taxpayer.

    4. Request the taxpayer initial the appropriate line provided on Form 433–D for direct debit agreements.

4.20.4.3.4  (12-01-2006)
Regular Installment Agreement

  1. Regular Installment Agreement is when the taxpayer sends each monthly payment via check or money order to the IRS. This form is used when the examiner is unable to set-up the agreement using payroll deduction or direct debit. To set up a general payment installment agreement, complete the Form 433–D as instructed below.

4.20.4.4  (12-01-2006)
Guaranteed Installment Agreements

  1. RRA 98 section 3467, Guaranteed Availability of Installment Agreement, provides that certain taxpayers who meet specified criteria will be legally entitled to an installment agreement. The provision applies to individual taxpayers only.

  2. Taxpayers qualifying for a guaranteed installment agreement would generally also qualify for a streamlined installment agreement. Accordingly, examiners should use streamlined installment agreement procedures to process any such requests; however, the minimum payment is determined by dividing the balance due by 30 months rather than up to 50 months.

  3. The following criteria are required for guaranteed installment agreements:

    1. The income tax liability may not exceed $10,000 (determined without regard to interest, penalty, additions to tax, or additional amounts),

    2. Within the preceding 5 taxable years the taxpayers have not: failed to file a return, failed to pay a tax shown on a return, or entered into another installment agreement.

    3. The IRS determines that the taxpayer is financially unable to pay the liability when due;

      Note:

      The taxpayer's oral statement is generally acceptable unless the examiner is aware of compelling information otherwise.

    4. The liability must be full paid within 3 years;

    5. If the income tax liability is for a joint return, then both spouses must meet the above criteria.

4.20.4.5  (12-01-2006)
Completing Form 433–D, Installment Agreement

  1. The IDRS system should be used to determine if the taxpayer has any outstanding tax liabilities and all returns have been filed. If other tax liabilities exist, they must be combined with the pre-assessed amounts to calculate the $25,000 limitation and be paid in full within 60 months for streamlined installment agreements.

  2. If the taxpayer already has an installment agreement established for other tax years and the examined period will be added, "Amended Agreement" should be written in red on the top of the Form 433–D, Installment Agreement.

  3. If the taxpayer has an established agreement for the examined period and the deficiency amount has changed, "Re-determination" should be written in red on top of the Form 433–D.

    Note:

    The Service is required to notify taxpayers 30 days in advance before altering, modifying, or terminating an installment agreement (excluding jeopardy conditions). The notification must include an explanation as to why the Service is altering, modifying, or terminating the installment agreement. If the taxpayer has an installment agreement in effect for the examined period and the examiner will be securing a revised installment agreement, the examiner should complete the requisite notification when discussing the deficiency and payment options with the taxpayer.

  4. One agreement can be used for multiple years, providing the combined amount owed for all years is less than the prescribed limit for that type of agreement. The total amount of the tax, penalty, and interest as of the date the form is completed is included in the box for the amount of tax owed.

  5. A net balance due may be entered when multiple years include both deficiencies and overpayments. However, appropriate instructions should be included on Form 3198 to ensure the overpayment is applied to a deficiency period(s).

  6. The taxpayer should be encouraged to offer the maximum amount that he/she can pay at the examination closing and each month thereafter. If the taxpayer proposes a monthly amount, which is equal to or greater than the minimum acceptable payment, the taxpayer's amount should be used. If the amount stated is less than the "minimum amount" , the taxpayer should be questioned whether they can pay the minimum.

  7. Any payment received at the time of the examination closing should be processed as an advance payment of deficiency. If a check is received and made out to "Internal Revenue Service" or " Department of Treasury" it will still be accepted and processed. However, before it is processed, the check or money order must be "over stamped" with the words "United States Treasury."

  8. Checks and money orders must be timely transmitted to processing sites via Form 3210, Document Transmittal. If the Form 3210 is not acknowledged within 10 business days, follow up action must be made with the processing site and documented on the retained copy of Form 3210 or Form 3210 logbook. Group Managers and Territory Managers will insure proper processing and follow up procedures are taking place during group reviews.

  9. The taxpayer may select any installment payment date between the 1st and 28th day of each month.

  10. Form 433–D will include the following information, as applicable, on the appropriate line on the form:

    1. Taxpayer(s) current name, address, and social security number.

    2. Taxpayer(s) phone number(s).

    3. Kind of Tax (form number) — Type of tax form that was used by the taxpayer (e.g. 1040, 1040A, 1120).

    4. Tax Periods — All periods covered by the agreement (e.g. 1993 and 1994).

    5. Amount owed — As discussed above.

    6. CSED (Collection Statute Expiration Date) — The earliest year date should be used and can be found on IMFOLT or TXMOD.

    7. Employer — Complete name, address, and zip code of the current employer. If the taxpayer is drawing Social Security benefits, this should be stated in the space provided. If the taxpayer is retired and drawing a pension, the source should be reflected in the space provided.

    8. Financial Institution(s) — Complete name and address of the taxpayer(s) bank(s), credit union(s), brokerage(s), etc.

    9. For Assistance — The name and address of the local/servicing Campus should be written in space provided. Visit Mailing Address Installment Agreement for the correct address.

    10. Payment Amount — As discussed above. Since the examination deficiency has not been assessed, the pre-assessed box should also be checked.

    11. Date of Increase/Decrease — This field is used when a taxpayer wants to establish an agreement paying a certain amount and later wants to change the amount. Up to two changes may be made on the installment agreement.
      (For example: The taxpayer is able to pay $30 on the assessment each month. Three months from now when he gets a raise, he will be able to pay $60 per month. The date the amount will change, the amount of increase or decrease, and the new installment amount should be documented.)

    12. Agreement Locator Number — For examination, the number is "0632" for pre-assessment cases.

    13. Agreement Conditions — This field should be reviewed with the taxpayer. The box, "Lien may be filed if this agreement defaults" , should be checked.

    14. Additional Conditions — This section should be used to provide additional information and/or instructions for the taxpayer. For example, " Print your social security number, tax year(s) and form number on all checks submitted for payment on your account" , may be reflected in this field.

    15. Taxpayer signature(s) and date. If the agreement is established by telephone, "by phone" should be noted in the signature block.

    16. Originator's Name, Title and IDRS Assignment Number or Territory — Examiner's name, title, group number, and stop number.

    17. Originator Code — 61 is used for streamlined/guaranteed installment agreements prepared by Examination.

    18. Approval Signature — Examiners may sign; group manager signature is not required.

  11. The taxpayer is provided with a copy of the installment agreement, instructing him/her where to mail monthly payments..

  12. Form 3198 is notated that an installment agreement is enclosed in the case file under "Special Features." Form 433–D is clipped to the front of Form 5344, Examination Closing Record, for the earliest return under examination. A copy of Form 433-D will also be enclosed in the workpapers.

  13. Form 433-D should remain in the case file. Examination CCP will forward to Collection CCP in Philadelphia upon closure of the case.

4.20.4.6  (12-01-2006)
Appeal Rights Installment Agreements

  1. The Restructuring and Reform Act of 1998 codified appeal rights for taxpayers whose request for an Installment Agreement is rejected. Examination does not reject installment agreements. However, it is critical that requests not meeting Examination's criteria be referred to Collection for consideration. Transaction Code 971, Action Code 43, should be input to IDRS within 24 hours if an installment agreement is secured or the taxpayer requests one (whichever comes earlier). See IRM 4.20.4.2 for procedures on how to input transaction code.

4.20.4.7  (12-01-2006)
References for Installment Agreements

  1. References for installment agreements are as follows:

    1. IRC section 6159 - Agreements for Payment of Tax Liability in Installments

    2. IRC section 6331(k)(2) No Levy During Pending Installment Agreement

    3. IRC section 6651(h) - Limitation on Penalty on Individual Failure To Pay for Months During Period of Installment Agreements

    4. IRC section 7122(d) - Appeals Of Any Rejected Installment Agreement or Offer in Compromise

    5. IRM 4.10.1.6.6 - Consideration of Collectibility

    6. IRM 5.1.9 - General - Taxpayer Rights

    7. IRM 5.14 - Installment Agreement

    8. RRA 98 section 3461 - Procedures Relating to Extensions of Statute of Limitations by Agreement

    9. RRA 98 section 3462 - Offers-In-Compromise


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