Negotiating installment agreements with the IRS Collection Division.

• Author: Ely, Mark H.

A task frequently faced in representing clients before the IRS Collection Division is negotiating an installment agreement, under which monthly payments are made against an accrued tax liability, free of the threat of levies and seizures. Despite the Service's more mechanical application of national and local standards for "allowable" personal living expenses, there is still room for effective advocacy. In addition, the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98) made changes to the negotiation and legal consequences of installment agreements, and places greater emphasis on their use.

Identifying the Objective

Except for certain limited cases involving small balances, the IRS Collection Division will not accept a monthly payment agreement unless there is no alternative. In these cases, the task becomes getting the best possible deal, which requires an understanding of the client's objectives.

For some, the goal is full payment of the accrued liabilities as quickly as possible (to minimize interest and late payment penalties). Others, however, have created tax debts so large that full payment is just not possible; these taxpayers must look to the expiration of the statute of limitations (SOL) on collection, an offer in compromise or bankruptcy. For them, an installment agreement is an interim solution, and the objective is negotiating the smallest monthly payment the Service will accept. The [RS simply wants the largest payment the taxpayer can afford.

Current Compliance

A prerequisite to any installment agreement is "current compliance." This means that all required returns must be filed, and the taxpayer has rejoined the "pay-as-you-go" system. For business taxpayers, the Service will demand proof that current payroll taxes are being deposited on a timely basis. For individuals, there must be evidence of adequate withholding or estimated tax payments for the current tax year.

A taxpayer who is piling new liabilities on top of old ones is "pyramiding" in IRS-speak. For business taxpayers, the pyramiding of withholding taxes may reduce the chances for relief from levies or seizures.

Collection Information Statement

For installment agreements, the key IRS forms are Form 433-A, Collection Information Statement for Individuals, and Form 433-13, Collection Information Statement for Businesses; self-employed taxpayers must use both forms. The best way to help a client with a tax collection problem is to assist in completing these forms accurately, and with complete supporting documentation. Every entry must be correct and substantiated, not only because the form is signed under penalties of perjury, but also because an incomplete or inaccurate form may damage the practitioner's credibility with the Revenue Officer.

Sources of Information

For new clients, it is helpful to obtain copies of any collection information statements previously filed from the Revenue Officer handling the case. If no Revenue Officer has been assigned, the practitioner should consider filing a request with the District Disclosure Officer under the Freedom of Information Act.

Also, in all new cases, the practitioner should ask the Service for complete account transcripts for all relevant taxes and tax periods. These will provide details of all IRS transactions for each tax period, including assessments, penalties, interest, payments, refunds and offsets, lien filing dates, SOL and a host of other valuable information.

Assets

Forms 433-A and 433-B include balance sheets, requiring a taxpayer to list all assets, regardless of their nature or where they may be located. (If a practitioner believes a given asset is beyond the Service's legal reach, has no value or is subject to some prior encumbrance, the asset should be listed and information supporting this position should be provided.) Before discussing monthly payments, the Revenue Officer will first...