Installment agreement fees criticized.

In the past decade, the IRS began charging "user fees" to those seeking letter rulings and other determinations. The fee schedule is contained in revenue procedure 94-8.

Individuals unable to pay their income taxes in full can request installment agreements by filing form 9465 with their returns. Under recently finalized regulations (TD 8589), the IRS will charge a $43 fee for entering into an installment agreement and $24 for changing or reinstating an installment agreement.

The $43 fee is effective for the current filing season.

When issued in proposal form, the regulations were criticized by practitioners and by advocates for low-income people, who said the fee would have an adverse impact on such people: Those most likely to need installment agreements are least likely to be able to afford extra payments. Further, the fee might result in a greater incidence of nonfiling when those who want to reenter the tax system but lack the $43 decide to continue avoiding the system. Critics recommended a later effective date or an income-level floor at which the fee will be imposed.

The final regulations included no changes in response to the criticisms. However, in the preamble to the final regulations the IRS said it was concerned about the effect of the fee on certain taxpayers and would take into account a taxpayer's ability to pay when structuring a payment schedule.

The IRS estimates about 2.7 million individuals and businesses will sign up for installment agreements by October. Another 150,000 taxpayers will restructure or reinstate previous pacts.

Edited by Anne Wagenbrenner, JD, LLM, editor, AICPA client newsletters.