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New IRS installment agreement procedures implemented.

Last year the IRS implemented several changes to the procedures for granting installment agreements. These revisions will result in better service to practitioners and their clients and in earlier resolution of most of the Service's unpaid individual accounts.

In an installment agreement, a taxpayer agrees to pay a balance due over a specified period. The IRS grants installment agreements when a taxpayer is unable to make an immediate full payment of the tax liability. Interest and penalties continue to accrue until the liability is paid. Therefore, taxpayers may want to consider other financial sources with lower rates before requesting an installment agreement.

The Taxpayer Bill of Rights codified the use of installment agreements in 1988. Over the last few years, the number of these agreements increased significantly. At the end of fiscal year 1992, more than 1.5 million taxpayers were using installment agreements to pay their tax bills.

This growth, coupled with the desire to look at the way the Service does business, led to a review of installment agreement procedures. Like private industry, the IRS must be willing to expand its operating practices to be more effective and efficient, and to best use its resources.

A national task force, comprised of representatives from various functions within the Service and a professional tax preparer, reviewed the procedures for installment agreements. The group looked for ways to reduce the number of contacts needed with the IRS to finalize an installment agreement by streamlining the process. The group also recommended changes to make sure that the long-term goal of the installment agreement was to improve the taxpayer's ability to voluntarily comply in the future. The procedural changes implemented include several recommendations of the group.

All functions within the Service now have the authority to grant installment agreements up to $10,000. Before this change, employees in the IRS Taxpayer Service activity had limited authority to grant installment agreements, but only Collection Division employees could work with accounts over $5,000. Now employees in Appeals, Employee Plans and Exempt Organizations, Examination, Problem Resolution, Returns Processing (in the service centers) and Taxpayer Service can help in resolving accounts.

This change means the IRS can respond to taxpayers who indicate at the time of filing their return, or at any point in processing that they are unable to pay their tax liability fully. In the past the taxpayer had to wait for the return to be processed and the IRS to send a bill before negotiations for an installment agreement could begin.

This expanded multifunctional authority covers individual accounts, corporate accounts involving taxes on Form 1120, U.S. Corporation Income Tax Return, and out-of-business sole proprietor accounts. Installment agreements involving other taxes, such as employment or excise taxes, do not fall under these revisions.

The Service also has taken steps to streamline the installment agreement process for accounts under $10,000. Approximately 97% of the first notices sent to individuals are for amounts under $10,000. A financial statement will no longer have to be completed for most cases.

In addition, the procedures for filing tax liens for accounts under $10,000 were changed. If no financial statement was required for the installment agreement and the taxpayer adheres to the installment agreement, the Service will not file a Notice of Federal Tax Lien.

Formerly, the IRS filed a lien when the taxpayer had an installment agreement longer than a year for an account over $2,000. This change in procedure will benefit taxpayers since the filing of a tax lien can affect an individual's credit rating and remains on a person's credit record for seven years even if the taxpayer paid the liability in a shorter period.

The Service may end an installment agreement if the terms of the agreement are not met, such as paying late, missing a payment or not filing all required tax returns. If a payment cannot be made on time, the taxpayer should contact the Service immediately.

Taxpayers can request an installment agreement at any time during the processing cycle by filing new Form 9465, Installment Agreement Request. Publication 1579, Tax Practitioner Reproducible Kits, contains the form. (Form 9465 is reproduced on page 195.)

This form should be attached to a tax return or to correspondence sent to the IRS. The Service will notify taxpayers within 30 days if their request for an installment agreement is approved or denied. Meanwhile, they should continue to make payments on their account.

In most cases, the Service will be able to grant most installment agreement requests based on the information supplied on Form 9465. There are some situations that may require the Service to contact the taxpayer. For example, more financial information will be needed if the taxpayer has not filed a required return for a prior year, has multiple Federal tax debts, or requests an installment agreement for an amount over $10,000.

These changes to IRS procedures eliminate much of the paperwork required for an installment agreement and streamline the process of requesting an agreement. They will save practitioners and their clients time, reduce the cost of doing business with the Service and reduce the burden on taxpayers.
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Author:Wenzel, Bob
Publication:The Tax Adviser
Date:Mar 1, 1993
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