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ROBERT E. MCKENZIE, ESQ.

ARNSTEIN & LEHR LLP


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INSTALLMENT AGREEMENTS AND OTHER OPTIONS


By: Robert E. McKenzie
3-4 PAYMENT AGREEMENTS
3-4.10 Prior to the passage of the Taxpayer Bill of Rights, effective November 10, 1989, there was no specific
statutory authority for allowing a taxpayer to make installment payments.2 The Code now specifically authorizes
the Service to grant installment payment plans. [IRC § 6159) Even before passage of this provision the IRS
granted thousands of payment agreements per year. Payment agreements are allowed on any type of tax
including employment taxes. It is much more difficult to secure a payment agreement for employment taxes than
income taxes.

Guaranteed Availability of Installment Agreements


3-4.13 The Internal Revenue Service Restructuring and Reform Act of 1998 requires the Secretary to grant an
installment agreement, at the taxpayer's option, if:

the liability is $10,000, or less (excluding penalties and interest);

within the previous 5 years, the taxpayer has not failed to file or to pay, nor entered an installment
agreement under this provision;

if requested by the Secretary, the taxpayer submits financial statements, and the Secretary determines that
the taxpayer is unable to pay the tax due in full;

the installment agreement provides for full payment of the liability within 3 years; and

the taxpayer agrees to continue to comply with the tax laws and the terms of the agreement for the period
(up to 3 years) that the agreement is in place.

[Act § 3467; IRC § 6159)

Prior Administrative Rights


3-4.17 Prior to the passage of the Internal Revenue Service Restructuring and Reform Act of 1998, IRM
5331.31(now obsolete) authorized IRS employees to grant installment payment agreements of up to three years
to taxpayers who owe individual income taxes of less than $10,000. Internal Revenue Service Restructuring and
Reform Act of 1998 § 3467 imposes a specific statutory requirement that the Internal Revenue Service grant an
installment agreement to taxpayers who owe less than $10,000 of individual income taxes including penalties
and interest. Any agreement may be defaulted if the taxpayer fails to meet any subsequent tax obligations during
the pendency of the installment agreement. The provision creates statutory rights, when in the past installment
agreements for small liabilities were merely policy.

Modifications of Installment Agreements

3-4.25 The Taxpayer Bill of Rights 2 requires the IRS to give a notice of proposed action not later than thirty
days prior to the proposed date before termination or modification of an installment agreement. The IRS is also
required to include an explanation as to why the agreement is being modified or terminated. This provision
become effective January 20,1997. Prior to the effective date the Internal Revenue Service is required to
establish procedures for an independent administrative review of terminations of installment agreements. [IRC §
6159(b)]

Collection Information Statements

3-4.30 For larger dollar liabilities (income tax liabilities in excess of $25,000) the starting point for analysis is the
Service's Collection Information Statement (CIS). The preparation of this document, more often than not,
determines which way the Service will proceed with its collection activity. Copies of the CIS's currently used by
the Service for individuals and for businesses are provided in the appendices at the end of this chapter. The IRS
will not give extended payment plans on unpaid tax liabilities unless a CIS has been submitted by the taxpayer.

3-5 COLLECTION INFORMATION STATEMENTS

3-5.10 The IRS utilizes three basic types of Collection Information Statements (CIS's). The Form 433-A and
Form 433-F are secured from individuals. The

Form 433-B is secured from businesses. If the taxpayer is self employed the Service will normally require both a
433-A and 433-B.

3-6 FORM 433-A

3-6.10 Form 433-A is utilized by Revenue Officers to gather financial data from taxpayers. The first 2 pages are
almost entirely dedicated to gathering Levy sources. If your client has any illnesses, disclose them in the Other
Information section on page 3. The Service will consider bad health to be a basis for granting an extension. Page
6 of the Form is a balance sheet. The IRS will normally demand immediate payment if the 433-A indicates
substantial equity on the balance sheet.

Amount of Payments
3-6.20 Page 6 is a monthly income and expense analysis. The IRS will not grant a Payment Plan for less than the
difference between income and claimed expenses. The IRS utilizes information from the Bureau of Labor
Statistics to establish allowable expenses for certain items like transportation, food, clothing and housing. Those
allowable expenses might be less that the amount actually being paid by the taxpayer. [See Section 3-9].

3-7 F0RM 433-F

3-7.10 Form 433-F is utilized by Collection Support Staff and ACS to gather financial data from individuals with
smaller tax liabilities. It is not normally used by Revenue Officers.

3-7.20 The IRS will normally require the taxpayer to pay an installment equal to his or her net income less
"reasonable" expenses. The individuals assigned to negotiate payment agreements in CSS and ACS are not well
trained in financial analysis. Many of the author's clients who have negotiated on their own behalf have been
required to hire a representative because of unreasonable payment demands after submission of a 433-F.

3-8 F0RM 433-B

3-8.10 The IRS utilizes Form 433-B to gather information from businesses. Page 1, Section 3, requests that your
client disclose each of its accounts receivable. The author believes that such a disclosure is foolhardy at the
initial negotiating session. If disclosure is made and the negotiations fail, the IRS may levy your client's accounts
receivable, thereby destroying its business.

Cash Flow Statement

3-8.30 Page 5 is the determinative part of Form 433-B.

Note: Page 5 is a cash flow statement, not a profit and loss statement. The IRS will seldom grant a payment plan
if the client indicates a large positive cash flow. The IRS believes such businesses should secure a private loan.
On the other hand, the Service will seldom grant a payment plan to a company with a negative cash flow which
does not have excess funds to make payments to the IRS. Therefore, a taxpayer with a small positive cash flow
has the best chance of securing a payment agreement. The size of the liability is a significant factor in the
decision to grant or deny a payment agreement.

3-9 CRITERIA FOR GRANTING AN INSTALLMENT AGREEMENT

3-9.10 The Collection Division employee is trained to analyze the Collection Information Statement (CIS) for
ways to liquidate the delinquent account:

If a taxpayer has cash equal to or in excess of the tax liability, the IRS will demand immediate payment.

Assets are reviewed to identify those which may be pledged or readily converted to cash such as stocks, bonds,
loan value of life insurance policies, equity in real estate, etc.
The Collection Division employee will consider the taxpayer's ability to make an unsecured loan based upon the
taxpayer's earning potential.

If the taxpayer has available credit on a bank charge card, the IRS may demand that the taxpayer draw on the
full cash credit line and submit the proceeds to the Service.

If there appears to be no borrowing or liquidation ability, the Service may ask the taxpayer to defer payment of
other debts in order to pay the tax liability as a first priority.

Completion of Page 4 of CIS

3-9.20 When all else fails, and an examination of the Collection Information Statement has given no obvious
solution for liquidating the liability, the IRS employee will complete the income and expense analysis portion of
the Collection Information Statement for the purpose of determining the maximum installment amount the
taxpayer can pay. The IRS will review the claimed expenses of the taxpayer in relation to allowable expenses as
determined by the IRS (see Section 3-9.30 et seq. for further discussion).

Allowable Expenses

3-9.30 As of August 29,1995, the Internal Revenue Service adopted new policies with respect to expenses which
would be allowed for taxpayers on Forms 433-A and 433-F. The new allowable expenses created two categories:
Necessary Expenses and Conditional Expenses. Taxpayers who establish necessary expenses based on national
and local standards are allowed these expenses for consideration of any installment agreement or Offer in
Compromise. Conditional expenses would be those expenses that the IRS did not consider to meet the necessary
tests, but which it would allow if the taxpayer can pay the outstanding taxes with an installment agreement
within the three years. If the taxpayer could not pay within three years, she would be allowed one year to adjust
her conditional expenses.

Necessary Expenses

3-9.40 The new IRS procedures provide that a necessary expense will be allowable if it meets the necessary
expense test: "Provide for a taxpayer's and his or her family's health and welfare and/or the production of
income." The Internal Revenue Service requires that the expense must be reasonable. The IRS believes that the
total necessary expenses establish the minimum a taxpayer and family need to live. The IRS has created three
necessary expense categories:

National Standards. These provisions establish standards for reasonable amounts for five necessary
expenses. For four of them the standard comes from the Bureau of Labor Statistics (BLS) Consumer
Expenditure Survey: food, housekeeping supplies, apparel and services, and personal care products and
service. For the remaining one, the standard has been established by the Service: miscellaneous. Any
amount above the national standards may be considered excessive necessary expenses. Alaska and Hawaii
have been allowed some upward adjustment because of their high cost of living.
Local Standards. Local standards have been established for two necessary expenses: housing and
transportation. All utilities are included in the housing category. The IRS has established a housing
category for each county in the United States. Housing standards are extremely parsimonious. The
transportation standards are established for regions with additional amounts allowed for particular
metropolitan areas.

Other. Other expenses may be allowed if the IRS believes they meet the necessary expense test. All such
expenses must be reasonable in amount in the eyes of the IRS. Since there are no national or locally
established standards for determining reasonable amounts, the Service employee is given discretion to
determine whether an expense is necessary and the amount is reasonable. The practitioner obviously may
aggressively represent his client's interest with respect to other necessary expenses.

Conditional Expenses

3-9.50 The second category of expenses which the IRS may choose to allow are those which do not meet the
IRS Necessary Expense Test. However, conditional expenses are allowable if the taxpayer has the ability to pay
the tax liability, including projected accruals, within five years. The requirements for conditional expenses are as
follows:

Five-Year Rule. This rule establishes a time limit for any expense determined to be excessive, necessary, and/or
conditional expenses. They will be allowed if the tax liability, including projected accruals, can be paid in full
within five years.

One-Year Rule. This rule establishes a time limit. It provides the taxpayer up to one year to modify or
eliminate excessive necessary or not allowable conditional expenses if the tax liability, including projected
accruals, cannot be fully paid within five years

Reasonable Amount. For certain specified expenses where reasonable amounts are not provided by the
national standards and by the local standards, an IRS employee has discretion. If the reasonable amount is
not provided by one of these two standards, then the Service employee responsible for the case is allowed
to determine it. If the tax liability, including projected accruals, can be fully paid within five years, the
Internal Revenue Service may allow a taxpayer's claimed expenses if substantiated.

Expenses Which Will Not Require Substantiation

3-9.60 The IRS will no longer require substantiation of those expenses specified in the national standards. The
IRS will allow the total national standards amount for the taxpayer's income level. Taxpayers making more than
the highest income level shown in the national standards will be limited to the maximum amount allowed by the
national standards unless they can substantiate and justify a larger amount. [IRM 5.15.1.3] The manner in which
the taxpayer chooses to spend the national standards is up to the taxpayer. For example, the IRS manual
specifies that the taxpayer could allocate less for clothing and spend more for entertainment; or more for food
and less for clothing. If the taxpayer spends more than the total amount allowed by the national standards, the
taxpayer will be required to justify that expense. For example, a taxpayer with special dietary needs will be
required to establish the justification for additional food expense. In summary, if the taxpayer claims more than
the national standards, she will be required to submit substantiation and justification, but if she claims an amount
equal to the national standards, no substantiation will be required by the Internal Revenue Service.

Housing Expense
3-9.70 When applying the local housing standards the IRS employee is allowed to consider other factors which
might justify an expense in excess of the local housing standard. For example, the IRS employee can consider
the following factors:

The increased cost of transportation to work and school which would result from moving to a lower cost
housing;
The tax consequences which would result from selling a home;

Someone moving from an owned home to a rented home would lose tax advantages of itemized
deductions; there would also be the possibility of a capital gain liability; and

The cost of moving to a new residence. [IRM 5.15.1.7]

Transportation

3-9.80 The transportation amount established in the IRS Tables set the standards for amounts to be allowed for
car purchase and lease, repairs, maintenance and fuel. The Internal Revenue Service takes the position that in
some metropolitan areas public transportation would be an appropriate means for transportation to and from
work for the taxpayer and therefore, it could choose to disallow an automobile as a personal convenience for the
taxpayer.

Necessary Expenses (Other)

3-9.90 The Internal Revenue Service has set forth the following standards for Other Necessary Expenses:

In addition to those listed under the National and Local Standards, certain other expenses are usually
considered to be necessary.

Expense Item Expense is Notes/Tips


Necessary if:
Accounting and Representation Disallow any
legal fees. before the Service other accounting
is needed or meets or legal fees.
the necessary Disallow costs not
expense tests. related to solving
Amount must be current liability.
reasonable.
Charitable If it is a condition Disallow any
contributions of employment or other charitable
(Donations to tax meets the necessary contributions that
exempt expense tests. are not
organizations) Example: A considered
minister is required necessary.
to tithe according to Example: Review
his employment the employment
contract. contract.
Child Care(Baby- It meets the Cost of child care
sitting, day care, necessary expense can vary greatly.
nursery and test. Only Do not allow
preschool) reasonable amounts unusually large
are allowed. child care
expense if more
reasonable
alternatives are
available.
Consider the age
of the child and if
both parents
work.
Court-Ordered If court ordered and Review the court
Payments(Alimony, being paid, they are order.
child support, allowable. If
including orders payments are not
made by the state, being made, do not
and other court allow the expense.
ordered payments) Child support
payments for
natural children or
legally adopted
dependents may be
allowed.
Dependent If there is no
Care(For the care alternative to the
of the elderly, taxpayer paying the
invalid, or expense.
handicapped.)
Education It is required for a Example: An
physically or attorney must
mentally challenged take so many
child and no public education credits
education providing each year or they
similar services is will not be
available. Also accredited and
allowed only for the could eventually
taxpayer and only if lose their license
required as to practice before
condition of the State Bar. A
employment. teacher could lose
their position or
in some States
their pay is
commensurate
with their
education credits.
Health Care Required for the To determine
health and welfare monthly
of the family. expenses, the
Elective surgery total out of
would not be pocket expenses
allowed such as would be divided
plastic surgery or by 12. The
elective dental Schedule A may
work. The taxpayer also be used to
must provide proof determine the
of excessive out of yearly expense.
pocket medical Ensure that the
expenses. amount used is
out of pocket
after insurance
claims are paid.
Substantiate that
payments are
being made.
Involuntary If it is a To determine
Deductions requirement of the monthly
job; i.e. union dues, expenses, the
uniforms, work total out of
shoes. pocket expenses
would be divided
by 12.
Life Insurance If it is a term policy If there are whole
on the life of the life policies, these
taxpayer only. should be
reviewed as an
asset for
borrowing against
or liquidating.
Life insurance
used as an
investment is not
a necessary
expense.
Secured or legally If it meets the Taxpayer must
perfected debts necessary expense substantiate that
test. the payments are
being made.
Unsecured Debts If the taxpayer Examples of
substantiates and unsecured debts
justifies the which may be
expense, the necessary
minimum payment expenses include:
may be allowed. Payments
The necessary required for the
expense test of production of
health and welfare income such as
and/or production payments to
of income must be suppliers and
met. Except for payments on lines
payments required of credit needed
for the production for business and
of income, payment of debts
payments on incurred in order
unsecured debts to pay a federal
will not be allowed tax liability.
if the tax liability,
including projected
accruals, can be
paid in full within
90 days.
Taxes It is for current Current taxes are
federal, FICA, allowed
Medicare, state and regardless of
local taxes. whether the
taxpayer made
them in the past
or not. Delinquent
state and local
taxes are
allowable
depending on the
priority of the
FTL and/or
Service
agreement with
the state and local
taxing agencies.
Optional Telephones It must meet the
and Telephone necessary expense
Services (Cell test.
phone, pager, Call
waiting, caller
identification or
long distance)
Student Loans If it is secured by Taxpayer must
the federal substantiate that
government and the payments are
only for the being made.
taxpayer's
education.
Internet If it meets the
Provider/E-mail necessary expense
test - generally for
production of
income.
Repayment of loans If the loan is
made for payment of secured by the
Federal Taxes taxpayer's assets
when those assets
are of reasonable
value and are
necessary to
provide for the
health and welfare
of the family.

Depending upon individual circumstances, other expenses may meet the necessary expense test: health
and welfare and/or production of income.

A taxpayer may be required to substantiate the amounts and justify these expenses as necessary. Unless
the tax liability will be fully paid, including projected accruals, within three years, expenses must be
reasonable in amount.
If other expenses are determined to be necessary and, therefore, allowable, the case history must be
documented providing the reasons for the decision.

Excessive Necessary and Conditional Expenses Incurred after Assessment of Tax Liability

3-9.110 The Internal Revenue Service takes the position that it will not apply the five year rule to any new
conditional expense or excessive necessary expense which occurs after the assessment of a tax liability. The
Internal Revenue Service employees are instructed that in such instances consideration of enforcement against
the post assessment assets or not allowing the expenses in an installment agreement may be appropriate. The
Internal Revenue Service employee also has the authority, however, to make exceptions to the five year rule. In
unusual situations the Service can choose to allow conditional expenses even if the liability, including projected
accruals, cannot be paid within three years. The employee is required to fully explain the basis for such a
decision and all expenses must be fully substantiated in all instances. Such agreements can only be granted with
the approval with the employee's manager. As this new policy is being applied, very few IRS employees have
deemed to exercise the authority granted by the authority to vary from the three year rule.

Applications of the Standards

3-9.115 Allowable Expense Standards are applied in three different manners depending on whether the taxpayer
can pay in less than five years, more than five years or propounds an Offer in Compromise. If the taxpayer can
pay in less than three years, he is allowed National Standards, Regional Standards, Local Standards, expenses
necessary for production of income or health and welfare to the taxpayer and Conditional Expenses. If the
taxpayer needs more than three years to pay, she is only allowed one year of Conditional Standards. If the
taxpayer propounds an Offer in Compromise, the Service will not allow conditional expenses in any event.

Harsh Results of IRS Policies

3-9.120 As a result of the allowable expense standards, some taxpayers will be forced to make heart-wrenching
decisions. For example, the taxpayer paying for a child's private school or university education will be told by
the IRS that they have one year to change this expense because in one year the entire amount paid for tuition
will be considered to be available for payments to the Internal Revenue Service. The taxpayer will then face the
choice of removing his child from a university, for example, to allow payment of his tax debt, or removing his
child from a private school or parochial school in order to pay his tax debt. It should be noted, however, that if at
the end of the first year the taxpayer has not modified or eliminated an excessive necessary or not allowable
conditional expense, an IRS employee can choose to grant additional time in unusual circumstances. Once again,
any variance from the IRS standards must be approved by a Supervisor. Most IRS employees will not vary from
the IRS standards without aggressive advocacy by the representative.

3-11 SMALL DOLLAR CASES

3-11.10 In small dollar income tax cases (less than $25,000 aggregate), taxpayers may be granted installment
agreements by mail or telephone for extended periods up to 60 months. [IRC § 6159] [IRM 4.20.4.2] For such
low dollar installment agreements, the Internal Revenue does not require a Collection Information Statement. A
payment plan of this type may be requested by submitting a Form 9465 with the taxpayer's income tax return.
The payment arrangement may also be requested by writing to the Service Center during Notice Status (i.e., 501,
502) to receive a payment plan. This written correspondence may be accompanied by the Form 9465. The small
dollar income tax agreements may also be requested through the Automated Collection System (ACS) or
Collection Support Staff (CSS). Small dollar income tax cases which are assigned to a Revenue Officer in TDA
status may also be granted such plans without submission of a collection information statement.

60-Month Agreements

3-11.20 On individual income taxes and out-of-business sole proprietors of less than $25,000, the IRS is required
to grant payment plans of up to 60 months without requiring a CIS. These agreements can be secured by
telephone, in person or by correspondence. Revenue Officers, ACS, Collection Support Staff and Service Center
Personnel may grant such agreements. The taxpayer must supply her bank account and place of employment. If
the taxpayer or his representative personally appear before the IRS, a written payment agreement must be
signed. If the payment agreement is secured by phone or via correspondence, the Internal Revenue Service
authorizes its employees to prepare a payment agreement and note that the taxpayer agreement was secured by
phone and, therefore, there is no requirement for the taxpayer's signature. [IRM 4.20.4] The small dollar
payment agreements are not granted for trust fund or business taxes.

3-12 SHORT TERM EXTENSIONS

3-12.10 The Internal Revenue Manual grants authority to allow short term extensions on larger dollar income
taxes. Extensions to pay may be granted to taxpayers whose accounts are not in TDA status regardless of the
amount due. This is not an installment agreement; it is simply an extension of time given the taxpayer to make
full payment of the liability. Extremely large business taxpayers may only be granted extensions of up to 30
days; all other taxpayers may be granted extensions of up to 120 days. The extensions may be granted in person,
by telephone or by correspondence. Since this is not an installment agreement, no Form is required. If the
taxpayer insists on a written documentation of an extension of time to pay, the IRS will give him a Form 433-D
Installment Agreement. For extensions in excess of 60 days, a written installment agreement is required.

3-13 VARIATIONS ON INSTALLMENT AGREEMENTS

3-13.10 IRS employees are allowed by their Internal Revenue Manual to offer a payroll deduction option to a
taxpayer being granted an installment agreement. [IRM5.14.10].
Withholding by Employer

3-13.20 The Service's manual provides for installment payments to be sent directly to the Service from the
taxpayer's employer if and when the employer agrees. With some clients, this may be the only way to ensure that
agreed-upon payments are made. Some employers balk at executing such agreements for the Service because of
the additional bookkeeping required.

Bargaining Tactics

3-13.30 For a client who has defaulted on previous payment agreements, and/or who has suffered a Notice of
Levy on his or her wages, the Payroll Deduction Agreement gives the IRS the assurances it may need to grant or
reinstate a payment plan.

Direct Debit Installment Agreements

3-13.40 IRS employees may also grant Direct Debit Installment Agreements (DDIA's) where payments are
automatically debited from a taxpayer's bank account for the agreed upon amount. The bank may transfer the
payment via electronic funds transfer to the IRS. The taxpayer will be required to sign a Direct Debit Installment
Agreement, Form 433-G. There will be a default if the client has insufficient funds in the account on the debit
date. The author utilizes this method only when the IRS refuses to grant an agreement without a DDIA.

3-14 TO 3-18 PARAGRAPHS INTENTIONALLY OMITTED

3-19 MODIFICATION AND TERMINATION OF PAYMENT AGREEMENTS

3-19.10 Prior to the passage of the Taxpayer Bill of Rights the IRS took the position that it could revoke a
payment agreement at will. An installment agreement is now binding upon the IRS and may only be revoked or
modified for cause. [IRC § 6159(b)] The Service may alter, modify or terminate an agreement for the following
reasons:

The taxpayer provided inaccurate or incomplete information prior to the date of the agreement.

The Service believes collection is in jeopardy.

The taxpayer's financial condition significantly changes and the IRS gives the taxpayer thirty days notice
of the reasons it believes there has been a significant change.

The taxpayer fails to meet the terms of the agreement by failure to:

Pay an installment on time;

Pay another tax on time;


Provide updated financial information upon request by the IRS.[IRC § 6159(b)]

3-20 TAXPAYER ASSISTANCE ORDERS

3-20.10 The taxpayer has the right to apply for assistance from the Taxpayer Advocate if he or she is suffering
or is about to suffer significant hardship. Taxpayers have the statutory right to appeal unreasonable decisions by
collection officers. If your request for an agreement is unreasonably denied, you may request a Taxpayer
Assistance Order (TAO) which may require collection personnel to release property levied upon or to cease any
actions or refrain from any action with respect to the taxpayer. [IRC § 7811(b)] A request is initiated by filing
Form 911 with the Taxpayer Advocate. The mere existence of these rights tends to mitigate the
unreasonableness of some collection personnel. Do not continually threaten to appeal a TAO, but beware of your
rights. You must establish that the collection actions will cause your client significant hardship to receive a
Taxpayer Assistance Order.

Taxpayer Assistance Orders

3-20.20 The Internal Revenue Service Restructuring and Reform Act of 1998 expanded the definition of
"significant hardship" by including the following circumstances:

The existence of an immediate threat of adverse action;

A delay of more than thirty (30) days in resolving the taxpayers account problems;
The payment by the taxpayer of significant cost (including fees for professional services) if relief is not
granted; or
Irreparable injury or a long standing adverse impact, if relief is not granted. [Act§1102; IRC§7811]

Nonexclusive

3-20.30 The list is not intended to be exclusive. A TAO may also be issued in any case which the taxpayer meets
other requirements that will be spelled out in regulations. [IRC § 7811 (a)(1 )(B)] The ranks are to be based in
consideration of equity. If the Internal Revenue Service has failed to follow published guidance, including the
Internal Revenue Manual, the Taxpayer Advocate is required to construe the facts taken into account in a
manner most favorable to the taxpayer. [Conf Rept 1 05-599(Pub L 105-206) p216]

3-20.35 TBR2 expanded the authority of the Taxpayer Advocate to issue taxpayer assistance orders. The
Taxpayer Advocate may now "order the IRS to take any action as permitted by law" as opposed to simply
ordering an IRS employee "to cease any action."A taxpayer assistance order may no longer be revoked by a
District Director. That authority now rests solely with the Commissioner of Internal Revenue Service or the
Deputy Commissioner and only if a written explanation listing the reasons for modification is provided to the
Taxpayer Advocate (Problem Resolution Officer). [IRC § 7802(d)(2)]

Extension of Statute of Limitations

3-20.40 The submission of a Form 911 extends the statute of limitations for the duration of the time the matter is
under consideration. The statute begins to run again on the date the Taxpayer Advocate Office makes a
determination on the application. [IRC § 7811(c)]

3-21 CURRENTLY NOT COLLECTIBLE ACCOUNTS

3-21.10 Despite the Internal Revenue Service's powerful collection tools, it is not able to collect all of its
accounts receivable. It therefore must report some accounts as currently not collectible. The Service's percentage
of uncollectible accounts is, however, significantly less than that of private industry. The Service has a
sophisticated computer-monitored system for following up on those accounts that are reported currently not
collectible. The authority to declare accounts uncollectible is delegated to Revenue Officers, CSS and/or ACS
depending on the amount due.

Release of Levy When Amount Is Uncollectible

3-21.20 The Internal Revenue Service Restructuring and Reform Act of 1998 requires the IRS to immediately
release a wage levy upon agreement with the taxpayer that the tax is not collectible, effective for levies imposed
after December 31,1999. [Act § 3432; IRC § 6342(e)]

3-22 BASIS FOR REPORTING ACCOUNTS UNCOLLECTIBLE

3-22.10 Situations under which the Internal Revenue Service may report an account as currently not collectible
are:

when the Service is unable to locate the taxpayer;

when the corporate entity owing the tax liability is bankrupt and/or defunct with no assets;

when the taxpayer is deceased and there is no estate against which a claim may be made; and

despite popular perceptions, when collecting the tax from the taxpayer would create an undue hardship on
the taxpayer or his family.

What constitutes "undue hardship" is strictly construed by the Service. What many of us would view as "undue
hardship" the Service officially characterizes as "mere inconvenience." Revenue Officers prepare a Form 53
when they report an account uncollectible. In IRS jargon, Revenue Officers say they "53" an account when they
report it uncollectible.

07/15/2009