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

03/03/2007