ROBERT E. MCKENZIE, ESQ.

ARNSTEIN & LEHR LLP

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By: Robert E. McKenzie ©2006

1. COLLECTION IRS PROCESSING OF NOTICES OF DELINQUENT TAXES DUE

Private Collection
1.05 The American Jobs Creation Act of 2004 provided for the use of private collectors to collect unpaid
Internal Revenue Service taxes. In March, 2006 IRS announced that it has awarded contracts to the three firms
it has selected from 33 bidders to participate in the first phase of its private debt collection initiative. The three
firms are CBE Group, Inc., of Waterloo, Iowa; Linebarger, Goggan, Blair, & Sampson, an Austin, Texas-based
law firm whose primary business is government collections; and, Pioneer Credit Recovery, Inc., of Arcade, New
York. The private collectors will not have the power to initiate any enforced collection actions including liens
and levies. The collection agencies will be authorized to write to taxpayers demanding payment and to call
taxpayers demanding payment. The collection agencies will be subject to the Fair Debt Collection Practices
Act. Therefore, the agencies may not harass taxpayers at work and must cease contact with the taxpayer upon
written demand that all further contact with the taxpayer cease. Private collection efforts are scheduled to begin
in July, 2006.

Tax Collection
1.10 The IRS Collection Division attempts to collect delinquent taxes as inexpensively and rapidly as possible.
To accomplish this task the IRS makes extensive use of computers. Only when automated methods have failed to
collect a tax is the matter assigned to an individual for collection.

1.20 To effectuate this policy the IRS utilizes a four-level system of collection. It begins its collection efforts
on each account by generating computer notices from a Regional Compliance Center. If the efforts of the
Compliance Center do not secure payment, the account is then assigned to the Automated Collection System
(ACS). The Automated Collection System attempts to collect the tax liability by initiating telephone calls to the
taxpayer and others. During the time that an account is assigned to Compliance Center and ACS, accounts may
also be resolved by Collection Support Staff assigned to handle "walk-ins" in local IRS offices. If none of these
levels of the system are successful in collecting the account, it is eventually assigned to a Revenue Officer for a
field investigation. Obviously, it is much less expensive for the IRS to collect a tax by mailing a notice or placing
a telephone call than it is to visit the taxpayer personally. For the taxpayer, however, personal negotiation is
much more effective than dealing with an automated system.

1.30 The IRS has ten Regional Compliance Centers which process all tax returns filed with the IRS.
Compliance Centers are extensively automated. The information on each tax return filed is encoded into the IRS
computer at a Compliance Center. That IRS computer system will determine if computational errors are
contained on the return and issue notices regarding errors. The computer also will analyze each return to
determine its DIF score (the score which determines whether it will be audited). The Compliance Center is also
responsible for initiating notices to taxpayers to collect balances due on tax returns.

1040 Notice Procedure

1.40 Upon receipt of a tax return or other document showing a balance due, the following process takes place
in the Internal Revenue Compliance Center. Within several weeks after receipt of the document, the information
is placed on the computer system. That system will then initiate a series of notices. The first notice issued is a
document titled "Request for Payment,” which informs the taxpayer that there is a balance due on the return,
states the amount of tax, interest and penalties due, and requests payment within ten days. This is the notice
statutorily required for the creation of a valid Federal Tax Lien. If the liability is for individual income taxes, and
the liability is relatively small, the taxpayer will normally receive four subsequent notices before the IRS
proceeds to take any administrative collection measures. If the liability is not paid after the initial notice, the
taxpayer will receive a second notice, “Reminder,” Notice 501. The IRS will issue Notice 503, "Urgent,
Immediate action is required ", five weeks after the first notice. The taxpayer will receive Notice 504, "Urgent,
We intend to levy on certain assets. Please respond NOW.", in the mail five weeks after issuance of Notice 503
if payment is not made after that notice. Notice 504 is the nastiest of the IRS letters. If the taxpayer fails to pay
after Notice 504 the matter will be referred for collection by the Automated Collection System (ACS). If ACS is
unsuccessful in collecting or resolving the matter the IRS will then issue Letter 1058, “FINAL NOTICE,
NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING . PLEASE RESPOND
IMMEDIATELY.” If the taxpayer exercises her appeal rights, collection will be held. If the taxpayer fails to
appeal the IRS will levy after expiration of 30 days from the notice. One unusual convention of the IRS is that
each notice will bear a date which falls on Monday.

1.50 In the case of business taxes (either corporate income or withholding taxes), the IRS will send three
notices period prior to initiating enforcement measures. The total time from first notice to enforcement action is
normally at least 16 weeks. The taxpayer will receive a first notice and a Notice 504 five weeks subsequent to
the first notice. The account will then be referred to ACS or a Revenue Officer for issuance of Letter 1058 if the
taxpayer fails to resolve the liability.
1.60 If the Compliance Center has computerized sources of income or assets of the taxpayer, such as wages,
bank accounts, certificates of deposit or accounts receivable, all of which can be seized administratively from
the taxpayer, it will issue a Notice of Levy against the taxpayer's assets approximately six weeks after the Letter
1058. If the Compliance Center does not have sources of income or other assets to levy upon, it will either assign
the case to the Automated Collection System (ACS) or issue a Balance Due (Bal Due) to a local area office for
collection, several weeks subsequent to the final notice.

1.70 Normally, it is ineffective to write to a Compliance Center. It may take some Compliance Center six
weeks or more to process correspondence. For example, if your client receives a Notice 504 even though he paid
the tax upon receipt of the Notice 503, a letter to the IRS will not stop assignment to ACS. The IRS will not
process your letter for six weeks, yet the computer continues to automatically refer the matter to ACS on a set
cycle. You must speak with someone at the IRS and request that the computer process be stopped while the IRS
searches for the lost payment. Even when the Compliance Center does process your correspondence, the
response can be useless. You might receive a postcard acknowledging your letter but failing to identify the client.
If you have written several recent letters, you will have no way of determining to whom the postcard refers.

1.80 A taxpayer may be able to secure a 60-month payment plan for 1040 liabilities of less than $25,000. The
IRS Restructuring and Reform Act of 1998 requires the IRS to grant a payment plan to individual taxpayers who
owe less than $25 thousand. The taxpayer should respond to the IRS on the first notice by writing to the
Compliance Center requesting 60 months to pay the tax liability. Your request for a payment arrangement on
small dollar accounts could also be made by transmitting the new IRS Form 9465. On many occasions the
taxpayer has been granted a payment plan, but the IRS failed to confirm the plan. If subsequent notices cease
from the Compliance Center, the taxpayer should assume that the Service has granted a plan. If the Compliance
Center continues to issue subsequent notices, the taxpayer should assume that her plan has been improperly
processed by the Service and contact either Collection Support Staff or a Revenue Officer.

1.90 If an account cannot be collected by a Returns Processing Center by using notices and/or levies upon the
taxpayer's wages or bank account, the matter will then be transferred to a Customer Service Center for telephone
collection efforts. Each Customer Service Center, including the Return Processing Center, has a computerized
telephone collection system. The IRS has twenty-three Customer Services Centers. All ten current campuses
serve as Customer Service Centers, and thirteen additional sites spread across various regions of the country.

2. IRS COLLECTION PROCEDURES

2.10 The IRS has the power to collect taxes by levying on taxpayers’ property as a result of the Federal Tax
Lien. When a person owes taxes, the IRS gains a lien on all that person's assets after meeting certain statutory
requirements. The lien attaches to all rights, title and interest of the taxpayer wherever it may be situated. [IRC §
6321] Once the IRS has a lien on all of a taxpayer's assets, it may enforce that lien by administratively levying
his or her assets.

2.20 An example of lien rights would be the lien created when a person buys a car and finances the purchase
through a bank. The purchase price for the car is $20,000. The purchaser pays a down payment of $2,000 and
signs a note with a bank giving it a lien on the car. The bank then lends the buyer $18,000 to complete the
purchase. If the buyer defaults on the note, the bank may repossess the car. In the case of the IRS it gains a lien
on all of a taxpayer's assets and therefore it has the right to seize most of those assets to satisfy unpaid taxes.

2.30 The liability of a taxpayer for Internal Revenue taxes is personal in nature and, except for the taxes
imposed under subtitle E of the Code relating to distilled spirits, wines, and beer, does not directly attach to his
or her property. In this respect the liability is analogous to a simple debt and, without anything more, could be
enforced only by a court action. To protect the revenue, Congress has provided an administrative means by
which collection of assessments may be effected. Congress also has statutorily provided for a lien which attaches
to a taxpayer's property. The lien is often referred to as the "statutory" or the "general" lien. The following
requirements for establishing the lien are contained in the Code:

An assessment must have been made;

A notice and demand for payment must have been made (the first IRS notice meets this requirement); and
The taxpayer must have neglected or refused to pay. [IRC § 6321]

2.40 The effect of the Federal Tax Lien statute is that when any person fails to pay any assessment of tax, plus
interest, penalties, or costs, a lien in favor of the United States arises upon all property and rights to property,
whether real or personal, tangible or intangible, belonging to the taxpayer. Even if the taxpayer makes partial
payment, a lien will arise for the balance of the tax.

2.50 The term "unenforceable" as used in the Code means unenforceable because of the expiration of the
statutory period for collection. Prior to 1990 the Statute of Limitations for collection was six years from the date
of assessment plus such suspended, extended or postponed period of time as may, by law, be applicable. [IRC §
6502] The Revenue Reconciliation Act of 1990 extended the Statute of Limitations for collection to ten years.
[Revenue Reconciliation Act of 1990, § 1131(a)] This period was extended for all tax liabilities upon which the
Statute of Limitations was still open at the time the bill was passed by Congress and signed by the President. The
reporting of an account as uncollectible does not affect the statutory period for collection. However, a distinction
must be made between accounts that are administratively uncollectible and those that may not be collected by
operation of law, i.e., the lapse of time, discharge in bankruptcy, court order, etc.

2.60 IRC § 6323(a) modifies IRC § 6321 by providing that the Federal Tax Lien is not valid against
purchasers, holders of security interests, mechanics’ lienors, and judgment lien creditors until a Notice of Lien
has been filed. The filing of the Notice of Lien is constructive notice to these persons that the lien, provided for
by the Code, exists. The tax lien becomes valid, with certain exceptions, against competing creditors at the time
Notice of Lien is filed. In most jurisdictions, state law requires a deed of real property be entered in a public
index to be valid against a purchaser. Where this is the case, and an adequate system for public indexing is
available, a Federal Tax Lien must be recorded in the public index to be valid with respect to real property.

2.70 The Internal Revenue Service Restructuring and Reform Act of 1998 established formal procedures
designed to ensure due process where the IRS seeks to impose a lien. The due process procedures apply after
notice of a Federal tax lien has been filed. The IRS is required to notify the taxpayer of the filing a Notice of
Lien within five days of its filing. During the 30-day period beginning with the mailing or delivery of this
notification, the taxpayer may demand a hearing before an appeals officer who has had no prior involvement
with the taxpayer's case. These provisions became effective January 19,1999. [Act § 3401; IRC § 6320]

3. RRA SECTION 3401 - AN OVERVIEW OF THE DUE PROCESS

RRA Section 3401, Due Process in IRS Collection Actions

3.10
Effective date is after January 18, 1999
Creates new IRC sections 6320 and 6330
Requires new notice to taxpayers (CDP Notice)
Provides the taxpayer with new procedural rights when the Service files a Notice of Federal Tax Lien
(NFTL) and when it intends to levy upon the taxpayer's property or right to property

3.20 The purpose of section 6320 is to provide a taxpayer with notification that a Notice of Federal Tax Lien
has been filed and to provide the taxpayer with the opportunity to request a Collection Due Process hearing
("CDP hearing") with the IRS Office of Appeals ("Appeals") with respect to the tax liability for the taxable
period or periods to which the lien relates. New section 6330 similarly requires the IRS to give, in non-jeopardy
situations, the taxpayer whose property or rights to property, other than a State tax refund, are to be levied, the
right to a CDP hearing with Appeals at least 30 days prior to levy, with respect to the tax liability for the taxable
period or periods for which the levy is intended to be made. For levies on State tax refunds, the right to a CDP
hearing will be given within a reasonable time after money is received from the State.
3.30 If the taxpayer timely requests a CDP hearing, Appeals will consider the case and render a written
determination concerning the appropriateness of the lien filing or proposed levy. If the taxpayer does not agree
with Appeals' determination, the taxpayer has the opportunity to seek judicial review. Through this section, the
taxpayer may have the opportunity to challenge administratively and in court the taxpayer's liability for the tax
years stated on the NFTL or levy, raise any additional defenses with respect to that liability, challenge the
appropriateness of the filing of the NFTL or proposed levy, and offer collection alternatives. Because the
taxpayer will only have one opportunity for a CDP hearing and subsequent judicial review, the taxpayer is
required to raise all relevant substantive and collection issues at that hearing.

4. IRC SECTION 6320, NOTICE AND OPPORTUNITY FOR HEARING UPON FILING OF NOTICE OF
LIEN REQUIREMENTS OF NOTICE

Applicable to any Notices of Federal Tax Lien filed after January 18, 1999.
4.10

· A taxpayer is entitled to notice of the filing of an NFTL not more than five business days after the
date of any filing.
· This notice describes the taxpayer's right to request a Collection Due Process hearing with respect to
any taxable periods described on the NFTL, within the 30-calendar day period beginning on the day
after the 5-day period for notification has expired. The taxpayer is entitled to only one CDP hearing
with respect to each taxable period to which the unpaid tax relates.
· The determination made by Appeals may be appealed to either the United States Tax Court ("Tax
Court") or a United States District Court ("district court"). The rules for determining to which court
an appeal from the CDP hearing will be directed will be more specifically addressed below.
· The running of the periods of limitations for collection after assessment, for criminal prosecutions,
and for suits described under IRC § 6532 are suspended for the periods in which the CDP hearing
and any appeals are pending. (Suspensions will be more specifically addressed below).
· If a taxpayer does not request a CDP hearing within the 30-day period, a taxpayer can still request a
hearing at a later date and the IRS will provide a hearing equivalent to a CDP hearing. However, the
taxpayer will not be entitled to judicial review of that later hearing. ("Equivalent hearings" are more
specifically addressed below).
· Notification is not required for any refilling of NFTLs. However, a taxpayer may still seek
administrative review of a refiling with IRS Collection, Appeals, or the National Taxpayer Advocate.
· Notification is not required to be given to any known nominees of the taxpayer. However, any person
named on a filed NFTL other than the taxpayer may seek administrative review with IRS Collection,
Appeals, or the National Taxpayer Advocate.

4.20 Written notification that an NFTL has been filed must be given to the taxpayer in person, or left at
the taxpayer's dwelling or usual place of business, or sent by certified or registered mail to the taxpayer's last
known address, not more than five days after the date of filing of the NFTL.

· This notification will include the amount of unpaid tax, state the taxpayer's right to request a CDP
hearing within the 30-day period, the administrative appeals available to the taxpayer with respect to
 such lien, and Code provisions and procedures pertaining to release of liens on property.
· Properly given or mailed notice is deemed to be received by the taxpayer. Actual receipt by the taxpayer
is not a prerequisite to the taxpayer's right to a CDP hearing.

Right to Collection Due Process Hearing

4.30

A taxpayer to whom IRS has properly delivered or mailed notice of the CDP hearing is entitled to a CDP
hearing if requested within the 30-calendar day period following the five business day period within which
the IRS is required to give that notice.
If the IRS determines that it did not properly deliver notice of the CDP hearing, a substitute notice will be
sent. The taxpayer will be entitled to request a CDP hearing within 30-calendar days of the date of the
substitute notice. The validity of the NFTL is not impacted by the IRS's failure to provide section 6320
notice.
A taxpayer's request for a CDP hearing must be in writing. No specific format is required for the written
request. However, a Form 12153 has been developed for this purpose. The request must set forth the
taxpayer's name, address, daytime phone number, type of tax, taxable period, taxpayer's TIN, a statement
that the taxpayer requests a CDP hearing concerning the NFTL and the reasons the taxpayer disagrees
with the NFTL filing. The request must be signed and dated by the taxpayer or the taxpayer's
representative.
The location for sending the request for a CDP hearing is the office of the IRS that issued the CDP notice.
The IRS hopes that many cases can be settled informally by the office filing the lien or Appeals prior to
the need for a CDP hearing. However, the taxpayer will still be required to request a hearing within the
30-day period to preserve his or her right to the Appeal and subsequent judicial review.

Conduct of Collection Due Process Hearings

4.40

The taxpayer is entitled to one CDP hearing with respect to each unpaid taxable period shown on an
NFTL filed after January 18, 1999.
To the extent possible, all CDP hearings under section 6320 and 6330 (which will be further addressed
below) will be combined.
The CDP hearing must be before an employee or officer of Appeals who has had no prior involvement
with respect to the taxable period or periods involved in the CDP hearing, unless the taxpayer waives this
requirement (in writing).
Matters Considered at Collection Due Process Hearing

4.50

Appeals Division has the authority to determine the validity, sufficiency, and timeliness of any CDP
hearing notice or request for a hearing by the taxpayer.
At the CDP hearing, the hearing officer is required to obtain verification from IRS Collection that the
requirements of any applicable law or procedure have been met.
At the CDP hearing, the taxpayer is entitled to raise any relevant issue relating to the unpaid tax, including
any appropriate spousal defenses, challenges to the appropriateness of the NFTL filing, offers of collection
alternatives, and merits of liability, if appropriate.
 The taxpayer is not entitled to raise an issue that was raised and considered at any previous CDP hearing
or other previous administrative or judicial proceeding, if the taxpayer participated meaningfully in such
hearing or proceeding.
The taxpayer may raise challenges to the existence or amount of the underlying tax liability for any period
listed on the NFTL if and only if the taxpayer did not receive a statutory notice of deficiency for that tax
liability or did not otherwise have an opportunity to dispute that tax liability.

– If the underlying liability is subject to the deficiency procedures (for example, an income tax
deficiency), then the taxpayer will be entitled to challenge the merits of that deficiency in the CDP
hearing only if the taxpayer did not receive the notice of deficiency. A common situation is one
where the taxpayer defaulted on the statutory notice and now wants to challenge the merits of the
deficiency in a CDP hearing. The taxpayer's ability to do so will depend on whether he or she
received the statutory notice.

– If the underlying liability is not subject to the deficiency procedures (for example, trust fund
recovery penalty), then the taxpayer will be entitled to challenge the merits of the liability only if the
taxpayer can show that he or she did not otherwise have an opportunity to dispute the liability. A
taxpayer who was previously offered, and chose to decline, a conference with Appeals concerning
the underlying liability will not be entitled to challenge the merits of the liability at the CDP hearing.

· The taxpayer must raise all relevant issues in the CDP hearing. The rule of variance that applies in refund
litigation will apply here.
Judicial Review of Collection Due Process Hearing
4.60
The taxpayer may appeal the determination made in the CDP hearing within 30 calendar days to the Tax
Court or a District Court, as appropriate. The 30-day period runs from the date of the Appeals
determination and is not extended because the taxpayer is out of the country.
The Tax Court is the proper forum for judicial review of a CDP hearing determination if the underlying tax
liability is the type of liability over which the Tax Court would otherwise have jurisdiction (for example,
income, gift, and estate taxes). This is true even if the only issues raised by the taxpayer are collection
related.
District Court is the proper forum for judicial review of a CDP hearing determination if the underlying tax
liability is not the type of liability for which the Tax Court would otherwise have jurisdiction (for example,
trust fund recovery penalty, certain excise taxes).
If the taxpayer files a timely appeal, but to the incorrect court, the taxpayer will have 30 calendar days
within which to file an appeal with the correct court.
The taxpayer is precluded from raising "new issues" upon judicial review. In other words, the taxpayer
cannot raise any issues for the first time upon judicial review, but is required to raise all relevant issues in
the CDP hearing.
The courts will review Appeals' determination concerning the validity of the tax liability on a de novo
basis. (This includes determinations concerning spousal defenses.) Appeals' determination concerning any
other matters will be reviewed using an abuse of discretion standard of review.
The Tax Court has issued interim rules to implement the due process provisions. These are number 330
through 334.
Effect of Request for CDP Hearing and Judicial Review on Periods of Limitation
Any levy actions with respect to the applicable tax period are suspended during the pendency of a section
6320 CDP hearing. Note, however, that all collection action is not suspended, i.e., this is not like the
automatic stay.
The periods of limitation for collection after assessment, criminal prosecutions, and suits under IRC § 6532
are suspended while the CDP hearing and appeals therefrom are pending. In no event shall any of those
periods of limitation expire before the 90th day after the day on which there is a final determination in
such hearing.
The suspension period runs from the time that a hearing is requested until the determination or court
proceeding is final.

Retained Jurisdiction of IRS Office of Appeals ("Appeals")

4.70

The Appeals office that makes the determination at a CDP hearing retains jurisdiction over that
determination, including any subsequent hearings and collection actions taken with respect to that
determination. Where a taxpayer has exhausted all administrative remedies and alleges a change in
circumstances which affects the original determination, Appeals may consider issues previously raised and
considered in any prior administrative or judicial proceeding, whether or not the taxpayer participated
meaningfully in the prior proceeding.
These subsequent hearings are not subject to judicial review and do not suspend the periods of limitations.

Equivalent Hearings
4.80

Taxpayers who fail to timely request a CDP hearing may later request an "equivalent hearing" with
 Appeals concerning the NFTL and tax liabilities for the tax periods shown on that NFTL. The equivalent
hearing will be substantially similar to the CDP hearing, but will not be subject to judicial review.
The taxpayer is not entitled to the same suspensions for limitation periods in the equivalent hearing, but
collection action may be suspended as a matter of policy during the pendency of an equivalent hearing.

5. IRC SECTION 6330

Notice and Opportunity for Hearing Before Levy

5.10 The focus of this section will be on the distinctions of the section 6330 CDP hearing from the section 6320
CDP hearing just discussed. Many of the issues discussed above are equally applicable under section 6330-i.e.,
the issues which can be raised at a CDP hearing, contents of notice, opportunities for judicial review, retained
jurisdiction of Appeals, "equivalent hearings,” etc.

Operational/conceptual distinctions between 6320 and 6330: IRC 6320's key date is the date the NFTL is
filed. 6330's key date is the date of the CDP hearing notice (FINAL NOTICE) or if SITLP or Jeopardy
situations, the date of levy.

Overview
5.20

Notice is given of a right to a CDP hearing at least 30 days prior to levy on property or rights to property,
other than a State tax refund, in non-jeopardy situations.
CDP hearing is with respect to the tax liability for the taxable period or periods for which the levy is
intended to be made.

In jeopardy situations, and in cases where a levy is made on a State tax refund, notification to the taxpayer of a
right to a hearing is not required to be given until after the levy action has occurred.

The section 6330 notice of the right to a CDP hearing can be combined with the Notice of Intent to Levy
in IRC section 6331 (d), or issued separately. This will be addressed further below.
The section 6330 notice should set forth the amount of unpaid tax, the right to a hearing, and a statement
that the IRS intends to levy and the taxpayer's rights with respect to the levy action.

The statement should also set forth the Code provisions and procedures pertaining to levy and sale, the
administrative appeal procedures with respect to levy and sale, alternatives available to the taxpayer that could
prevent levy, and the Code provisions and procedures pertaining to redemption and release of liens.

Notice is to be given in the same manner as a section 6320 notice EXCEPT that it must be sent return
receipt requested if sent by certified or registered mail.

Requirements of Notice
5.30

As with the section 6320 notice, a person whose property or rights to property may be levied upon must be
given notice of his or her rights to a CDP hearing. These requirements do NOT apply in the case of
jeopardy levies and levies on State tax refunds.
This notice must be given not less than 30 days prior to the date of the first levy with respect to the unpaid
 tax liability for the taxable period for which the levy may be made.
Section 6330 notice need only be given to the liable taxpayer. The IRS is not required to give section 6330
notice to nominees.
The taxpayer must request the section 6330 hearing within the 30-day period from the date of the CDP
hearing notice, or will lose the right to a CDP hearing, court review, and retained jurisdiction of Appeals.
The taxpayer will get equivalent hearing if a hearing is requested after the 30 day period.

Notification
5.40

Notice is generally given in the same manner as for section 6320 notice, EXCEPT that where notice is sent
by certified or registered mail, it must be sent return receipt requested.
Notice must be given not less than 30 days before the IRS intends to levy on taxpayer's property or rights
to property (except for State tax refunds and jeopardy levies)
If the taxpayer did not receive the notice because the IRS did not mail the notice to the taxpayer's last
known address or deliver that notice to the taxpayer, and, therefore, did not timely request a section 6330
hearing, the IRS will cease collection activity with respect to the tax liability for the taxable period shown
on the notice.
Right to CDP Hearing
5.50

Must be requested within 30-day period.

Format of request is same as for section 6320 hearing.
As with a section 6320 hearing, attempts may be made for informal resolution prior to a section 6330
hearing. However, the taxpayer must still request a section 6330 hearing within the 30-day period to
preserve his or her right to the hearing if the matter cannot be resolved informally.

5.60 Effect of Request for CDP Hearing and Judicial Review on Statutes of Limitation
Levy actions are suspended during the pendency of a section 6330 hearing if they are "levy actions which are
the subject of the requested hearing." Same suspensions apply as previously addressed with respect to the section
6320 hearing.

Jeopardy Levies, State Tax Refund Levies and Required Notices

5.70
As discussed above, the section 6330 procedures do not entitle the taxpayer to a section 6330 hearing
prior to a jeopardy levy or a levy upon a State tax refund.
Jeopardy levies-The taxpayer will be entitled to a post-levy section 6330 notice and will be entitled to a
post-levy section 6330 hearing and court review.
State tax refund levies-The taxpayer will receive pre-levy section 6331(d) notice (URGENT NOTICE),
post-levy section 6330 notice, and will be entitled to a post-levy section 6330 hearing and court review.
In other cases, as previously discussed, a combined section 6331 (d)/6330 notice will be sent, entitling the
taxpayer to a pre-levy section 6330 hearing. {FINAL NOTICE}

6. EXTENSIONS OF TIME TO PAY

6.10 Extensions of time to pay provide a specific date by which full payment of taxes is expected.
Extensions may be granted for up to120 days for all taxpayers. Extensions of time to pay are not installment
agreements and do not provide for periodic payments. No forms are required. Form 433-D is not be used.

· The IRS will not file a lien.

· The IRS will not issue Notices of Intent to Levy, Notice of Hearing (LT 11 or Letter 1058DO)
nor levies during granted extension periods, unless collection is in jeopardy or at risk.

NOTE: This applies even if taxpayers are given deadlines within the extension period and these
deadlines are not met.

EXAMPLE: A revenue officer gives the taxpayer a 60 day extension of time to pay and 30 days to have
all federal tax deposits current. The taxpayer has not made all the current tax deposits by the 31st day.
Enforcement is not appropriate until after 60 days pass, unless collection is in jeopardy or at risk.

Extensions may be granted in person, by telephone or by correspondence. [IRM 5.14.5.5]

If taxpayers have the ability to fully or partially satisfy bal due accounts by:

using cash;
withdrawing cash from bank or other accounts;
borrowing on equity in real or personal property; or,
selling real or personal property, then:

– request full or partial payment (specify amount) be made on the bal due accounts.
– inform the taxpayer that the specific amount of payment requested is, based on conversion of assets
(through borrowing or selling); or, cash or other liquid assets (such as securities or money market
accounts); or,
– other analysis of the taxpayer's financial statement.
– inform taxpayers installment agreements will be recommended for rejection if there is sufficient
equity or cash available to:
– fully pay the taxes, and full payment is not received by a set date.

partially pay the taxes, and the partial payment requested is not received by a set date.

– Provide a specific deadline for payment. In addition, notify taxpayers of the consequences of
missing the deadline.

EXAMPLE: If a taxpayer has the ability to pay $3,000 per month on a $200,000 liability, has a
home valued at $400,000 with equity of $200,000, require that he attempt to borrow on the available
equity in the home prior to granting an installment agreement. If the taxpayer does not attempt to
borrow on the home he must be notified that, though the installment agreement request is pending, it
will be recommended for rejection. If the taxpayer is able to get a home equity loan and the monies
are used to pay taxes, the amount of the payment on the loan will be considered an allowable
expense.

Taxpayers do not qualify for installment agreements if bal due accounts can be fully or partially satisfied by
liquidating assets, unless:

· factors such as advanced age, ill-health, or other special circumstances, are determined to prevent the
liquidation of the assets; and/or,
· they qualify for guaranteed or streamlined or Express agreements.

[IRM 5.14.1.4]
Guaranteed Availability of Installment Agreements
6.20 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)

<$25,000 Liabilities
6.30 The IRS has chosen to create a more liberal system that allows installment agreements of up to 5 years for
balances of less than $25,000.

In-Business Trust Fund Express Installment Agreements

6.40 In-Business Trust Fund (IBTF) Express installment agreements may be granted if:

Pre-assessed liabilities plus the unpaid balance of assessments is $1,500 or less.

NOTE: ACS and Service Centers may grant Express installment agreements if pre-assessed liabilities
plus the unpaid balance of assessments is $10,000 or less.

Taxes are fully paid in 24 months, or before the CSED, whichever is earlier. (Use IDRS CC ICOMP to
calculate agreement lengths; see section 2.1 above regarding CSED extensions.)

If accounts qualify for IBTF Express agreements:

No financial statement is required.

No lien determination is required. Liens may be filed if they will protect the government's interest (such as
if a property sale is imminent).
No Trust Fund Recovery Penalty determination is required.
If not in filing compliance, installment agreements may not be granted.

No managerial approval is required.

Express Installment Agreements
6.50 ACS and Service Centers may grant Express installment agreements if pre-assessed liabilities plus the
unpaid balance of assessments is $10,000 or less.

Taxes are fully paid in 24 months, or before the CSED, whichever is earlier.
If accounts qualify for IBTF Express agreements:

– No financial statement is required.

– No lien determination is required. Liens may be filed if they will protect the government's interest
(such as if a property sale is imminent). [IRM 5.14.5.4]

6.60 Proposals to enter into installment agreements may result from letters, phone contacts, voice-mail,
e-mail, or other communications between taxpayers and Service personnel. All taxpayers have the right to
request installment agreements. Requests for installment agreements, including those on unassessed modules,
must be noted in the case history, and must be identified on IDRS Codes are input in the computer system to
prevent levy issuance. Taxpayers must provide specific information for installment agreement requests to be
processed. If it is determined the agreement request was made to delay collection action, accounts will not be
identified as in pending installment agreement status. To identify accounts as "pending" installment agreements
taxpayers must:

· Provide information sufficient to identify the taxpayer: generally, the taxpayers name and identification
number.
· Identify the tax liability to be covered by the agreement;
· Propose a monthly or other periodic payment of a specific amount.
· Be in compliance with filing requirements.

Requests that meet the criteria are identified as pending installment agreements even if taxpayers are not in
compliance with:

estimated (ES) payment requirements; or,

federal tax deposit (FTD) requirements,

Acceptance or rejection of proposed agreements is based on analysis of Collection Information Statements.

EXCEPTION: (1) If installment agreement requests are made to delay collection action.

EXCEPTION: (2) Grant Streamlined, Guaranteed and In-Business Trust Fund Express installment
agreements. [IRM 5.14.1.3 ]
Managerial Approval
6.70 Group Managers must approve most installment agreements. Specifically, installment agreements must be
approved when:

the aggregate unpaid balance of assessments exceeds $25,000 or will not be fully paid in 60 months or
less; or,
an in business trust fund taxpayer is involved (Exception: Express agreements; or,
the taxpayer defaulted on a previous installment agreement; or,
the taxpayer is allowed to skip more than 2 payments in a 12 month period (including systemic skip); or,
there is an extension of the statutory period for collection, regardless of the length of the agreement or the
amount of tax at issue; or,
agreements will fully pay one or more bal due accounts (but not all accounts) in accordance. For these
cases, managers must approve both the installment agreement and Form 53, Currently Not Collectible.
[IRM 5.14.9.2 ]

Independent Review
6.80 In accordance with Internal Revenue Code section 7122(d) taxpayers are entitled to independent
administrative reviews of rejected requests for installment agreements. Contact employees (including revenue
officers) and managers are required to document all actions relative to this review in case histories, including:

the date the case is sent to the independent reviewer;

the date the case is received from the independent reviewer, and,
the date the case is forwarded for second level review (if applicable.)

When a request for an installment agreement is proposed for rejection the IRS employee must:

Notify taxpayers rejection of the request is being recommended if that is the next planned action, but do
not notify taxpayers of actual rejection of the installment agreement request until after independent
administrative review.
Managers must review and concur with plans to reject installment agreement requests prior to independent
administrative review.
If managers request additional information or action, these should be requested of the taxpayer or gained
from the appropriate source, without comment to the taxpayer regarding approval status of the agreement,
beyond that the request is being considered.
In addition to exercising care with regard to conveying rejection of requests, also exercise care regarding
conveying acceptance. Specifically, though the plan to accept an installment agreement request can be
shared, do not convey acceptance if a request requires managerial approval (until after approval.). [IRM
5.14.9.3 ]

7.10 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.

7.20 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.

7.30 Page 6 is a monthly income and expense analysis. The IRS will not grant a Payment Plan for less than the
amount shown as the net available income. That figure represents the difference between income and claimed
expenses. Unfortunately, as one will note, page 6 contains a column to the right of the claimed column for
Allowed 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.

Form 433-B
7.40 The IRS utilizes Form 433-B to gather information from businesses. Page 2, block 15, 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.

Substantial Net Worth

7.50 The IRS will seldom grant extended payment plans to a business with a substantial net worth indicated on
page 3 of Form 433-B.

7.60 Allowable expenses include those expenses that meet the necessary expense test. The necessary
expense test is defined as expenses that are necessary to provide for a taxpayer's and his or her family's health
and welfare and/or production of income. The expenses must be reasonable. The total necessary expenses
establish the minimum a taxpayer and family needs to live.

There are three types of necessary expenses:

National Standards
Local Standards
Other Expenses

National Standards: These establish standards for reasonable amounts for five necessary expenses. Four of
them come from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey: food, housekeeping
supplies, apparel and services, and personal care products and services. The fifth category, miscellaneous, is
a discretionary amount established by the Service. It is $100 for one person and $25 for each additional
person in the taxpayer's household.
Note: All five standards are included in one total national standard expense.
Local Standards: These establish standards for two necessary expenses: housing and transportation.
Taxpayers will be allowed the local standard or the amount actually paid, whichever is less.

Housing - Standards are established for each county within a state. When deciding if a deviation is
appropriate, consider the cost of moving to a new residence; the increased cost of transportation to work
and school that will result from moving to lower-cost housing and the tax consequences. The tax
consequence is the difference between the benefit the taxpayer currently derives from the interest and
property tax deductions on Schedule A to the benefit the taxpayer would derive without the same or
adjusted expense. Housing costs include rent and/or house payments, taxes, repairs and utilities.. the IRM
provides as follows:

The utilities include gas, electricity, water, fuel, oil, bottled gas, trash and garbage collection, wood and
other fuels, septic cleaning, and telephone. Housing expenses include: mortgage or rent, property taxes,
interest, parking, necessary maintenance and repair, homeowner's or renter's insurance, homeowner dues
and condominium fees. Usually, this is considered necessary only for the place of residence. Any other
housing expenses should be allowed only if, based on a taxpayer's individual facts and circumstances,
disallowance will cause the taxpayer economic hardship. [ IRM 5.15.1.9

Transportation - The transportation standards consist of nationwide figures for loan or lease payments
referred to as ownership cost, and additional amounts for operating costs broken down by Census Region
and Metropolitan Statistical Area. Operating costs were derived from BLS data. If a taxpayer has a car
payment, the allowable ownership cost added to the allowable operating cost equals the allowable
transportation expense. If a taxpayer has no car payment only the operating cost portion of the
transportation standard is used to figure the allowable transportation expense. Under ownership costs,
separate caps are provided for the first car and second car. If the taxpayer does not own a car a standard
public transportation amount is allowed.

Vehicle insurance, vehicle payment (lease or purchase), maintenance, fuel, state and local registration,
required inspection, parking fees, tolls, driver's license, public transportation. Transportation costs not
required to produce income or ensure the health and welfare of the family are not considered necessary.
Consider availability of public transportation if car payments (purchase or lease) will prevent the tax
liability from being paid in part or full. Public transportation costs could be an option if it does not
significantly increase commuting time and inconvenience the taxpayer.

Note: If the taxpayer has no car payment, or no car, question how the taxpayer travels to and from work,
grocer, medical care, etc. The taxpayer is only allowed the operating cost or the cost of transportation. [
IRM 5.15.1.9 ]

Other Expenses. Other expenses may be considered if they meet the necessary expense test - they must
provide for the health and welfare of the taxpayer and/or his or her family or they must be for the
production of income. This is determined based on the facts and circumstances of each case. If other
expenses are determined to be necessary and, therefore allowable, document the reasons for the decision
in your history.

Conditional expenses. These expenses do not meet the necessary expenses test. However, they are
allowable if the tax liability, including projected accruals, can be fully paid within five years.
National local expense standards are guidelines. If it is determined a standard amount is inadequate to
provide for a specific taxpayer's basic living expenses, allow a deviation. Require the taxpayer to provide
reasonable substantiation and document the case file.

Generally, the total number of persons allowed for national standard expenses should be the same as
those allowed as dependents on the taxpayer's current year income tax return. Verify exemptions claimed
on taxpayer's income tax return meet the dependency requirements of the IRC. There may be reasonable
exceptions. Fully document the reasons for any exceptions. For example, foster children or children for
whom adoption is pending.

A deviation from the local standard is not allowed merely because it is inconvenient for the taxpayer to
dispose of valued assets.

Length. Revenue officers should consider the length of the payments. Although it may be appropriate to
allow for payments made on the secured debts that meet the necessary expense test, if the debt will be
fully repaid in one year only allow those payments for one year. [ IRM 5.15.1.7 ]
Five Year Test
7.70 The amount allowed for necessary or conditional expenses depends on the taxpayer's ability to full pay
the liability within five years and on the taxpayer's individual facts and circumstances. If the liability can be paid
within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses. If
the taxpayer cannot pay within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and
conditional expenses for up to one year in order to modify or eliminate the expense. (See IRM 5.14, Installment
Agreements) [ IRM 5.15.1.10 ]
The IRM provides the following chart regarding other expenses:

Expense Item Expense is Necessary if: Notes/Tips

Accounting and legal fees
Charitable contributions
(Donations to tax exempt
organizations)
Child Care
(Baby-sitting, day care,
nursery and preschool)
Court-Ordered Payments
(Alimony, child support,
including orders made by the
state, and other court ordered
payments)
Dependent Care (For the care
of the elderly, invalid, or
handicapped.)
Education
Health Care
Involuntary
Deductions
Life Insurance
Secured or legally perfected
debts
Unsecured Debts
Taxes
Optional Telephones and
Telephone Services (Cell
phone, pager, Call waiting
caller identification or long
distance)
Student Loans
Internet
Provider/E-mail
Representation before the Service is needed
or meets the necessary expense tests.
Amount must be reasonable.
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.
It meets the necessary expense test. Only
reasonable amounts are allowed.
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.
If there is no alternative to the taxpayer
paying the expense.
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.
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.
If it is a requirement of the job; i.e. union
dues, uniforms, work shoes.
If it is a term policy on the life of the
taxpayer only.
If it meets the necessary expense test.
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.
It is for current federal, FICA, Medicare,
state and local taxes.
It must meet the necessary expense test.
If it is secured by the federal government
and only the taxpayer’s education.
If it meets the necessary expense test –
generally for production of income.
Disallow any other accounting or legal fees. Disallow
costs not related to solving current liability.
Disallow any other charitable contributions that are not
considered necessary. Example: Review the
employment contract.
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.
Review the court order.
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.
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.
To determine monthly expenses, the total out of
pocket expenses could be divided by 12.
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.
Taxpayer must substantiate that the payments are
being made.
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.
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.
Taxpayer must substantiate that the payments are
being made.
 Expense Item
Repayment of loans made for
payment of Federal Taxes
Expense is Necessary if: Notes/Tips
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.

8. VARIATIONS ON INSTALLMENT AGREEMENTS

8.10 IRS employees are allowed by their Internal Revenue Manual to offer a payroll deduction option to a
taxpayer being granted an installment agreement..

Withholding by Employer
8.20 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
8.30 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. The practitioner should be aware of this alternative and, if necessary, be the one to
propose such a plan to the Service when encountering a hard-nosed employee who refuses to release a Notice of
Levy because of the taxpayer's prior track record.

8.40 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.

8.50 Along with a rejection of an installment agreement request, taxpayers must be immediately notified of their
appeal rights. Taxpayers whose requests are rejected, as well as those whose agreements are in default or have
been terminated, must follow the procedures in IRM 5.1.9.4.1"Request for CAP Appeal" . Taxpayers may
appeal rejections, defaults, proposed terminations, and terminations within 30 days. The time frame to request
these types of appeals cannot be extended. [IRM 5.14.9.4 ]

8.60 No levy may be made on taxpayer accounts:

 while requests for installment agreements are pending;
while installment agreements are in effect;
for 30 days after requests for agreements are rejected;
for 30 days after agreements are terminated; and
while an appeal of a default, termination or rejection is pending or unresolved.

Levies may be served during the periods described above:

if taxpayers waive the restriction in writing;

if collection is in jeopardy (i.e. if a condition allowing a jeopardy assessment exists.) Unless notice of the
right to appeal was previously provided, taxpayers must be notified of their appeal rights after jeopardy
levies. (See Policy Statement P-4-88. See also IRM 5.11.1.3.9 and Exhibit 1-1 of IRM 5.11 for approval
levels for jeopardy levies. Approval level depends on whether notices described in IRM 5.11.1.2.1 were
sent, and if required waiting periods have passed);
for bal due accounts not included in current installment agreements. (The new tax periods are not affected
by the appeal period for defaulted installment agreements.)[IRM 5.14.1.5 ]

8.70 In determining whether taxpayers should be considered for one of these agreements the IRS will consider:

the government's potential for eventually collecting more than would be collected if the taxpayer was
granted an offer in compromise. In particular, consider the following factors regarding collection potential:

– future collection through refund offsets (offers in compromise provide for only one such refund);
– an offer in compromise is a permanent settlement for less than full payment of the tax that usually
cannot be modified or terminated unless there is a default.

· that an installment agreement is more flexible tool for collection than is an offer in compromise.
Revisions in installment agreement monthly payment amounts are allowable:

– based on ability to pay determinations; and,

– without defaulting agreements.[IRM 5.14.2.2 ]

8.80 Consideration will be given to extending the Collection Statute Expiration Date. If extending the CSED will
result in greater collectibility, the CSED must be extended in connection with these agreements.
8.90 If there are multiple balance due accounts, the IRS will establish agreements according to the following
priorities:

First include the bal due account with the earliest CSED that can be fully paid.
If the bal due account with the earliest CSED cannot be fully paid prior to the CSED (plus an extension)
skip to the bal due with the next earliest CSED.
After including the bal due account with the earliest CSED that can be fully paid, include other accounts if
the taxpayer has further ability to pay them.
Choose all later accounts based on "earliest CSED" in connection with "can be fully paid" .

EXAMPLE: 30-199512 is the earliest CSED, and can be fully paid. 30-199612 cannot be fully paid. Therefore,
skip to 30-199712. If it can be fully paid include it in the agreement. If not, skip to the next tax period.

Using the method described in a - d above, continue to add accounts to the agreement until no further
balance due periods are left that can be fully paid.
Exception to a - d above: Group managers may approve agreements that include periods that do not have
the earliest CSEDs if it is in the government's interest. Examples of such cases include:

– the sum of the liability of other tax periods is greater than the sum of the liability of the earliest
CSED tax periods.
– the collectibility of one of the other tax periods is in greater doubt. [IRM 5.14.2.2 ]

8.100 Those bal due accounts not included in agreements will be closed Currently Not Collectible (CNC).

Based on IRS computer closing codes the CNCed bal dues (the bal dues not included in agreements):

will be systemically reactivated based on income level;

are subject to systemic State Income Tax Levy.

NOTE: These accounts are not uncollectible due to hardship, however, if these agreements are
terminated, levies will not include bal dues that are currently in status 53 as a result of input of TC 530.
Bal dues reported uncollectible (in accordance with these procedures) must be placed in collection status
prior to taking enforcement action and ensure all other appropriate pre-levy actions are taken. [IRM
5.14.2.2 ]
 American Jobs Creation Act 26 U.S.C.A. § 6306
Bill collectors to receive 25% of collections
Fair Debt Collection Practices Act applies

– May refuse to deal with the bill collectors

– Inform your clients of this right
– Write letter to bill collectors invoking client rights

9.10
July 2006
The contractor program will run on a trial basis for a year after the contracts are awarded, with the option
for another year if all goes well.
Full program implementation is planned for January 2008. The contractors will help the agency collect a
portion of the estimated $12 billion in taxes
The contractors stand to receive up to 25% of the tax money they help to collect.

9.20
Individual income taxes
Less than $25,000 balances

9.30
The GAO, has criticized the IRS over its diligence in contractor background investigations
GAO Financial Management and Assurance director Steven Sebastian identified a number of internal
control issues at the IRS that "adversely affected safeguarding of tax receipts and information, refunds to
taxpayers, and lien resolutions."

Privacy Rules
9.40
Due to the extreme sensitivity of tax data, the IRS, which expects to process about 135 million individual
tax returns in 2006, is requiring all work done by contractors to be performed within the United States.
Contractors also have to agree to purge taxpayer financial information from their IT systems once their
work on a given taxpayer account is completed. If the contractor isn't able to immediately purge this data,
they are responsible for protecting that data from unauthorized inspections or disclosures.
9.50 Provides sanctions and damages where a creditor or collection agency uses unfair or deceptive collection
practices.

9.60 Without the prior consent of the consumer given directly to the debt collector or the express permission of
a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the
collection of any debt—

At any unusual time or place or a time or place known or which should be known to be inconvenient to the
consumer. In the absence of knowledge of circumstances to the contrary, a debt collector shall assume
that the convenient time for communicating with a consumer is after 8 o'clock antemeridian and before 9
o'clock postmeridian, local time at the consumer's location;
If the debt collector knows the consumer is represented by an attorney with respect to such debt and has
knowledge of, or can readily ascertain, such attorney's name and address, unless the attorney fails to
respond within a reasonable period of time to a communication from the debt collector or unless the
attorney consents to direct communication with the consumer; or
At the consumer's place of employment if the debt collector knows or has reason to know that the
consumer's employer prohibits the consumer from receiving such communication.

Ceasing Communication 15 USC 1692C

9.70 If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the
consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall
not communicate further with the consumer with respect to such debt, except—
To advise the consumer that the debt collector's further efforts are being terminated;
To notify the consumer that the debt collector or creditor may invoke specified remedies which are
ordinarily invoked by such debt collector or creditor; or
Where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified
remedy.
If such notice from the consumer is made by mail, notification shall be complete upon receipt.

FDCPA Section 1692e

9.80 Prohibits any false, deceptive, or misleading representation in connection with the collection of a debt.
Without limiting the generality of the foregoing, this provision lists certain specifically prohibited conduct:

Any false representation of the character, amount, or legal status of the debt, or any false representation of
the services or charges which may legally be imposed by the collector
Any false indication that the communication is from an attorney, or that an attorney is involved in the
collection effort.
Any representation that non-payment of the debt will result in arrest or imprisonment of any person, or
seizure, garnishment, or attachment of assets, unless such remedy is lawful in the specific circumstances of
the case, and further that the collector or the creditor actually intends to pursue such remedy
Any threat to take an action which cannot legally be taken, or that the creditor or collector has no
 intention of taking
False representation that the sale or transfer of the debt has caused the consumer to lose a claim or
defense to payment, or otherwise become subject to a practice prohibited by the FDCPA
False representation that the consumer is guilty of a crime, or other conduct intended to disgrace the
consumer
Communicating, or threatening to communicate, credit information which the collector knows or should
know to be false, including a failure to include in such communication the fact that a debt is disputed, if
such is the case
Use of any writing which simulates or falsely represents to be a court document, or a document of an
agency of the United States or any state
Use of any false representation or deceptive means to collect a debt or to obtain information concerning a
consumer
False representation that accounts have been turned over to innocent purchasers for value
False representation that documents are legal process
Use of any business name other than the true name or business name of the collector
False representation that actual legal documents or legal process are not legal process and do not require
action by the consumer
False representation that the collector operates as, or is employed by, a consumer reporting agency

9.90 Requires that every collector place a notice on all communications to the effect that the communication is
part of a collection effort, and that any information obtained will be used for that purpose. Some commentators
have referred to this as the FDCPA's “Miranda warning”.

9.100 Prohibits the use of any "unfair or unconscionable means" to collect or attempt to collect a debt. Without
limiting the generality of the foregoing, the section specifically forbids the following practices:
Collection of any amount, including interest, collection charges, or fees or other surcharges allegedly due
or imposed by the collector, unless the charge has been expressly authorized in the agreement creating the
debt or permitted by law
Acceptance of checks postdated by more than five days, unless the collector notifies the writer of the
intent to deposit the item at least three days' (but not more than ten days') prior to doing so
Solicitation of postdated checks with the intent of setting the consumer up for criminal prosecution, or the
threat of criminal prosecution
Depositing, or even threatening to deposit, a postdated item before the date on the instrument
Causing communications charges to be imposed upon the debtor by concealing the true purpose of the
communication (such as making collect telephone calls and sending collect telegrams)
Taking or threatening any nonjudicial action to repossess or disable property, where the creditor has no
valid security interest or other right to claim possession, the collector has no actual intent to carry out any
repossession, or the property is exempt by law from such action
Communicating with a consumer regarding a debt by post card
Using any language or symbol on any envelope addressed to a consumer which would indicate that the
sender is a collection agency; the collector is limited to listing the street address or post office box as the
 return address, unless the business name does not reveal that it is a debt collection business

A statement of the amount of the debt

The name of the creditor to whom the debt is owed
A statement to the effect that if the consumer does not contest the debt within 30 days, it will be presumed
valid by the collector
A statement that if the consumer notifies the collector within 30 days that the debt or any portion of it is
disputed, the collector will verify the debt with the creditor and send a copy of any verification received to
the debtor
A statement that the collector will provide the consumer upon request within 30 days, with the correct
name and address of the original creditor, if different from the current creditor
This notice must be given to the debtor either as part of the initial communication to the debtor from the
collector, or within five days thereafter.
If the consumer notifies the creditor within the 30-day period of any dispute, or requests any of the
information specified above, all collection activity must stop until the collector has verified the debt or has
obtained the information requested, and has mailed copies of all of the necessary information to the
consumer.

9.120 Debt collector who fails to comply is liable to such person in an amount equal to the sum of--
any actual damage sustained by such person as a result of such failure;
in the case of any action by an individual, such additional damages as the court may allow, but not
exceeding $1,000; or
in the case of a class action, (i) such amount for each named plaintiff as could be recovered under
subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard
to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth
of the debt collector.
9.130
Where a consumer owes multiple debts through one collector and makes a payment, the collector may not
apply the payment to any disputed debt, and must "where applicable" apply the payments as directed by
the consumer.
In the case of any successful action to enforce the foregoing liability, the costs of the action, together with
a reasonable attorney's fee as determined by the court. On a finding by the court that an action under this
section was brought in bad faith and for the purpose of harassment, the court may award to the defendant
attorney's fees reasonable in relation to the work expended and costs.

9.140
You can negotiate with the bill collector
You can invoke the provisions of 15 USC 1692C concerning ceasing of communications
The matter will then be returned to the IRS collection division

10. TAXPAYER ASSISTANCE ORDERS

10.10 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.

10.20 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]

10.30 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]

10.35 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
Area 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)]

10.40 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 Problem Resolution Officer makes a
determination on the application. [IRC § 7811(c)]

11. OFFER IN COMPROMISE

11.10 The number of OICs accepted declined from 38,643 (or 34 percent) in FY 2001 to 19,546 (or 16 percent)
in FY 2004, while the number rejected increased from 13,976 (or 12 percent) in FY 2001 to 25, 654 (or 21
percent) in FY 2004. The number of Offer in Compromise (OICs) returned to taxpayers increased from 43,936
(or 39 percent) in FY 2001 (prior to centralization in IRS campuses) to 70,911 (or 57 percent) in FY 2004 (after
centralization) though the percentage of OICs “disposed of” within the IRS’ six-month goal has increased from
32 percent in FY 2001 (prior to centralization) to 55 percent in FY 2004, the average OIC processing time
increased from 310 days in FY 2001 to 380 days in FY 2003.
 Executive Summary for the Oversight Board

FY 2004-September

Total COIC CFF Total COIC

Receipts

New Cases 106025 106025 0 127769 114379 13390

Transfers COIC to Field [1] 35376 35376 30745 30745
Net Receipts 106025 70649 35376 127769 83634 44135

Dispositions
Not Processable 38553 38493 60 30406 29188 1218

Accepts 19546 6333 13213 21570 6324 15246

Rejects 25654 16500 9154 27336 15831 11505
Returns 32358 17832 14526 49079 31623 17456
Withdrawn & Terminated 7859 2454 5405 8431 1867 6564
Total Dispositions 123970 81612 42358 136822 84833 51989

Ending Inventory 47113 19649 27464 65327 29155 38124

Disposal Time
0-6 Months 55% 90% 20% 56% 85% 25%
6-12 Months 28% 9% 47% 28% 14% 42%
12+ Months 17% 1% 34% 16% 1% 33%

Dollars
$ Agreed for Compromise 275.3M 40.5M 234.8M 243.9M 25.1M 218.9M
$ Tot Liability of Accepts 1.797B 274.7M 1.523B 1.661B 193M 1.468B
Rate 15% 15%
Source: C108 Reports
Returned Offers
11.20 Approximately 30 percent of the OICs received by the IRS were previously returned to the
taxpayer. When returned OICs were resubmitted, 24 percent were ultimately accepted, 55 percent were
returned again and dropped out of the system, 12 percent were rejected, and 10 percent were withdrawn.[2]

Background
11.30 An offer in compromise is a settlement of a delinquent tax account for less than the full amount due. Sec.
7122 states that the IRS may compromise any civil or criminal case arising under the Internal Revenue Laws
prior to reference to the Department of Justice for prosecution or defense. In the past very few offers were
accepted because the standards were almost impossible to meet and the IRS really did not encourage them. But
in 1992, the IRS decided that they had a major problem with accounts receivable inventory and a growing
number of cases reported as currently not collectible. The new policy espoused by the IRS was that they would
accept an OIC when it was unlikely that the tax liability could be collected in full and the amount offered
reasonably reflected collection potential.

Offer In Compromise Procedures

11.40 The IRS released a new Form 656 in 2004. The form also requires that the taxpayer submit extensive
forms 433A and 433B. All OIC’s are processed centrally at two Service Centers: Memphis for taxpayers most
western states and Brookhaven for eastern states. All but the most complex offers will be worked from the
centers.
Supporting Documents
11.50 The financial statements require the proponent to supply documentation for each item on the forms, i.e.
pay stubs, car payment book, mortgages, pay stubs, charge account statements, and bank statements. The IRS
considers smaller liability offers without conducting a field investigation, therefore it is requiring the proponent
to supply all the info to make a decision without field verification.

$150 Processing Fee

11.60 The Internal Revenue Service now charges a $150 application fee for the processing of offers in
compromise. The IRS expects that this fee will help offset the cost of providing this service, as well as reduce
frivolous claims. The law authorizes federal agencies to charge fees to defray the costs of providing certain
services. Guidelines encourage such fees for benefits beyond those provided to the general public. The IRS
anticipates the fee also will reduce the number of offers that are filed inappropriately — for example, solely to
delay collection — enabling the agency to redirect resources to the processing of acceptable offers. Offers based
solely on hardship may seek a fee waiver.
Addresses
11.70 All offers from taxpayers living in Alaska, Alabama, Arizona, California, Colorado, Hawaii, Idaho,
Kentucky, Louisiana, Mississippi, Montana, Nevada, New Mexico, Oregon, Tennessee, Texas, Utah,
Washington, Wisconsin, or Wyoming must be filed as follows:

Wage earner or self employed without Other than wage earner or self employed
employees without employees
Then mail to: Then mail to:
Memphis Internal Revenue Service Memphis Internal Revenue Service
Center COIC Unit Center COIC Unit
PO Box 30803, AMC PO Box 30804, AMC
Memphis, TN 38130-0803 Memphis, TN 38130-0804

All other states submit offers as follows:

Wage earner or self employed without Other than wage earner or self employed
employees without employees
 Then mail to: Then mail to:
Brookhaven Internal Revenue Service Brookhaven Internal Revenue Service
Center COIC Unit Center COIC Unit
PO Box 9007 PO Box 9008
Holtsville, NY 11742-9007 Holtsville, NY 11742-9008

1998 Revisions
11.80 The Internal Revenue Service Restructuring Act expands the authority for the IRS to accept offers in
compromise. The Act requires the IRS to develop and publish schedules of national and local allowances that
will provide taxpayers entering into an offer in compromise with adequate means to provide for basic living
expenses. The IRS is required to consider the facts and circumstances of a particular taxpayer's case in
determining whether the national and local schedules are adequate for that particular taxpayer. The Act
prohibits the IRS from rejecting an offer in compromise from a low-income taxpayer solely on the basis of the
amount of the offer. [Act '3462] [IRC '7122]

Prohibition Of Levy
11.90 RRA98 prohibits the IRS from collecting a tax liability by levy (1) during any period that a
taxpayer's offer in compromise for that liability is being processed, (2) during the 30 days following rejection of
an offer, (3) during any period in which an appeal of the rejection of an offer is being considered, and (4) while
an installment agreement is pending. ['2462(b)] [IRC '6331(k)]
Rejections
11.100 RRA98 required that the IRS implement procedures to review all proposed IRS rejections of taxpayer
offers in compromise and requests for installment agreements prior to the rejection being communicated to the
taxpayer. RRA98 provides that the IRS will adopt a liberal acceptance policy for offers in compromise to
provide an incentive for taxpayers to continue to file tax returns and continue to pay their taxes.

Appeal Rights
11.110 Although the Internal Revenue Service had previously provided for administrative review of Offers in
Compromise by the Appeals Division there was no specific statutory requirement for such review. RRA98
provided specific rights of independent review of Offers in Compromise by the Internal Revenue Service Office
of Appeals.

Joint Offer - Default By One Spouse

11.120 Offers in Compromise contain within their terms the requirement that the taxpayer remain current during
the 5 years subsequent to approval of an Offer in Compromise. One problem which has arisen is that married
taxpayers who later divorce may face the possibility where one of the spouses fails to meet all of his or her tax
obligation. As a result the Internal Revenue Service has occasionally attempted to default the Offer in
Compromise with respect to both spouses RRA98 contains specific protections for an innocent spouse who has
complied with all of his or her tax obligations notwithstanding any default by a spouse.

Doubt as to Liability Offers

11.130 Another protection provided by RRA98 is with respect for Offers in Compromise based on doubt as to
liability. In the past the Internal Revenue Service has occasionally rejected offers with respect to doubt as to
liability solely because it could not find its administrative file. The Internal Revenue Service is now prohibited
from taking such action. The Internal Revenue Service has imposed additional duties upon taxpayers seeking
compromise liabilities solely on the basis of doubt as to liability by requiring those taxpayers to submit financial
statements The Internal Revenue Service is now specifically prohibited from requiring financial statements when
offers are submitted based solely on doubt as to liability.

Determining Processability
11.140 The IRS campuses do an intensive review of each offer to determine if it is processable. The author
believes that the IRS makes a concerted effort to return most offers to avoid the effort of performing a
substantive consideration. [3]

An offer in compromise will be deemed not processable if one or more of the following criteria are present:

Taxpayer Not in Compliance - All tax returns for which the taxpayer has a filing requirement must be
filed. This rule applies even if a Service employee previously decided not to pursue the filing of the return
under the provisions of Policy Statement P-5-133, because it was believed to have "little or no tax due" .
In-business taxpayers must have timely deposited, filed and paid all required employment tax returns for
the two (2) preceding quarters prior to filing the offer, and must be current with federal tax deposits for the
quarter in which the offer was submitted.

Note: Generally speaking, IRM 5.1.11.1.3(2) only requires employees to conduct a compliance check,
confirm and document all tax periods were filed for the preceding 6 year period. The only exception
would be if fraud were discovered during the course of the investigation. Even then it should be
extremely rare to go beyond 6 years. IRM 5.1.11.4 discusses enforcement criteria, which states that if the
taxpayer refuses to file, neglects to file, or indicates an inability to file, then the employees should
determine to what extent enforcement should be used (e.g. summons, 6020(b), referral to Exam, or field,
etc.). Filing requirements will normally be enforced for a 6 year period, which is calculated by starting
with the tax year that is currently due, and going back 6 years.

Taxpayer in Bankruptcy - An offer will not be considered during a bankruptcy proceeding.

Note: IRM 25.17.4.7, Offers-in-Compromise and Bankruptcy (07-01-2002), states that "[t]oo many
administrative and legal problems would be created if a tax liability was simultaneously the subject of a
court-supervised bankruptcy case and the administrative offer-in-compromise process." Therefore, it is
the policy of IRS that an offer will not be considered if a taxpayer is in bankruptcy.

Taxpayer did not submit the offer on the current revision of Form 656 - The offer must be submitted
on the most current revision of the Offer in Compromise Form 656.
Taxpayer did not submit the most current revision of Forms 433-A and/or 433-B - The most current
revision of the Collection Information Statement Forms 433-A and/or 433-B must be submitted with the
offer.
Taxpayer did not submit the application fee with the offer - The application fee of $150 or the signed
Form 656-A, Income Certification for Offer in Compromise Application Fee, must be submitted with each
Form 656 (Form 656-A applies to individual taxpayers only).

Note: The application fee is not required if the offer is filed solely on the basis of Doubt as to Liability.

An offer cannot be returned for the sole reason that the cost of an investigation may exceed the amount offered.[
IRM 5.8.3.4.1]

Full Pay Processing

11.150 The IRS is always looking for where it believe the taxpayer has the ability to full pay the liability. Its
manual provides as follows:

Taxpayers may submit an offer to compromise the liabilities based on Doubt as to Collectibility, yet indicate on
their application an ability to pay the account in full. These cases, once determined to be processable, will be
screened out. Absent any special circumstances they will be rejected with no further investigation or verification.
The taxpayer will be directed toward the appropriate resolution for the delinquency. The rejection letter will be
the first communication with the taxpayer. A decision to reject with appeals rights is adequately justified by the
taxpayer's self-disclosed ability to pay in full.

Initial Review
11.160 For processable offers one of the first considerations is to determine if the taxpayer can pay in full. The
following initial review should be conducted on all processable offers to make that determination.

Complete the Full Pay worksheet using the taxpayer's figures only, as reflected on the CIS.
Do not adjust any asset values or apply necessary expense standards. [ IRM 5.8.3.12]

Computation of Offer Amount

11.170 The IRS uses three different methods for determining the adequacy of an offer depending on the period
of time the taxpayer proposes for payment of the offer amount. The methods are:

· Cash (paid in 90 days or less), or

· Short-Term Deferred Payment (more than 90 days, up to 24 months), or
· Deferred Payment (offers with payment terms over the remaining statutory period for collecting
the tax.).

NOTE: In all three cases, the IRS will release any filed Notice of Federal Tax Lien once you have fully
paid the offer amount and any interest that has accrued.

Cash Offer
11.180 You must pay cash offers within 90 days of acceptance. You should offer the realizable value of your
assets (quick sale value) plus the total amount the IRS could collect over forty-eight months of payments
represent value of income). When the ten-year statutory period for collection expires in less than forty-eight
months, you must use the Deferred Payment Chart shown in the instructions to Form 656. The IRS will charge
interest on the offer amount from the acceptance date until it receives full payment. The Internal Revenue
Service's method of determining the adequacy of an offer could be best expressed by:

Quick Sale Value Plus Present Value of Income Equals Offer In Compromise (QSV + PVI =
OIC)

In applying this formula, the IRS determines the Quick Sale Value of all of the client's assets and then adds the
amount of the present value of the taxpayer's ability to pay. It aggregates the two numbers to arrive at an Offer
in Compromise amount. The following paragraphs will discuss the Internal Revenue Service's methodology for
determining quick sale value and the present value of income.
Short-Term Deferred Payment Offer
11.190 This payment option requires you to pay the offer within two years of acceptance. The offer must
include the realizable value of your assets in addition to the total amount the IRS could secure over sixty months
(or the remainder of the ten-year statutory period for collection, whichever is less) through monthly payments.
The IRS may file a Notice of Federal Tax Lien on tax liabilities compromised under short-term payment offers.

Deferred Payment Offers

11.200 This payment option requires you to pay the offer amount within the remaining statutory period for
collecting the tax. The offer must include the realizable value of your assets plus the amount the IRS could
collect through monthly payments during the remaining life of the collection statute. The deferred payment
option itself has three payment options:

Option One is: Full payment of the realizable value of your assets within 90 days from the date the IRS
accepts your offer and Your future income in monthly payments during the remaining life of the
collection statute;

Option Two is: Cash payment for a portion of the realizable value of your assets within 90 days from
the date the IRS accepts your offer and Monthly payments during the remaining life of the collection
statute for both the balance of the realizable value and your future income;

Option Three is: The entire offer amount in monthly payments over the life of the collection statute.
Just as with short-term deferred payment offers, the IRS may file a Notice of Federal Tax Lien.

Corporate Trust Fund Liabilities

11.210 The IRM provides very stringent guidelines for review of in business trust fund liabilities as follows:

"If an offer to compromise trust fund tax is being considered for a corporation that is still in business all
the issues outlined in IRM…should be considered. In addition, the Trust Fund Recovery Penalty (TFRP)
must be addressed.

If Corporate Offer Granted IRS May Not Pursue Officers

11.220 When an offer is accepted from an employer to compromise trust fund taxes the Service may no longer
be able to collect on any related TFRP assessments. Therefore, it is the Service's policy that the amount offered
to compromise a corporate employment tax liability must include, in addition to what can be collected from the
corporation, an amount equal to what can be collected from all responsible persons, up to the amount of the
TFRP plus interest, if the penalty has been assessed.
Initial Analysis
11.230 During initial analysis of an offer received from a corporation involving unpaid trust fund tax the Offer
Specialist must determine the Assessment Statute Expiration Date (ASED) of each period and take immediate
steps to protect it if expiration is imminent.

The following actions should be taken based on the facts of the case:

If… Then RO will… Then Offer Specialist will…

The TFRP has been completed and the Document this fact on ICS and Form 657 Obtain a copy of the Form 4183 and the
assessment processed prior to the time the submitted with the offer. CIS for each responsible person and
corporate offer is filed proceed with offer investigation.
The TFRP has not been completed at the Continue holding the balance due Obtain a copy of Form 4183 and the CIS
time the corporate offer is submitted, but the accounts in Status 26 until the Form 4183 for each responsible person and proceed
RO is continuing to complete the TFRP is approved, Letter 1153(DO) issued, and with the investigation. Coordinate with the
investigation and plans to request the assessment requested. Request Status field RO and if information needed to make
assessment. 71 at the time the assessment is a TFRP determination is not received in a
processed. Send copies of the signed reasonable amount of time, return the offer
Form 4183 and CIS on the responsible based on failure to provide the requested
officers to the Offer Specialist when information.
secured.
The TFRP has been completed but not Complete the investigation through Obtain a copy of the Form 4183 and CIS
assessed at the time the corporate offer is issuance of Letter 1153(DO) and process for each responsible person from the field
submitted and the RO recommends any appeals received. Establish an OI to RO and proceed with the investigation.
withholding assessment of the penalty until maintain control of TFRP case. Send Coordinate with the field RO and if a CIS
the offer investigation is completed. copies of the Form 4183 and CIS for each and/or information is needed to make the
responsible person to the Offer Specialist. TFRP determination is not received in a
Secure a Form 2750 from each reasonable amount of time, return the offer
responsible person extending the ASED to for failure to provide requested information.
ensure there are at least 2 years remaining
on the statute from the date the offer was
submitted.
Trust fund tax is due, the corporate account Complete the TFRP investigation, using Contact a field group to ensure an OI is
is not assigned to an RO and the TFRP has an OI (coded 100). Follow the chart assigned to an RO to conduct the
not been investigated, or was investigated above based on a decision of whether to investigation. Follow the chart above based
and was not asserted because the potential assess TFRP or not. OI should be on the decision of the RO. Coordinate with
assessment was below LEM-V criteria or completed within 90 days. the RO and if information is needed to
was potentially uncollectibility from make a TFRP determination and it is not
responsible officer received in a reasonable amount of time,
return the offer based on failure to provide
requested information.
The ASED has expired without any TFRP Annotate the expiration in the case history
assessment. and continue processing the offer
determining only the corporation's RCP.
Prepare an expired statute notification and
submit to your manager for processing.

Waiver Of Statute On TFRP

11.240 If a decision is made to accept the corporate offer and the TFRP is not assessed, as a condition of
acceptance of the offer, Form 2751, Proposed Assessment of Trust Fund Recovery penalty, and Form 2750,
Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty must be secured from each
responsible person. The ASED should be extended to a date 2 years beyond the anticipated completion date of
all terms and conditions of the offer, the applicable compliance provisions, and any related collateral
agreements. The complete TFRP administrative file, including the signed Forms 2751 and 2750 should be sent
with the accepted offer file to the appropriate Monitoring OIC (MOIC) unit once the offer is accepted. Should
the offer default, that unit will be responsible for returning the TFRP Administrative file to the appropriate area
office for assessment.

Caution: Responsible persons are advised of IRC Section 680(c)(4)(B) rights to (1) refuse to extend the
 statute, (2) limit the extension to particular issues, or (3) limit the extension to a particular period of
time. If the person refuses to extend the statute a decision must be made to either (1) accept the offer
without protecting the Service's ability to later assess the penalty, (2) assess the penalty, or (3) reject the
offer.

Over Payment
11.250 In the situation where the amount offered by a corporation combined with the payments already made
on related TFRP assessments exceeds the total employment tax liability of the corporation for the same tax
periods: The IRS will:

Request the responsible person(s) sign irrevocable requests to transfer their payments on the TFRP
accounts to the related corporation liability.
Complete and process Form 3870 to accomplish the credit transfer.
Secure full payment of the balance due from the corporation.
Secure a withdrawal of the offer. [IRM 5.8.4.13.2]

Promote Effective Tax Administration

11.260 As part of the IRS Restructuring and Reform Act of 1998 (RRA 98), Congress added section 7122(c) to
the Internal Revenue Code. That section provides that the Service shall set forth guidelines for determining when
an offer in compromise should be accepted. Congress explained that these guidelines should allow the Service to
consider:

Hardship,
Public policy, and
Equity

Treasury Regulation 301.7122-1 authorizes the Service to consider offers raising these issues. These offers are
called Effective Tax Administration (ETA) offers.

Encourage Compliance
11.270 The availability of an Effective Tax Administration (ETA) offer encourages taxpayers to comply with
the tax laws because taxpayers will:

Believe the laws are fair and equitable, and

Gain confidence that the laws will be applied to everyone in the same manner.

The Effective Tax Administration (ETA) offer allows for situations where tax liabilities should not be collected
even though:

The tax is legally owed, and

The taxpayer has the ability to pay it in full

Only Available If There Is No Doubt As to Liability Or Collectibility

11.280 An Effective Tax Administration (ETA) offer can only be considered when the Service has determined
that the taxpayer does not qualify for consideration under Doubt as to Liability (DATL) and/or Doubt as to
Collectibility (DATC). The taxpayer must include the Collection Information Statement (Form 433-A and/or
Form 433-B) when submitting an offer requesting consideration under Effective Tax Administration (ETA).
Economic hardship standard of § 301.6343-1 specifically applies only to individuals. [IRM 5.8.11.1]

Rules for Evaluating Offers to Promote Effective Tax Administration

11.290 The determination to accept or reject an offer to compromise made on the ground that acceptance would
promote effective tax administration within the meaning of this section will be based upon consideration of all
the facts and circumstances, including the taxpayer's record of overall compliance with the tax laws.

Factors
11.300 Factors supporting (but not conclusive of) a determination of economic hardship include:

· Taxpayer is incapable of earning a living because of a long term illness, medical condition, or
disability and it is reasonably foreseeable that taxpayer's financial resources will be exhausted
providing for care and support during the course of the condition;
· Although taxpayer has certain assets, liquidation of those assets to pay outstanding tax liabilities
would render the taxpayer unable to meet basic living expenses; and
· Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those
assets and disposition by seizure or sale of the assets would have sufficient adverse consequences
such that enforced collection is unlikely Temp Reg 301.7122-1T(b)(4)(iv)(B)]

Example 1. Taxpayer has assets sufficient to satisfy the tax liability. Taxpayer provides full time
care and assistance to her dependent child, who has a serious long-term illness. It is expected that
the taxpayer will need to use the equity in her assets to provide for adequate basic living expenses
and medical care for her child. Taxpayer's overall compliance history does not weigh against
compromise.

Example 2. Taxpayer is retired and his only income is from a pension. The taxpayer's only asset
is a retirement account, and the funds in the account are sufficient to satisfy the liability.
Liquidation of the retirement account would leave the taxpayer without an adequate means to
provide for basic living expenses. Taxpayer's overall compliance history does not weigh against
compromise.

Example 3. Taxpayer is disabled and lives on a fixed income that will not, after allowance of
adequate basic living expenses, permit full payment of his liability under an installment
agreement. Taxpayer also owns a modest house that has been specially equipped to accommodate
his disability. Taxpayer's equity in the house is sufficient to permit payment of the liability he
owes. However, because of his disability and limited earning potential, taxpayer is unable to
obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's
home has been specially equipped to accommodate his disability, forced sale of the taxpayer's
residence would create severe adverse consequences for the taxpayer, making such a sale
unlikely. Taxpayer's overall compliance history does not weigh against compromise.

Undermine Compliance
11.310 Factors supporting (but not conclusive of) a determination that compromise would not undermine
compliance by taxpayers with the tax laws include:

· Taxpayer does not have a history of noncompliance with the filing and payment requirements of
the Internal Revenue Code;
· Taxpayer has not taken deliberate actions to avoid the payment of taxes; and
· Taxpayer has not encouraged others to refuse to comply with the tax laws.[Temp Reg.
301.7122-1T(b)(4)(iv)(C)]

Exceptional Circumstances
11.320 The following examples illustrate cases where exceptional circumstances exist such that collection of the
full liability will be detrimental to voluntary compliance by taxpayers; and compromise of the liability would not
undermine compliance by taxpayers with the tax laws:

Example 1. In October of 1986, taxpayer developed a serious illness that resulted in almost
continuous hospitalizations for a number of years. The taxpayer's medical condition was such that
during this period the taxpayer was unable to manage any of his financial affairs. The taxpayer
has not filed tax returns since that time. The taxpayer's health has now improved and he has
promptly begun to attend to his tax affairs. He discovers that the IRS prepared a substitute for
return for the 1986 tax year on the basis of information returns it had received and had assessed a
tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill
is more than three times the original tax liability. Taxpayer's overall compliance history does not
weigh against compromise.

Example 2. Taxpayer is a salaried sales manager at a department store who has been able to
place $2,000 in a tax-deductible IRA account for each of the last two years. Taxpayer learns that
he can earn a higher rate of interest on his IRA savings by moving those savings from a money
management account to a certificate of deposit at a different financial institution. Prior to
transferring his savings, taxpayer submits an E-Mail inquiry to the IRS at its Web Page,
requesting information about the steps he must take to preserve the tax benefits he has enjoyed
and to avoid penalties. The IRS responds in an answering E-Mail that the taxpayer may withdraw
his IRA savings from his neighborhood bank, but he must redeposit those savings in a new IRA
account within 90 days. Taxpayer withdraws the funds and redeposits them in a new IRA account
63 days later. Upon audit, taxpayer learns that he has been misinformed about the required
rollover period and that he is liable for additional taxes, penalties and additions to tax for not
having redeposited the amount within 60 days. Had it not been for the erroneous advice that is
reflected in the taxpayer's retained copy of the IRS E-Mail response to his inquiry, taxpayer
would have redeposited the amount within the required 60-day period. Taxpayer's overall
compliance history does not weigh against compromise.
 One Person National Standards
Based on Gross Monthly Income

less than $833 to $1,250 to $1,667 to $2,500 to $3,334 to $4,167 to $5,834 and
Item $833 $1,249 $1,666 $2,499 $3,333 $4,166 $5,833 over
Food 197 215 231 258 300 339 369 543
Housekeeping
19 20 25 26 29 36 37 51
supplies
Apparel & services 60 61 70 75 100 124 134 207
Personal care
19 24 26 27 40 42 43 44
products & services
Miscellaneous 108 108 108 108 108 108 108 108
Total $403 $428 $460 $494 $577 $649 $691 $953

Two Persons National Standards

Based on Gross Monthly Income

less than $833 to $1,250 to $1,667 to $2,500 to $3,334 to $4,167 to $5,834 and
Item $833 $1,249 $1,666 $2,499 $3,333 $4,166 $5,833 over
Food 336 337 338 424 439 487 559 691
Housekeeping
36 37 38 48 52 53 107 108
supplies
Apparel & services 81 88 91 95 125 132 164 276
Personal care
33 34 35 43 44 51 56 71
products & services
Miscellaneous 134 134 134 134 134 134 134 134
Total $620 $630 $636 $744 $794 $857 $1,020 $1,280

Three Persons National Standards

Based on Gross Monthly Income

less than $833 to $1,250 to $1,667 to $2,500 to $3,334 to $4,167 to $5,834 and
Item $833 $1,249 $1,666 $2,499 $3,333 $4,166 $5,833 over
Food 467 468 469 470 490 546 622 778
Housekeeping
41 42 43 49 53 55 108 109
supplies
Apparel & services 132 144 157 158 159 188 204 303
Personal care
34 36 37 44 45 52 61 79
products & services
Miscellaneous 161 161 161 161 161 161 161 161
Total $835 $851 $867 $882 $908 $1,002 $1,156 $1,430

Four Persons National Standards

 Based on Gross Monthly Income

less than $833 to $1,250 to $1,667 to $2,500 to $3,334 to $4,167 to $5,834 and
Item $833 $1,249 $1,666 $2,499 $3,333 $4,166 $5,833 over
Food 468 525 526 527 528 640 722 868
Housekeeping
42 43 44 50 54 61 109 110
supplies
Apparel & services 146 169 170 171 174 189 217 317
Personal care
37 42 43 45 46 53 62 81
products & services
Miscellaneous 188 188 188 188 188 188 188 188
Total $881 $967 $971 $981 $990 $1,131 $1,298 $1,564

More than Four Persons National Standards

Based on Gross Monthly Income

less than $833 to $1,250 to $1,667 to $2,500 to $3,334 to $4,167 to $5,834

Item $833 $1,249 $1,666 $2,499 $3,333 $4,166 $5,833 and over
For each additional person, add to
$134 $145 $155 $166 $177 $188 $199 $209
four person total allowance:
Collection Financial Standards
Financial Analysis - Local Standards: Transportation *
Ownership Costs
National First Car Second Car
$475 $338
Operating Costs & Public Transportation Costs
Region No Car One Car Two Cars
Northeast Region $230 $298 $393
New York $302 $384 $479
Philadelphia $236 $298 $392
Boston $259 $284 $380
Pittsburgh $161 $286 $380

Midwest Region $194 $251 $345

Chicago $257 $329 $422
Detroit $312 $376 $469
Milwaukee $212 $247 $341
Minneapolis-St. Paul $276 $303 $397
Cleveland $198 $293 $387
Cincinnati $222 $272 $365
St. Louis $203 $287 $383
Kansas City $246 $291 $384

South Region $197 $242 $336

Washington, D.C. $289 $313 $407
Baltimore $225 $240 $334
Atlanta $283 $258 $351
Miami $284 $344 $439
Tampa $255 $265 $359
Dallas-Ft. Worth $309 $332 $425
Houston $281 $367 $462

West Region $246 $305 $399

Los Angeles $275 $353 $448
San Francisco $317 $373 $466
San Diego $311 $318 $415
Portland $189 $246 $339
Seattle $258 $335 $427
Honolulu $295 $314 $409
Anchorage $312 $336 $431
Phoenix $273 $326 $420
Denver $302 $351 $442
* Does not include personal property taxes. (effective January 1, 2005)
For Use with Allowable Transportation Expenses Table
The Operating Costs and Public Transportation Costs sections of the Transportation Standards are provided by Census Region and
Metropolitan Statistical Area (MSA). The following table lists the states that comprise each Census Region. Once the taxpayer's Census
Region has been ascertained, to determine if an MSA standard is applicable, use the definitions below to see if the taxpayer lives within
an MSA (MSAs are defined by county and city, where applicable). If the taxpayer does not reside in an MSA, use the regional standard.
Northeast Census Region

Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, Pennsylvania, New York, New
Jersey
MSA COUNTIES
New York in NY: Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam,
Queens, Richmond, Rockland, Suffolk, Westchester
in NJ: Bergen, Essex, Hudson, Hunterdon, Mercer, Middlesex, Monmouth,
Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren
in CT: Fairfield, Litchfield, Middlesex, New Haven
in PA: Pike
Philadelphia in PA: Bucks, Chester, Delaware, Montgomery, Philadelphia
in NJ: Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester,
Salem
in DE: New Castle
in MD: Cecil
Boston in MA: Bristol, Essex, Hampden, Middlesex, Norfolk, Plymouth, Suffolk,
Worcester
in NH: Hillsborough, Merrimack, Rockingham, Strafford
in CT: Windham
in ME: York
Pittsburgh in PA: Allegheny, Beaver, Butler, Fayette,
Washington, Westmoreland

North Dakota, South Dakota, Nebraska, Kansas, Missouri, Illinois, Indiana, Ohio, Michigan, Wisconsin,
Minnesota, Iowa
MSA COUNTIES (unless otherwise specified)
Chicago in IL: Cook, DeKalb, DuPage, Grundy, Kane,
Kankakee, Kendall, Lake, McHenry, Will
in IN: Lake, Porter
in WI: Kenosha
Detroit in MI: Genesee, Lapeer, Lenawee, Livingston,
Macomb, Monroe, Oakland, St. Clair,
Washtenaw, Wayne
Milwaukee in WI: Milwaukee, Ozaukee, Racine, Washington,
Waukesha
Minneapolis-St. Paul in MN: Anoka, Carver, Chisago, Dakota, Hennepin,
Isanti, Ramsey, Scott, Sherburne, Washington,
Wright
in WI: Pierce, St. Croix
Cleveland in OH: Ashtabula, Cuyahoga, Geauga, Lake, Lorain,
Medina, Portage, Summit
Cincinnati in OH: Brown, Butler, Clermont, Hamilton, Warren
in KY: Boone, Campbell, Gallatin, Grant, Kenton,
Pendleton
in IN: Dearborn, Ohio
St. Louis in MO: Crawford, Franklin, Jefferson, Lincoln, St.
Charles, St. Louis, Warren, St. Louis city
in IL: Clinton, Jersey, Madison, Monroe, St.Clair
North Dakota, South Dakota, Nebraska, Kansas, Missouri, Illinois, Indiana, Ohio, Michigan, Wisconsin,
Minnesota, Iowa
Kansas City in MO: Cass, Clay, Clinton, Jackson, Lafayette, Platte,
Ray
in KS: Johnson, Leavenworth, Miami, Wyandotte

South Census Region

Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Tennessee, Kentucky, West Virginia, Virginia,
Maryland, District of Columbia, Delaware, North Carolina, South Carolina, Georgia, Florida, Alabama
MSA COUNTIES (unless otherwise specified)
Washington, D.C. in DC: District of Columbia
in MD: Calvert, Charles, Frederick, Montgomery, Prince
George's, Washington
in VA: Arlington, Clarke, Culpepper, Fairfax, Fauquier,
King George, Loudoun, Prince William,
Spotsylvania, Stafford, Warren, Alexandria city,
Fairfax city, Falls Church city, Fredericksburg city,
Manassas city, Manassas Park city
in WV: Berkeley, Jefferson
Baltimore in MD: Anne Arundel, Baltimore, Carroll, Harford,
Howard, Queen Anne's, Baltimore city
Atlanta in GA: Barrow, Bartow, Carroll, Cherokee, Clayton, Cobb,
Coweta, DeKalb, Douglas, Fayette, Forsyth, Fulton,
Gwinnett, Henry, Newton, Paulding, Pickens,
Rockdale, Spalding, Walton
Miami in FL: Broward, Miami-Dade
Tampa in FL: Hernando, Hillsborough, Pasco, Pinellas
Dallas-Ft. Worth in TX: Collin, Dallas, Denton, Ellis, Henderson, Hood,
Hunt, Johnson, Kaufman, Parker, Rockwall, Tarrant
Houston in TX: Brazoria, Chambers, Fort Bend, Galveston, Harris,
Liberty, Montgomery, Waller
West Census Region
New Mexico, Arizona, Colorado, Wyoming, Montana, Nevada, Utah, Washington, Oregon,
Idaho, California, Alaska, Hawaii
MSA COUNTIES (unless otherwise specified)
Los Angeles in CA: Los Angeles, Orange, Riverside, San
Bernadino, Ventura
San Francisco in CA: Alameda, Contra Costa, Marin, Napa, San
Francisco, San Mateo, Santa Clara, Santa
Cruz, Solano, Sonoma
San Diego in CA: San Diego
Portland in OR: Clackamas, Columbia,
Marion, Multnomah, Polk,
Washington, Yamhill
in WA: Clark
Seattle in WA: Island, King, Kitsap, Pierce, Snohomish, Thurston
Honolulu in HI: Honolulu
Anchorage in AK: Anchorage borough
Phoenix in AZ: Maricopa, Pinal
Denver in CO: Adams, Arapahoe, Boulder, Denver, Douglas,
Jefferson, Weld
PROBLEM

Harry Didit and Mita Didit were assessed with a Trust Fund Recovery Penalty in 2003 in the amount of
$112,000. They were the principal officers of a software company and they have no defenses to
liability. He is currently employed by Microhard, Inc. as a software specialist. She is employed as a day
clerk at a Convenient Store. Harry and Mita reside in Park Ridge, IL which is in Cook County. They
have two children, Sally Didit, age 14 and John Didit, age 11.

Harry and Mita have the following assets:

Assets F.M.V.

Home (Joint Tenancy) $350,000

2002 Buick 7,500
2005 Chevrolet 12,000
Household Goods 4,000
IRA 3,000
Pension at Microhard 15,000

They have the following liabilities:

Nature of Liability Amount

Home Mortgage $275,000

Loan on Buick 4,000
Loan on Chevrolet 14,000
Charge Cards 16,000
Judgment Debt from Guarantee
(Empire Business) 3,000
Loan from brother (Baldizar Didit) 7,000
State Trust Fund Penalty 10,000

The Internal Revenue Service has filed a lien with the Cook County Recorder of Deeds. The Didit’s did
not respond to the CDP notice issued within 5 days of filing the lien and the 30 day protest period
expired before they arrived at your office. The IRS has not yet issued a Letter 1058.

Their income is as follows:

Harry’s Pay: Gross: $ 6,000 per month

Net: 4,300 per month

Mita’s Pay: Gross: $ 1,400 per month

Net: 950 per month

They tell you that they have the following monthly expenses:

Mortgage and Real Estate Taxes $2520

Home Repairs and Maintenance 200
Car Payments 700
Repairs, Maintenance and Car Insurance 375
Utilities 400
 Medical Expenses 100
Day Care 500
Clothing and Cleaning 400
Personal Hygiene 150
Health Club Dues 100
Payment on State Trust Fund Penalty 150
Children’s Parochial School 550
Children’s Recreational Activities 100
Family Entertainment and Recreation 200
Magazines, Periodicals and Newspapers 50
Cable TV 35
Charge Card Payments 200
Miscellaneous Expenses 400

The Didits have recently received a phone call from Will Levy of the IRS demanding that they submit a
433-A and begin payments on the Trust Fund Recovery Penalty. The Didits have asked that you
represent them before the Internal Revenue Service.

Questions

1. What is the most important issue to be resolved before you call Mr. Levy?

2. Which of the expenses of the Didits would the IRS consider to be allowable expenses?

3. Which of the expenses of the Didits would the IRS consider to be conditional expenses?

Are the Didits candidates for an offer in compromise.

 "REPRESENTING THE AUDITED TAXPAYER BEFORE THE IRS"

AND

REPRESENTATION BEFORE THE COLLECTION DIVISION OF

THE IRS

07/15/2009

[1] This adjustment shows transfers from COIC to field that have already been included in COIC receipts.

[2] 2004 National Taxpayer Advocates Report

[3] 2004 National Taxpayer Advocates Report

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