Final Regulations Update Rules on Paying Tax in Installments

The IRS issued final regulations Tuesday governing the payment of tax liabilities in installments (TD 9473). The regulations reflect changes to the law made by various acts going as far back as 1996.

IRC § 6159 allows taxpayers who cannot pay their tax liabilities in full an option to enter into an installment agreement and pay off those liabilities over time. The IRS is authorized to enter a written agreement with the taxpayer that requires installment payments based on the amount the taxpayer owes and his or her ability to pay that amount within the time the IRS can legally collect payment.

Various acts have affected taxpayer rights under such agreements. Under provisions enacted since 1996, taxpayers may request administrative review of IRS decisions to terminate installment agreements; taxpayers may appeal rejections of proposed installment agreements; and the IRS must accept proposed installment agreements in certain circumstances. Installment agreements can cover a taxpayer’s entire tax liability or only a portion of it. Partial payment installment agreements are reviewed by the IRS every two years to determine if the taxpayer’s financial situation has changed.

The final regulations issued on Tuesday reflect current IRS practice regarding installment agreements and adopt proposed regulations (with some clarifications) that were issued in 2007 (REG-100841-97). Among the clarifications, the regulations explain that a taxpayer may submit a request to modify or terminate an installment agreement, but that such a request will not suspend the statute of limitation on collection and the taxpayer must still comply with the existing installment agreement while the request is being considered. The regulations also clarify that the IRS can terminate an installment agreement if the taxpayer provides materially incomplete or inaccurate information to the IRS.

The final regulations are effective Nov. 25, 2009.