User Fees for Processing Installment Agreements and Offers in Compromise, 72016-72018 [2013-28863]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 78, Number 231 (Monday, December 2, 2013)]
[Rules and Regulations]
[Pages 72016-72018]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28863]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[TD 9647]
RIN 1545-BL37


User Fees for Processing Installment Agreements and Offers in 
Compromise

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations that provide user 
fees charged for processing installment agreements and offers in 
compromise. The final regulations affect taxpayers who wish to pay 
their federal tax liabilities through installment agreements and offers 
in compromise.

DATES: Effective date: These regulations are effective on December 2, 
2013.
    Applicability Date: These regulations apply to installment 
agreements entered into, restructured, or reinstated and offers in 
compromise processed on or after January 1, 2014.

FOR FURTHER INFORMATION CONTACT: Concerning cost methodology, Eva 
Williams, at (202) 803-9728; concerning the regulations, Girish Prasad, 
at (202) 317-5429 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    This document contains amendments to 26 CFR part 300. On August 30, 
2013, a notice of proposed rulemaking (REG-144990-12) relating to the 
user fees charged for processing installment agreements and offers in 
compromise was published in the Federal Register (78 FR 53702). The 
charging of user fees for services provided by agencies is authorized 
by the Independent Offices Appropriations Act (IOAA), which is codified 
at 31 U.S.C. 9701. Under the IOAA and OMB Circular A-25, 58 FR 38142 
(July 15, 1993) (the OMB Circular), the charges must be fair and must 
be based on the costs to the government, the value of the service to 
the recipient, the public policy or interest served, and other relevant 
facts. In general, the amount of a user fee should recover the cost of 
providing the service, unless the Office of Management and Budget (OMB) 
grants an exception under the OMB Circular.
    The notice of proposed rulemaking proposed to increase the fee 
under Sec.  300.1 for entering into an installment agreement from $105 
to $120 and to increase the fee under Sec.  300.2 for

[[Page 72017]]

restructuring or reinstating an installment agreement from $45 to $50. 
Under the notice of proposed rulemaking, the fee for a direct debit 
installment agreement remained $52, and low-income taxpayers, as 
defined in Sec.  300.1(b)(2), would continue to pay $43 for any new 
installment agreement, including a direct debit installment agreement. 
The notice of proposed rulemaking also proposed to increase the fee 
under Sec.  300.3 for processing an offer in compromise from $150 to 
$186. Offers based on doubt as to liability and offers from low-income 
taxpayers continue to be excepted from a user fee. The new fee rates 
for both installment agreements and offers in compromise will be 
effective January 1, 2014. As explained in the notice of proposed 
rulemaking, the fees proposed (even after the increase) were 
substantially less than the full costs to the Government of providing 
the services and OMB has granted a waiver of the full-cost requirement.
    No public hearing on the notice of proposed rulemaking was held 
because no one requested to speak. One comment was received. After 
consideration of the comment, this Treasury decision adopts the 
proposed regulations without change.

Summary of Comment

    Under the proposed regulations, the reduced fee of $43 for low-
income taxpayers that request a new installment agreement would remain 
unchanged. This fee is substantially less than the full cost to the IRS 
of processing a request ($282) and the fee charged to other taxpayers 
($120). The commenter commended the IRS for not increasing the user fee 
for low-income taxpayers, but maintained that any user fee discourages 
low-income taxpayers from entering into installment agreements. The 
commenter recommended that the fee be reduced to zero. The commenter 
stated that many low-income taxpayers do not have the means to pay the 
user fee, even at the reduced rate. The commenter stated that low-
income taxpayers often enter into installment agreements to pay as 
little as $20-30 per month based on their available net income, and 
believed that an upfront $43 fee makes it difficult for such taxpayers 
to enter into the agreement.
    The effect of the fee on low-income taxpayers was considered in 
2006 when the installment agreement fee was last updated. The IRS 
determined that the fee should remain $43 for low-income taxpayers 
because requiring the full rate would be burdensome and many low-income 
taxpayers do not have bank accounts and cannot take advantage of the 
reduced fee for direct-debit installment agreements.
    The user fee is only charged if the taxpayer enters into the 
agreement and the fee is collected directly from the amounts paid under 
the terms of the installment agreement. When the IRS grants an 
installment agreement, the IRS asks that the taxpayer's first payment 
be at least the amount of the fee for the agreement. In cases where the 
installment payments are more than the amount of the fee, a portion of 
the first payment satisfies the fee and the balance of the first 
payment is applied toward the liability. In cases where the installment 
payments are less than the amount of the fee, the full amount of the 
fee is sought and, in the case of direct-debit installment agreements, 
automatically deducted from the taxpayer's bank account. The IRS, 
however, does not default an agreement or otherwise penalize a taxpayer 
whose first payment is less than the fee but otherwise in the amount of 
the agreed installments. Rather, the IRS applies the first payment and 
successive installments against the fee until the fee is paid, and 
thereafter credits the balance of the payments against the liability. 
In all cases, the taxpayer does not have to pay both the fee and the 
installment agreement amount in the first month and the taxpayer does 
not have to pay the fee in full before the IRS respects the installment 
agreement. The reduced fee is, therefore, not a barrier to an 
installment agreement. Nevertheless, the IRS will be reviewing its 
procedures in light of the comment and will consider clarifying its 
communications with taxpayers in accordance with that review.
    The commenter also questioned why the fee was waived entirely for 
low-income taxpayers making offers in compromise but only reduced for 
low-income taxpayers entering into installment agreements. The Treasury 
Department and the IRS believe it is appropriate to charge a reduced 
fee for a low-income taxpayer to enter into an installment agreement 
but not to charge a fee to low-income taxpayers for the consideration 
of an offer in compromise for two reasons. First, unlike the fee for an 
installment agreement, which is charged only when the taxpayer enters 
into an installment agreement, the fee for an offer in compromise is 
charged for the mere consideration of the offer and is not refunded if 
the offer is not accepted. Therefore, the fee for an offer in 
compromise could dissuade a low-income taxpayer from making an offer 
because the taxpayer cannot be assured of reaching an agreement.
    Second, a low-income taxpayer making an offer in compromise 
ostensibly does not have the ability to pay the tax liability in full. 
Section 7122(d)(3)(A) specifically provides that the IRS should not 
reject an offer from a low-income taxpayer based solely on the amount 
of the offer, and requiring a fee from low-income taxpayers could 
result in a similar hardship in cases where the taxpayer does not have 
the ability to pay the fee. In contrast, the vast majority of 
installment agreements contemplate full payment of the tax liability 
because the taxpayer has the ability to do so over time. While there 
are partial-payment installment agreements--those that do not provide 
for full payment of the liability--they are rarely used.
    The commenter also expressed concern that, in order to avoid the 
fee associated with an installment agreement, a low-income taxpayer 
might request to be put into currently-not-collectible (CNC) status 
rather than enter into an installment agreement. The commenter was 
concerned, moreover, that without an installment agreement the taxpayer 
would not pay the tax and would instead incur substantial penalties and 
interest. Generally, a taxpayer who has the ability to pay his tax 
liability over time (and thus is eligible for an installment agreement) 
will not qualify for CNC status. The IRS places a taxpayer in CNC 
status on the basis of hardship when it determines that the taxpayer 
cannot pay the tax debts after paying reasonable living expenses. Even 
a taxpayer in CNC status may, without an installment agreement, pay the 
tax over time to help limit the accrual of penalties and interest. To 
the extent a low-income taxpayer has the ability to pay his tax 
liability over time, entering into an installment agreement would be in 
his interest because it will most likely reduce the overall amount 
required to be paid on his tax liability. Under section 6651(h), the 
penalty rate on the balance owed is reduced while an installment 
agreement is in effect. Additionally, interest and penalties accruing 
on an account will be minimized if regular payments are being applied 
to reduce the tax liability against which penalties and interest are 
calculated.
    Finally, the commenter voiced concern that the reduced fee of $43 
may prove to be too large in proportion to relatively smaller balances 
owed. The purpose of a fee, however, is to recover the cost to the 
Government for a particular service to the recipient, and the cost to 
the Government does not vary based on the amount of the balance due. 
The reduced fee for low-income

[[Page 72018]]

taxpayers is therefore appropriate, regardless of the amount of taxes 
owed.
    The commenter made two additional recommendations. The commenter 
recommended that the IRS implement procedures to require IRS employees 
to investigate whether a taxpayer making an installment agreement is 
eligible for the reduced fee for low-income taxpayers. The commenter 
also recommended that the IRS enhance internal training and establish 
procedures to better promote viable payment plans and avoid unrealistic 
installment agreements for low-income taxpayers. These comments do not 
affect the content of these final regulations, but the IRS will, 
nevertheless, consider them when updating the procedures for entering 
into installment agreements. The IRS notes, however, that as of January 
of 2008, taxpayers meeting the low-income criteria are identified 
systemically based on the taxpayer's last return and the account is 
identified as being eligible for the reduced user fee.

Special Analyses

    It has been determined that these final regulations are not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It is hereby certified that these 
regulations will not have a significant economic impact on a 
substantial number of small entities. Accordingly, a regulatory 
flexibility analysis is not required. This certification is based on 
the information that follows. The economic impact of these regulations 
on any small entity would result from the entity being required to pay 
a fee prescribed by these regulations to obtain a particular service. 
The dollar amount of the fee is not, however, substantial enough to 
have a significant economic impact on any entity subject to the fee. 
Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding this regulation was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business and no comments were received.

Drafting Information

    The principal author of these regulations is Girish Prasad of the 
Office of Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 300

    Estate taxes, Excise taxes, Gift taxes, Income taxes, Reporting and 
recordkeeping requirements, User fees.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 300 is amended as follows:

PART 300--USER FEES

0
Paragraph 1. The authority citation for part 300 continues to read as 
follows:

    Authority: 31 U.S.C. 9701.


0
Par. 2. In Sec.  300.1, paragraphs (b) introductory text and (d) are 
revised to read as follows:


Sec.  300.1  Installment agreement fee.

* * * * *
    (b) Fee. The fee for entering into an installment agreement before 
January 1, 2014, is $105. The fee for entering into an installment 
agreement on or after January 1, 2014, is $120. A reduced fee applies 
in the following situations:
* * * * *
    (d) Effective/applicability date. This section is applicable 
beginning January 1, 2014.

0
Par. 3. In Sec.  300.2, paragraphs (b) and (d) are revised to read as 
follows:


Sec.  300.2  Restructuring or reinstatement of installment agreement 
fee.

* * * * *
    (b) Fee. The fee for restructuring or reinstating an installment 
agreement before January 1, 2014, is $45. The fee for restructuring or 
reinstating an installment agreement on or after January 1, 2014, is 
$50.
* * * * *
    (d) Effective/applicability date. This section is applicable 
beginning January 1, 2014.

0
Par. 4. In Sec.  300.3, paragraphs (b)(1) introductory text and (d) are 
revised to read as follows:


Sec.  300.3  Offer to compromise fee.

* * * * *
    (b) Fee. (1) The fee for processing an offer to compromise before 
January 1, 2014, is $150. The fee for processing an offer to compromise 
on or after January 1, 2014, is $186. No fee will be charged if an 
offer is--
* * * * *
    (d) Effective/applicability date. This section is applicable 
beginning January 1, 2014.

    Approved: November 22, 2013.
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Mark J. Mazur,
 Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-28863 Filed 11-29-13; 8:45 am]
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