Collection Case Resolution
There are three possible resolutions to a collection problem in any case: an installment payment agreement, an offer in compromise, or currently not collectible status. The general installment payment agreement procedures are contained in IRM §5330. However, IRM §5323.61 contains provisions related to installment payment agreements in conjunction with the Service’s new detailed policy concerning allowable expenses. Worthy of notation is that an installment agreement can be set up to reflect changes in payments during the agreement period based on expected increases or decreases in allowable expenses. However, only two payment amount changes are possible for a systematically monitored installment agreement.
The collection agent is advised to consider substantiated and justified expenses which will be incurred within the time frame of the installment agreement. These possible expenses include, but are not limited to, the birth of a child, the necessary replacement of a vehicle or major appliance, or necessary home maintenance such as roof repair.
If the taxpayer has previously defaulted on a past installment payment agreement, the collection agent is required to document his or her reasons for approving another installment payment agreement, and obtain group manager approval. Thus, the taxpayer must be able to demonstrate good cause for his/her past default and the absence of a potential default in the future.
IRM §57(10) contains the detailed manual provisions related to offers in compromise. However, IRM §5323.6 discusses the offer in compromise in conjunction with the recent amendments to IRM §5323. As has previously been the case, collection agents are advised that, when an analysis of a taxpayer’s financial condition shows that the liquidation of all assets and payments under an installment payment agreement will not result in full payment, an offer in compromise should be considered and discussed with the taxpayer.
An offer in compromise is comprised of two components; the quick sale value of the taxpayer’s assets, and the present value of a five year payment agreement between the Internal Revenue Service and the taxpayer. In computing the future income component of an offer, only necessary expenses will be allowed. All conditional expenses will be disallowed and ignored in the computation of the present value of a future installment payment agreement.
Lastly, a discussion of the effect of amendments to IRM §5323 on the case resolution of currently not collectible status is contained in IRM §5323.63. There are no surprises contained in this provision of the manual which dictates that conditional expenses will not be allowed if a case is closed as currently not collectible. However, if a taxpayer is able to modify his/her expenses within one year, such that an installment payment agreement can be entered into at the expiration of that year, cases should not be closed as currently not collectible and the taxpayer should be given the appropriate time to make the modifications to his/her expenses.
Bluestein & Muhlbauer, P.C.
333 International Drive
Williamsville, NY 14221
716.633.3200
