The Collection Information Statements, Forms 433-A and 433-B, are the IRS's equivalent of a financial statement. Form 433-A provides information for the revenue officer to determine how individual taxpayers can satisfy their tax liabilities. Form 433-B is for business taxpayers.

IRS policy states that "once it becomes obvious that the taxpayer has sufficient income and/or assets to satisfy the tax liability and the interviewer has identified sources from which collection may be effected, it will not be necessary to complete the remainder of the Collection Information Statement." The implication is that completion is not necessary because the revenue officer is supposed to ask for full payment and not consider any other payment alternative.

The Collection Information Statement requires the listing of all assets, which are then analyzed to determine ways of liquidating the account. If the taxpayer has cash equal to the tax liability, the revenue officer must demand immediate payment. Otherwise, other assets which may be readily converted to cash or used as collateral in borrowing are to be identified by the revenue officer for such purposes. If it appears the taxpayer can borrow funds, the revenue officer will establish a date by which the money is to be borrowed and the taxes paid.

If the revenue officer's analysis of the taxpayer's assets reveals no obvious solution for liquidating the liability, the taxpayer's monthly income and expenses are then analyzed in order to determine a payment schedule. It is this stage of the interview process that is most frustrating for taxpayers. IRS's strategy is to collect the most tax in the shortest period of time. The revenue officer may disallow some expenses if he feels they are not "necessary" for the taxpayer's production of income or for the health and welfare of the taxpayer and his family. Once these adjustments are made to the monthly income and expense analysis, the revenue officer will analyze the schedule to determine a specific course of action.

INSTALLMENT AGREEMENTS

IRM 5231.1 reads, "When taxpayers state an inability to pay the full amount of their taxes for financial reasons, installment agreements are to be considered." However, some revenue officers forget that installment agreement consideration is part of national office policy. For example, one taxpayer who wanted to make an installment arrangement and obtain a release of his seized paycheck was told by a revenue officer that he didn't have to release the levy or give the taxpayer an installment arrangement, a statement totally contrary to IRM section 5231.1 and IRS regulations.

There are different types of installment arrangements depending upon the taxpayer's ability to pay, the revenue officer's perception of the taxpayer's ability to pay, and the willingness of the revenue officer's group manager to approve installment agreements. (These will be discussed in more detail later in the chapter.) The IRM only requires group managers to review installment agreements when: I ) the unpaid liability exceeds $2,000; 2) the agreement extends for more than one year; 3) an in-business trust fund taxpayer is involved; 4) the taxpayer has defaulted on a previous installment agreement on the same account; or 5) the taxpayer is allowed to skip more than two payments in a 1 2-month period.

Some group managers, however, require their revenue officers to submit all installment arrangements to them for approval. Some pick the monthly income and expense analysis apart, by disallowing various expense items and then rejecting the agreement. In the past, some group managers would then order a seizure of the taxpayer's assets listed on the collection Information Statement without even giving the taxpayer the courtesy of a phone call to explain the rejection of the installment agreement. You can imagine what this did to taxpayers who thought they were "cooperating." National office policy now prohibits this kind of activity.

Many old-timers still do not like installment arrangements. In past years, IRS employees responded to a taxpayer's request for an installment arrangement with the stock retort, 'The Internal Revenue Code does not provide for installment arrangements." While this was an accurate statement it was also very misleading, implying that the IRS did not make installment arrangements when in fact they made hundreds of them every day. Even today there is still no reference in the Internal Revenue Code that allows a taxpayer the right to pay his delinquent taxes in installments.

One group manager, considered to be an old-timer, refuses to approve an installment arrangement unless the revenue officer has first taken some type of enforcement action against the taxpayer. While this policy is a clear violation of national office policy and intent, the group manager can do this because it is "unwritten" and not likely to be discovered by anyone outside of his immediate office. These kinds of "unwritten" policies pose the greatest danger to an effective, efficient, and impartial administration of the tax laws.

Trying to convince the group manager to approve an installment agreement is one of the revenue officer's biggest headaches. Approval is subject more to the whims and moods of the group manager than the policy directions issued by the national office. Some group managers are so unwilling to approve installment agreements and so impossible in their demands and their nitpicking that the revenue officers quit submitting agreements for approval and resort to making "informal agreements" with taxpayers. These are agreements that are never approved by the group manager; instead the revenue officer keeps them open in his inventory and collects the payments every month, hoping that the group manager won't find out. This is a no-win situation for the revenue officer. He is not supposed to have unapproved agreements in his inventory, but yet he knows an agreement may be the best or only way to collect the tax, and he also knows that his manager won't approve them. This situation often results in hardship for the taxpayer, who is forced to make an agreement over a shorter period of time than he can keep, thereby causing him to eventually default on the agreement and subjecting him to subsequent seizure action. Defaults are more often the result of overly demanding installment agreements than they are a result of the taxpayer's lack of cooperation.

The whims and moods of the group manager often result in additional "unwritten" policymaking. After a while the revenue officer is forced to design his collection strategy around what "pleases" his group manager more so than what "pleases" the national office. After all, it is his group manager who can either make or break his career, and since Washington, D.C. seems to most revenue officers to be more an abstract ivory tower than the real world, the revenue officer is naturally going to be more responsive to his group manager than to national policies.

Two examples demonstrate some of this "unwritten" policy-making In one case, a revenue officer sent a taxpayer to a finance company to borrow the money to pay his taxes. The taxpayer discovered that he could not borrow the entire amount needed to fully pay the taxes. In an attempt to show good faith, he borrowed all he could, about 75% of the amount owed, and attempted to make an agreement with the revenue officer for the balance. The group manager refused to approve the agreement unless the payments to the finance company for the newly acquired loan were omitted. The group manager reasoned that the debt was incurred subsequent to the tax liability, and therefore monthly payments shouldn't be allowed. Another group manager refused to allow monthly payments to any finance company unless the debt had been incurred solely to liquidate the tax liability. He reasoned that any borrowing must be "absolutely necessary" and therefore payments to any other charge creditors, like VISA or Mastercard, would not be allowed.

NEW GUIDELINES FOR ALLOWABLE EXPENSES

Historically, the determination of which expenses to allow in approving an installment agreement has been difficult since the national office refused to specify what should or should not be allowed. There now is a much more specific policy. On April 26, 1982, the national office revised the IRM to include field guidelines. The basic policy states that when deciding what constitutes an allowable expense item, the employee may allow the following:

• Expenses which are necessary for the taxpayer's production of income.
• Expenses which provide for the health and welfare of the taxpayer and family. The expense must be reasonable for the size of the family and the geographic location, as well as any unique individual circumstances. An expense will not be allowed if it serves to provide an elevated standard of living, as opposed to basic necessities. Also, an expense will not be allowed if the taxpayer has a proven record of not making the payment.
• Minimum payments on secured or legally perfected debts, unless the encumbered asset is not a necessary living expense.
• Minimum payments on unsecured debt (credit cards, personal loans, etc. ) if the taxpayer cannot fully pay the taxes within 90 days, and if failure to make the debt payments would alternately impair the taxpayer's ability to pay the tax.

The amount paid on an installment agreement is the difference between the monthly income and the monthly expenses allowed by the IRS. IRS policy states that "If the taxpayer will not consent to the proposed installment agreement, he/she should be advised that enforced collection action may be taken. The taxpayer should be advised that an appeal of the matter may be made to the immediate manager." While the taxpayer has nothing to lose by appealing a revenue officer's decision to the revenue officer's manager, it is unlikely an appeal would succeed. As explained earlier, most revenue officers adopt the collection philosophy of their group manager and only write installment agreements that reflect this philosophy. Also, most group managers are likely to support the subjective determinations of their revenue officers, and countermand only those decisions that are clearly against national, district, or local policy.

TYPES OF INSTALLMENT AGREEMENTS

Short-term agreements up to 60 days:
With certain exceptions, an individual or business taxpayer may be given up to 60 days to pay in full. The exceptions are those taxpayers who have previously defaulted on a prior agreement and those business taxpayers owing employment taxes who are repeaters. The IRM does not specify any conditions under which a short term agreement can be made, or any requirement to complete a Form 433-A or 433-B (collection information statement for businesses) because they are normally granted to accommodate a taxpayer who needs additional time to raise money. The revenue officer usually expects the money to be forthcoming within sixty days and the taxpayer must state that he needs the sixty days to raise the money.

Automatic installment agreements up to 12 months for individual taxpayers:
There is only one way that a taxpayer may receive this option: he must ask for it. The IRS's inability to handle the sharply rising delinquencies in the last four years have made it easier for taxpayers to receive the benefit of installment plans to pay their taxes. According to the IRM, an individual taxpayer whose account remains in notice status, (that is, the computer continues to generate balance-due notices), and who requests additional time, may be granted up to 12 months to pay provided he meets certain criteria: I ) his full liability must fall under the IRS's "secret tolerance" amount; 2) there are no delinquent tax returns due; 3) there is no previous installment agreement outstanding or in default, and; 4) there is no open account outstanding.

If the taxpayer satisfies the above conditions, his request for an installment agreement is automatically honored. Taxpayers have nothing to lose by requesting an installment agreement since they do not know what the "secret tolerance" amount is. Because the IRS collection division is presently understaffed, the taxpayer is required to furnish only a minimum amount of income and asset information. The taxpayer need not attempt to borrow money before applying for an installment agreement.

Other installment agreements:
The two previous agreements are made at the taxpayer's request providing particular conditions exist. For taxpayers who cannot meet these conditions, the IRS will consider longer term installment agreements, although the procedure is not automatic. Installment agreements can be negotiated for any kind of tax liability and for any duration. The general rule is that the taxpayer cannot fully pay through available assets and has no borrowing potential. An individual taxpayer must complete Form 433-A, which requires him to list his assets, their present fair market value, the amounts outstanding on any loans, and the dates of all final payments to creditors. The monthly income and expense analysis is used to show all income into the household and all monthly expenses for the family. The difference between income and expenses usually determines how much the revenue officer will require the taxpayer to pay monthly.

Installment agreements for business taxpayers:
IRS policy also allows certain business taxpayers who owe withholding taxes an automatic installment agreement of up to 12 months. The requirements are that the business taxpayer must not owe more than IRS's "secret tolerance" amount, and limited income and asset information must be given.