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Final regs increase installment agreement fees, but offer reduced online fee options

T.D. 9798, 11/29/2016; Reg. § 300.1, Reg. § 300.2

IRS has issued final regs that increase the fees for entering into an installment arrangement for paying taxes but also offer a new set of fees for taxpayers who set up an installment agreement via IRS’s website. The new fees take effect for installment agreements entered into on or after Jan. 1, 2017.

Background. Code Sec. 6159 authorizes IRS to enter into an agreement with any taxpayer for the payment of tax in installments to the extent IRS determines that entering into the installment agreement will facilitate the full or partial collection of the tax. Installment agreements are voluntary, and taxpayers may request an installment agreement in person, by completing the appropriate forms and mailing them to IRS, online, or over the telephone.

IRS currently charges three rates for installment agreements. The user fee, in general, is $120 for an installment agreement. The user fee is reduced to $52 for a direct debit installment agreement, which is an agreement whereby the taxpayer authorizes IRS to request the monthly electronic transfer of funds from the taxpayer’s bank account to IRS The user fee is $43 notwithstanding the method of payment if the taxpayer is a “low-income taxpayer,” defined as an individual who falls at or below 250% of the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the U.S. Department of Health and Human Services. (Reg. § 300.1)

Under Reg. § 300.2, IRS currently charges $50 for restructuring or reinstating an installment agreement that is in default. An installment agreement is deemed to be in default when a taxpayer fails to meet any of the conditions of the installment agreement. Currently, there is no exception to this fee for low-income taxpayers.

Proposed regs. In August of this year, IRS issued proposed regs that would increase fees for entering into an installment agreement and also offer reduced fees for setting up an installment agreement online. (See Weekly Alert ¶  35  08/25/2016)

Regs now final. The final regs adopt the proposed regs without change. The following fees will be charged for installment agreements entered into, restructured, or reinstated on or after Jan. 1, 2017:

  • Regular Installment Agreements – A taxpayer contacts IRS in person, by phone, or by mail and sets up an agreement to make manual payments over a period of time either by mailing a check or electronically through the Electronic Federal Tax Payment System (EFTPS). The fee for entering into a regular installment agreement will be $225. (Reg. § 300.1(b))
  • Direct Debit Installment Agreements – A taxpayer contacts IRS by phone or mail and sets up an agreement to make automatic payments over a period of time through a direct debit from a bank account. The fee for entering into a direct debit installment agreement will be $107. (Reg. § 300.1(b)(1))
  • Online Payment Agreements – A taxpayer sets up an installment agreement Online Payment Agreement application on http://www.irs.gov and agrees to make manual payments over a period of time either by mailing a check or electronically through the EFTPS. The fee for entering into an online payment agreement will be $149. (Reg. § 300.1(b)(2))
  • Direct Debit Online Payment Agreements – A taxpayer sets up an installment agreement Online Payment Agreement application on http://www.irs.gov and agrees to make automatic payments over a period of time through a direct debit from a bank account. The fee for entering into a direct debit online payment agreement will be $31. (Reg. § 300.1(b)(2))
  • Restructured/Reinstated Installment Agreements – A taxpayer modifies a previously established installment agreement or reinstates an installment agreement on which the taxpayer has defaulted. The fee for restructuring or reinstating an installment agreement will be $89. (Reg. § 300.2(b))
  • Low-Income Rates – Rates that applies when a low-income taxpayer enters into any type of installment agreement, other than a direct debit online payment agreement, and when a low-income taxpayer restructures or reinstates any installment agreement. The definition of low-income taxpayer is not changed from that in the previously-existing reg. The low-income rate remains at $43, but is reduced to $31 when the taxpayer pays by way of a direct debit from the taxpayer’s bank account with respect to online payment agreements. (Reg. § 300.1(b)(3))

References:References: For user fees for entering into installment agreements, see FTC 2d/FIN ¶  T-10021; United States Tax Reporter ¶  61,594; TG ¶  71005.