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The American Jobs Creation Act of 2004 amended IRC §6159(a) to authorize an installment agreement for the “partial” collection of an unpaid tax liability. Prior to that amendment, the statute required the "full collection" of the liability. If the taxpayer's ability to pay would not satisfy the unpaid balance (plus interest that would accrue), the IRS would request that the taxpayer extend the statute of limitations to permit "full collection" under an installment agreement. Congress terminated the IRS's ability to extend the statute of limitations for full collection by installment agreements in the IRS Restructuring and Reform Act of 1998.

Adding a provision for a partial payment installment agreement, some six (6) years later,5 acknowledges that some taxpayers cannot, within the statute of limitations, make monthly payments in an amount sufficient to satisfy the liability, and interest accruing.

1. Mandatory Review. IRC §6159(d) imposes a mandatory internal

administrative review of "partial payment" installment agreements not less than every two (2) years, effective for agreements entered into on or after October 22, 2004.

2. Comparison to Offer-in-Compromise ("OIC"). The IRS permits OIC's to

be paid in "deferred periodic payments," as will be discussed below. The amount of each installment for a partial payment installment agreement and the amount of each deferred periodic payment could quite easily be the same. The OIC is not subject to review for any change in financial condition. A partial payment installment agreement poses less difficulty in being approved simply because it can be reviewed and changed, as a practical matter, and as a matter of statute, must be reviewed every two (2) years.

The IRS is much more likely to enter into a partial payment installment agreement than to accept an OIC to be paid in installments. Most importantly, the partial payment agreement can be approved by a Revenue Officer or a Service Center call person, and not the guards in OIC units at the Service Center. Finally, the OIC suspends the collections

5 _{Enactment of this statute presents a watershed moment in the evolution of thought in the IRS collection} division. For the first time, the IRS obtained Congressional approval of a statutory change to permit payment of

statute of limitations; the partial payment installment agreement does not, after approval. IRC §6331(k)(3)(B) and §6331(i)(5).

D. Offers-in-Compromise.

IRC §7122 authorizes the Secretary of the Treasury to compromise unpaid federal tax liabilities. Statutorily, a legal review must be issued for any OIC in excess of $50,000.00, including interest, additional amounts, addition to the tax, or assessable penalty.

1. The Statutory Nonrefundable Front Payment. Effective for offers after

May 17, 2006, a taxpayer must submit twenty percent (20%) of the amount offered in a "lump- sum" offer when the offer is filed. Lump-sum offers include offers to be paid in five (5) or fewer installments. For example, an offer of $200,000.00 requires $40,000.00 with the application, whether to be paid in one lump sum or four (4) installments of $50,000.00.

Offers can be made for "deferred periodic payments." Periodic payments are paid in more than five (5) payments. The first periodic payment must be included when the offer is submitted. Periodic payments must be made during the pendency of the offer, prior to its acceptance.

All of the twenty percent (20%) for a lump-sum payment and all of the periodic payments will be forfeited to the IRS if the offer is not accepted or not processed. The statute contains no language authorizing the return of those amounts if an offer is determined to be non-processable or rejected. The statute also contains no language, nor does the IRS OIC Instructions (Form 656-B), to define what "period" means. See also IRS (Form 656, Section 7).

Practice Note. The statutory nonrefundable up-front payment requirement on

OIC's has curtailed (if not extinguished) any meaningful use of offers for "High Dollar" taxpayers. As a practical matter, funds for the offer come from third parties, relatives, friends, etc. Third parties will fund an offer if it has been accepted by the IRS. Advancing twenty percent (20%) of an offer for any significant amount with the Service's low track record on acceptance of offers makes no sense. More importantly, the experience of most practitioners in this area precludes any affirmative recommendation that the funds submitted will increase the chances of an offer being accepted. To the contrary, the IRS's record in processing and accepting offers cannot be described as anything other than abysmal. As the Taxpayer Advocate's June 2009 Report notes, offers are down by seventy-two percent (72%).

2. National Living Standards. In IRC §7122(d) Congress "requires" the

Secretary to define guidelines as to whether an amount offered was adequate. "...[S]chedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses." IRC §7122(d)(2)(A). These are the tables defining allowable living expenses in computing disposable income for offers.

Oddly enough, Congress provided that the schedules were not to be used if it would result in the taxpayer not having adequate means to provide for basic living expenses. IRC §7122(d)(2)(B). The tables provided have been used not only by the IRS but are incorporated into the bankruptcy process of determining "means testing." 11 USC §707(b)(2)(A)(ii). Those standards can easily be viewed as just above a "poverty" existence. That perhaps is consistent with the notion of "basic living expenses." The IRS will not deviate

from these standards absent real proof. A coherent explanation will not work.

3. Review. The statute requires the Secretary to establish a review

procedure including allowing the rejection of any offer to be considered by the Appeals Division. That process is in place and is known as the collection appeals process, a/k/a CAP. See IRS Publication 1660. The statute contains no judicial review of that administrative hearing. If an offer is reviewed in the context of a CDP Hearing, judicial review is available.

4. "Deemed Acceptance." An offer is deemed accepted if not rejected by

the Secretary twenty-four (24) months after the date of submission. IRC §7122(f). To avoid any difficulties with a parallel judicial proceeding, the twenty-four (24) months excludes any time period during which the liability to be compromised is in the judicial proceeding.