The existence of a pending installment agreement (IA) stops the IRS from levying to collect and outstanding liability. Section 6331(k) sets out four time periods when the Service cannot levy where an IA exists: 1) while consideration of IA is pending; 2) for 30 days after rejection of IA plus additional time if rejection is appealed, including 30 days after rejection of appeal; 3) while IA is in effect; and 4) for 30 days after termination of IA plus additional time if termination is appealed, including 30 days after rejection of appeal. We discuss the restraint on levy in connection with IAs in “IRS Practice and Procedure” at Ch 15.05. The connection also plays out in the suspension of the statute of limitations on collection as discussed recently here.
In Taylor v. United States, 131 A.F.T.R. 2d 2023-458 (E.D. Mich. 2023), the court must determine whether an IA existed in deciding how it could address the remedies sought by the taxpayer.
read more...The Taylors owed the IRS almost a million dollars. They ask the court to: 1) require the IRS to accept an IA; 2) prohibit the IRS from taking any collection action while the proposed IA was pending; and 3) order the IRS to return money it obtained via levy on Mr. Taylor’s bank account. They claim they are entitled to this relief because the IRS violated 6331(k)(2). The IRS moves to dismiss their case based on Federal Rules of Civil Procedure 12(b)(1) and (b)(6) because sovereign immunity or the anti-injunction act bar their claims for relief. To reach the point of granting the motion filed by the IRS, the court must interpret IRC 6159.
Section 6331(k)(2) limits the authority of the IRS to engage in collection activities while the Secretary considers whether to accept an IA that a taxpayer has proposed. That section provides that:
[n]o levy shall be made…on the property or rights to property of any person with respect to any unpaid tax…during the period that an offer by such person for an installment payment under section 6159 for payment of such unpaid tax is pending with the Secretary” (the “Levy Prohibition”). 26 U.S.C. § 6331(k)(2). The Levy Prohibition further provides that if the Secretary rejects a taxpayer’s proposed installment payment plan, the IRS shall not levy against the taxpayer’s property or rights in property “during the 30 days thereafter.
In deciding whether the limitation on collection authority applies, the court must decide whether the Taylors had a pending IA. The regulation providing guidance here, section 301.6159-1(b)(2), states that an IA is pending when it is accepted for processing. This seemingly simply statement becomes complex both because of way in which many IAs are created – over the phone with the Automated Call Site (ACS) – and subject to the IRS determination that the proposal of the IA was made to delay or impede collection. So, the IRS holds a trump card when it comes to deciding if an IA is pending. If it is pending, then collection activities described in the first paragraph of the post come into play.
Because of the size of their liabilities, the Taylors were privileged to work with a revenue officer (RO) rather than becoming a part of the hoi polloi that must call into ACS. They submitted a proposed IA to the RO. He decided the IA was submitted simply to delay collection. Because of his decision the IRS did not accept the IA for processing, and it never became a pending IA.
The Taylors argued that they submitted several additional IAs, but the RO wrongfully refused to process their proposals. In addition to refusing to accept the IAs, the RO also took levy action which the Taylors allege violates 6331(k).
The court finds no waiver of sovereign immunity under the facts of this case. Two of the three actions the Taylors request the court to take concern past actions by the IRS. Section 6331(k) does not provide relief for those actions. Their third request which seeks to enjoin the IRS from taking further collection action could fit the requirements of the statute; however, the problem they face in seeking to use 6331(k) results from the IRS refusal to process their IA. In order to trigger the injunctive provisions of the statute, an offer must be pending. Here, it was not. So, the court dismisses the claims against the IRS.
The Taylors also sued individual defendants – the two ROs who worked their case. The court finds that the anti-injunction act prohibits this part of the case.
The Taylors are not entitled to mandamus relief against the individual Defendants because they seek to compel those Defendants to perform functions that involve at least some discretion. For example, the Taylors seek to force the individual Defendants to accept their installment plan proposals for processing, but, as described above, the Secretary (acting through her designees, such as the individual Defendants) may decline to process such a proposal if the Secretary concludes, through her designee’s exercise of discretion, that the proposal has been submitted to delay the collection of a tax. Likewise, the Taylors seek to force the individual Defendants to accept $575,000 toward their outstanding tax debt. But the Taylors have offered that payment as part of their installment plan proposal which, again, the Secretary and her designees have the discretion to reject.
The court provides more detail concerning why the Taylors cannot obtain the relief they want but the bottom line in this case is that relief from collection based on the submission of an installment agreement depends on the IRS deciding to process the IA. In cases involving ROs, the IRS will generally have an easy time showing what the RO did and why. For taxpayers with less money due to the IRS, the ACS site will generally not keep records of conversations to the same extent as a revenue officer.
While the determination that no pending IA existed caused the court little trouble here, the factual determination is not always so clear which is what makes statute of limitations on collection determinations difficult when the taxpayer or the IRS begins by discussing the possibility of an IA.
In my experience as an IRS ATAT Collection Group Manager, later as a Local Taxpayer Advocate and now as an Enrolled Agent, the determination as to when an Installment Agreement proposal is deemed pending (both extending the collection statute and preventing collection actions) can be very problematic and requires close scrutiny. For example, many cases can languish for extended periods of time in “pending IA” status when ACS or Revenue Officers input the pending indicator (TC 971 ac43) and then fail to make a timely determination. While the taxpayer is protected from collection, significant amounts of time are added to the collection statute of limitations. In the case at hand, I would have wanted to see whether or not the RO Group Manager approved the determination to treat the proposal as having been made to delay. The Internal Revenue Manual at 5.14.3.3(5) requires that a manager approve the determination and note the approval within the case history. Additionally, the taxpayer is entitled to discuss the determination with the group manager. The taxpayer would have also had Collection Appeal Rights with respect to the levy action or threat of levy action. If the manager did not document approval, it can be argued that IRS did not follow proper procedure