One-Year-Rule

[Burke]

Contrary to what the article purports - It's hard to understand how any IRS employee can say it doesn't exist. It is written in the IRM. The one year rule is also noted in §5.8.5.6.4 where it says the rule can be used for an IA but not an OIC.

Thanks so much for the cite. I am assuming IRM means Internal Revenue Manual? And he does remark that this is for IA's, since an OIC is now far less advantageous to the average taxpayer after the restructuring of the process/rules a few years back. Do you suppose he does not know the rule is actually written?

[Black Bart]

Very interesting.

As I mentioned in my previous post, the One-Year Rule supposedly allows the agent negotiating the installment agreement to disregard (for one year) the IRS National Standards (which can be obtained from the IRS website) for the allowable monthly expenses of the TP. (When you complete Form 433, you list all the TP's monthly expenses.) The agent will have tendered an amount the TP must pay based on these Natl Standards, but you request the One-Year Rule, which in effect uses the TP's current -- documented, of course -- monthly expenses no matter how high they may be. Therefore, the installment agreement for the first year will be the difference between TP income and actual expenses, not the difference between TP income and Natl Standard expenses.

It'd be great if it worked. I submitted one to get $300 payments on $3K debt reduced to $200. Our expenses knocked the net down to that (okay, we jacked it around a little), but the Taxpayer Advocate invoked National Standards; said he should pay $2,000 per month (yes, two thousand). So much for TA help; told her that was crazy and forget the whole thing.

While NYEA's probably right about the cites, etc. and I generally don't believe in conspiracy theories, I think it's possible some "Bourne" policies exist. This is anecdotal and not IA, but the principal's the same -- a close friend working 941s at Memphis IRS once told me they indeed had a "tolerance" (for penalties or interest or what else I don't know). While unwilling to give details (still worked there), he said CPAs occasionally called asking "What's your tolerance?" and he would reply "Tolerance, sir?" (denial of policy existence).

I'll bet if the one year rule is allowed, it's probably on a case-by-case basis and depends (as it so often does) on which agent you're lucky enough to connect up with.

[JG EA]

And to add to erchess' comments, Is it really such a good thing (as this article suggested) to pay less and let the statute run out in 10 years with money unpaid? If it were me I would not want such a thing hanging over my head for a decade. I would not recommend it for a client. Shouldn't the whole thing be set up with the correct amount the TP can afford in the first place?

Although I do appreciat the thoughts in the article that the IRS may say they are paying too much for other things like their mortgage and try to get too much in payments for the IRS. That's where we can help by making the payments something the TP can live with for several years.

On the other side of the coin, I have negotiated with the IRS to extremely reduce the amount paid or for NO payment. But this has been with severe poverty due to illness or mental difficulties and not just to avoid paying a bill they incurred and just don't want to pay.

[erchess]

Now I am confused

I don't know how many installment agreements I have done but I would guess several dozen but all were of the 433 A variety. I never sent in information on the client's expenses but I will have to say that all of the clients were enthusiastically willing and able to pay within five years and usually less, they just could not or did not want to pay it all right away and could not or did not want to borrow from other sources. I would guess that if necessary to avoid levies all of my clients would have paid (perhaps with funds borrowed from their bank) within no more than 90 days. I just couldn't sell them on the wisdom of that course of action.

Question - have things changed or is approval of a plan that involves paying an IRS debt with their interest rates within five years while also staying current on taxes from later years still automatic?

[New York Enrolled Agent]

As I mentioned in my previous post, the One-Year Rule supposedly allows the agent negotiating the installment agreement to disregard (for one year) the IRS National Standards (which can be obtained from the IRS website) for the allowable monthly expenses of the TP. (When you complete Form 433, you list all the TP's monthly expenses.) The agent will have tendered an amount the TP must pay based on these Natl Standards, but you request the One-Year Rule, which in effect uses the TP's current -- documented, of course -- monthly expenses no matter how high they may be. Therefore, the installment agreement for the first year will be the difference between TP income and actual expenses, not the difference between TP income and Natl Standard expenses.

Ok - thanks - now I see what was meant by the one-year rule.

May I suggest the author of the article might have engaged in some hyperbole. The one-year rule is WRITTEN in the IRM. I'll paste one part of §5.15.1.10

[start]The amount allowed for excessive necessary or conditional expenses depends on the taxpayer's ability to full pay the liability plus projected accruals within five years and on the taxpayer's individual facts and circumstances. If the liability plus accruals can be paid within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses. If the taxpayer cannot pay within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses for up to one year in order to modify or eliminate the expense. (See IRM 5.14.1, Installment Agreements) [end]

Contrary to what the article purports - It's hard to understand how any IRS employee can say it doesn't exist. It is written in the IRM. The one year rule is also noted in §5.8.5.6.4 where it says the rule can be used for an IA but not an OIC.

[Burke]

So now we have an UNWRITTEN rule that ROs and ACS personnel are trained in. After training, some then deny it even exists. Sounds like a Bourne mystery. It seems to me that if it's not written, it's not a rule. Perhaps someone who read the article could tell us exactly what this rule says.

As I mentioned in my previous post, the One-Year Rule supposedly allows the agent negotiating the installment agreement to disregard (for one year) the IRS National Standards (which can be obtained from the IRS website) for the allowable monthly expenses of the TP. (When you complete Form 433, you list all the TP's monthly expenses.) The agent will have tendered an amount the TP must pay based on these Natl Standards, but you request the One-Year Rule, which in effect uses the TP's current -- documented, of course -- monthly expenses no matter how high they may be. Therefore, the installment agreement for the first year will be the difference between TP income and actual expenses, not the difference between TP income and Natl Standard expenses.

[Nashville]

Nyea

I am certain that Snag meant "installment agreement" although he stated "installment sales" in his original post. Nothing else in the thread or in the article itself has applied to installment "sale" issues.

Thanks for the cites, and appreciate your involvement in the thread.

[New York Enrolled Agent]

This thread is quite "interesting", if not spread all over the place.

It started with an installment SALE and is now an installment AGREEMENT.

It digressed a bit to designated (voluntary) payments which (Snags - I'm not sure if you wanted cites for this or the one-year rule) actually are supported by Rev Proc 2002-26, the IRM at 5.1.2.8 and the Courts.

But the most interesting part is the quote attributed to Mr. Moore: "This unwritten rule applies to all installment agreement cases. Every collection agent knows about it. They are trained in it."

So now we have an UNWRITTEN rule that ROs and ACS personnel are trained in. After training, some then deny it even exists. Sounds like a Bourne mystery. It seems to me that if it's not written, it's not a rule. Perhaps someone who read the article could tell us exactly what this rule says.

[taxea]

One-Year-Rule

Hi Bruce...would you be kind enough to email the article to taxea@hawaii.rr.com or fax it to 808-621-4505. thanks, taxea

[Burke]

I have the article. In it he states "This unwritten rule applies to all installment agreement cases. Every collection agent knows about it. They are trained in it. Yet, they won't tell you about it. In some cases, if you ask about it, they'll deny it even exists." He does not explain how HE knows about it or why any auditor should feel compelled to apply it.
According to him the One-Year Rule disregards the National Standards (allowable expenses) for one year, using another criteria, but that often the IRS never comes back and readjusts the agreement, allowing the TP to continue that payment until the Statute of Limitations expires. I would assume he has used this technique succesfully in his past practice or he would not have written about it.

[taxea]

One-Year-Rule

I sent him an email asking for a copy of the article. Once I read it I will start researching IRS sites for anything that might support it. Let you know what I find. taxea

[Snaggletooth]

Observations

Clearly, this is an article dedicated to legal practice, procedural axioms, and strategy. I seriously doubt that there exist any cites in the codes, regs, rulings, etc. to support Mr. Moore.

Does not mean that Moore's strategy won't work. (Contrarian: does not mean that it will either, but there must be some degree of confidence for an attorney to write such an article and allow himself to be identified as the author.)

[taxea]

One-Year-Rule

"Are you sure IAs allow this procedure? "

This is why I want to read the article. At least the client can pay on the principal to get it lower before dealing with the interest and asking for a waiver of penalty. taxea

[New York Enrolled Agent]

Snag...mahalo nui from Wahiawa. I appreciate your references and will research this through the author.

EDIT: I checked Moore's site and he has an interesting and useful article on voluntary payments to the IRS. Boy..the things they don't tell you....According to Moore these payments can be designated strictly to the principle portion of the outstanding tax liability.


This changes my whole procedure for installment agreements.taxea

First - One small point - I think Mr. Moore needs to change principle to principal.

Are you sure IAs allow this procedure? When a taxpayer signs an IA, I believe the payments are agreed to be paid off in the best interests of the United States. This is a trade-off for being allowed to pay off the liability over time. Take a look at the instructions in Form 9465 and see if you agree.

[Zee]

Can anyone provide a link to the article?