The IRS has issued final regulations ( TD 9473 , 11/24/09) relating to the payment of tax liabilities under installment agreements. The final regulations are effective 11/25/09.

Section 6159 permits the IRS to enter into installment agreements for the payment of any unpaid tax. Taxpayers may request an administrative review of an IRS decision to terminate an installment agreement and may appeal rejections of proposed installment agreements. Reg. 301.6159-1(c) explains that a proposed installment agreement is not accepted until the IRS notifies the taxpayer or the taxpayer's representative of the acceptance. Acceptance of an installment agreement does not reduce the taxes, interest, or penalties owed. The penalties may continue to accrue at a reduced rate following the agreement's acceptance, however, as provided in Section 6651(h) .

The IRS generally has discretion to accept or reject any proposed installment agreement. Acceptance is required in the case of a liability of an individual for income taxes, however, if all of the following requirements are satisfied:

(1) The aggregate liability (not including interest, penalties, additions to tax, and additional amounts) does not exceed $10,000.
(2) The taxpayer (and the taxpayer's spouse, if the liability relates to a joint tax return) has not during any of the preceding five tax years (a) failed to file any income tax return, (b) failed to pay any required income tax, or (c) entered into an installment agreement for the payment of any income tax.
(3) The IRS determines that the taxpayer is financially unable to pay the liability in full when due.
(4) The installment agreement requires the taxpayer to make full payment of the liability within three years.
(5) The taxpayer agrees to comply with the provisions of the Code while the agreement is in effect.
Section 6159(a) was amended by the American Jobs Creation Act of 2004 (AJCA) to allow the IRS to enter into installment agreements that provide for partial payment of a tax liability. The AJCA also added Section 6159(d) , which requires the IRS to review partial payment installment agreements every two years.

A commenter to proposed regulations asked that the regulations explicitly allow taxpayers to request a modification or termination of an existing installment agreement, as was stated in existing Reg. 301.6159-1(c)(3) . The IRS adopted this recommendation in Reg. 301.6159-1(e)(3) . The IRS also adopted the commenter's suggestions that the regulations require the taxpayer to comply with the installment agreement terms while a modification request is being considered and that a proposed modification will not result in a suspension of the limitations period on collection. The IRS rejected the commenter's recommendations, however, that a taxpayer's request to modify an existing agreement should be exempt from user fees, because user fees were outside the scope of the regulation project.

Prop. Reg. 301.6159-1(e)(2)(ii)(C) stated that the IRS may modify or terminate an installment agreement if the taxpayer fails to provide a financial condition update as requested. The commenter asked that the regulations explicitly state whether the IRS may terminate an installment agreement if the taxpayer provided materially inaccurate or incomplete information. The IRS revised Reg. 301.6159-1(e)(1)(i) to reflect this recommendation. The IRS may also terminate an installment agreement if collection of any liability covered by the agreement is in jeopardy.

Reg. 301.6159-1(e)(4) provides that unless the IRS determines that tax collection is in jeopardy, the IRS will provide written notice to the taxpayer at least 30 days in advance of modifying or terminating an installment agreement that is not being done at the taxpayer's request.

The taxpayer may administratively appeal, to Appeals, the modification or termination of an installment agreement. The request for an appeal must be made in the manner provided by the IRS and be done during the 30-day period beginning the day after the modification or termination is to take effect.

Reg. 301.6159-1(f) prohibits a levy from being made to collect a tax liability that is the subject of an installment agreement:

While a proposed installment agreement is pending with the IRS.
For 30 days immediately following the rejection of a proposed installment agreement.
While an installment agreement is in effect.
For 30 days immediately following the termination of an installment agreement.
Furthermore, if the taxpayer timely appeals the rejection or termination of an installment agreement, a levy may not be made while the rejection or termination is being considered by Appeals.

These prohibitions on levy do not apply, however, if:

The taxpayer files a written notice with the IRS waiving the restriction on levy.
The IRS determines that the proposed installment agreement was submitted solely to delay collection.
The IRS determines that the collection of tax to which the agreement (or proposed agreement) relates is in jeopardy.
Even when a levy is prohibited, the IRS may take other actions to protect its interests with respect to the liability identified in the installment agreement or proposed agreement. These actions include:

Crediting an overpayment against the liability.
Filing or refilling notices of federal tax lien.
Taking action to collect from someone who is liable for the tax covered by the installment agreement or proposed agreement, but not named in the agreement.
Reg. 301.6159-1(h) requires the IRS to provide each taxpayer who is a party to an installment agreement with an annual statement. The statement must indicate the initial balance owed at the beginning of the year, the payments made during the year, and the remaining balance at year-end.