5.14.10  Payroll Deduction Agreements and Direct Debit Installment Agreements

5.14.10.1  (08-09-2010)
Overview

  1. This chapter provides procedures for processing Payroll Deduction agreements and Direct Debit installment agreements. Payroll deduction agreements are agreements where employers deduct payments from taxpayer’s wages, and mail them to the Internal Revenue Service. Direct Debit Installment Agreements allow the Service to debit taxpayers' bank accounts. Payroll Deduction agreements and Direct Debit installment agreements benefit the taxpayer by reducing the likelihood of default and lessening taxpayer burden.

5.14.10.2  (03-11-2011)
Payroll Deduction Agreements

  1. The use of Form 2159, Payroll Deduction Agreement, must be strongly encouraged when the taxpayer is a wage earner, particularly if the taxpayer defaulted on a previous installment agreement.

  2. Taxpayers should determine whether their employers will accept and process executed agreements before agreements are submitted for approval or finalized.

  3. Comptroller General decision B–45105 (signed in 1955) requires Federal Agencies to deduct and pay over the amount shown on payroll deduction agreements.

  4. Allow a reasonable period for the employer to complete the necessary bookkeeping and submit the first payment.

  5. Encourage taxpayers to hand deliver agreements to employers; otherwise mail agreements to employers. Ensure that the third party contact requirements of IRC 7602(c) have been observed before mailing agreements to employers. See IRM 5.1.17.3.1 for instructions regarding the provision of advance notice to the taxpayer of third party contact.

  6. The employer and the taxpayer must sign Form 2159 before submission to the manager for approval.

  7. Ensure TC 971 AC 043 is input on all modules within 24 hours of the taxpayer’s request for a payroll deduction agreement.

  8. If employers must be contacted during Payroll Deduction Agreements, ensure Letter 3164 A was sent previously, and Form 12175 was completed and properly routed to the Third Party Contact coordinator. (See IRM 5.14.10.2(5).)

  9. To insure proper remittance and posting, instruct employers, or request taxpayers advise their employers, to show taxpayers' names and TINs, tax form(s) and period(s) on all remittances.

  10. Determine the correct agreement locator number (ALN) , per Exhibit 5.14.1–2 for Payroll Deduction Agreements. Generation of the Form 2159 from the ICS Templates menu will automatically default the "XX" position of the ALN to "11" while allowing the initiator to select the appropriate indicator for the "YY" position of the ALN. For most circumstances, the ALN will be 1109.

5.14.10.3  (03-11-2011)
Preparation and Distribution of Form 2159, Payroll Deduction Agreement

  1. Provide the following to the taxpayer to be delivered to the employer:

    1. Form 2159;

    2. a business reply envelope addressed to the revenue officer to return the signed Form 2159; and

    3. a business reply envelope addressed accordingly to be used to mail the first payment. The correct address for this envelope can be found at http://serp.enterprise.irs.gov/databases/who-where.dr/addresses.dr/collections.htm , Service Center Collection Addresses for Form 2159.

      Note:

      Notate the purpose on each envelope, so that Form 2159 is returned to the appropriate address.

    These may be mailed directly to employers if taxpayers received Letter 3164 A or it was sent at least ten days prior to mailing the Form 2159. (See IRM 5.14.10.2(5)). (Also, see IRM 5.14.10.3(7) for cases involving members of the Armed Forces overseas.) .).

  2. Request taxpayers immediately notify their employers of payroll deduction requests and the purpose of the two envelopes.

  3. Submit the case for approval after the taxpayer and employer have executed the Form 2159. (See IRM 5.14.9.2.)

  4. After Form 2159 is approved, return the Employer's Copy to the taxpayer to give or mail to their employer, unless the taxpayer received Letter 3164 A or at least ten days have passed since it was mailed to the taxpayer, in which case the Employer's copy of Form 2159 may be mailed directly to the employer. (See IRM 5.14.10.2(5).)

  5. Provide the taxpayer with the Taxpayer’s Copy of the assembly. ).

  6. Attach the approved Acknowledgment Copy to the balance due file. Close the case on ICS by selecting "Option B" from the Installment Agreement menu. Select "Payroll Deduction" as the IA type. Use the systemically generated Form 3210 to route the case to CCP for input. A systemic history is written to ICS.

  7. If a payroll deduction agreement is made with a member of the Armed Forces overseas, forward the complete assembly to the taxpayer to give to his or her Commanding Officer or mail it directly to the Commanding Officer if Letter 3164 A was mailed at least 10 days earlier. (See IRM 5.14.10.2(5).) In these cases, the Taxpayer’s Copy of the assembly will be furnished to the taxpayer by the military establishment. . Upon receipt of the approved Acknowledgment Copy, attach to the balance due file and process the case appropriately (See IRM 5.14.10.3(6).)

5.14.10.4  (03-11-2011)
Direct Debit Installment Agreements

  1. Direct debit installment agreements should be strongly encouraged when a payroll deduction agreement is not practical or appropriate, and especially encouraged if taxpayers defaulted on previous installment agreement(s).

  2. The Direct Debit Installment Agreement (DDIA) system is a means by which funds are automatically debited from a taxpayer’s checking account for the agreed upon installment amount. Some benefits of using direct debit installment agreements are:

    1. The user fee is lower for a DDIA ($52) than it is for a regular agreement ($105);

    2. less chance of taxpayers forgetting to make their payment;

    3. less chance of a missed payment because the money was spent on other expenses;

    4. since no check is involved, there is no chance of it being lost, mishandled, misapplied, or returned as incomplete or unsigned;

    5. IRS personnel will not have to manually post checks;

    6. "float" time associated with processing paper documents is eliminated; and

    7. the installment agreement default rate is reduced.

  3. The Electronic Federal Tax Payment System (EFTPS) is used to process the DDIA by electronic funds transfer. See Publication 966, website http:www.eftps.gov or call 1-800-555-4477.

  4. Take the following steps for proper completion of a DDIA:

    1. Using "Option A" within the Installment Agreement menu on ICS, select the correct IA type: Direct Debit IA or Direct Debit Streamlined IA. This is the preferred method but "Option B" can also be used.

    2. On the Form 433-D, document the account number and bank routing number OR attach a copy of a cancelled check. The account and routing number are required fields when completing the Form 433-D, via "Option A" within the ICS application. A systemic ICS history will record the bank account information.

    3. Establish the first payment date on the Form 433-D for 60-days from the date the IA is established. Expectation is the DDIA should be input into Status 60 within 30-45 days.

    4. The taxpayer will receive one paper request (CP521) for the first payment and the User Fee. Advise the taxpayer to make the payment to the IRS lockbox address listed on the Notice.

    5. Advise the taxpayer the first payment will not be withdrawn from their bank account for approximately 90-days. The 90-days include the timeframe for the installment agreement to reach Status 60, issuance of the CP521 Notice, and verification of the taxpayer's bank account information with the financial institution.

    6. On ICS the Agreement Locator Number (ALN) will default to an "03" for the "XX" value and the highest priority value will be assigned for the "YY" value. (See Exhibit 5.14.1-2, Installment Agreement Locator Numbers.

    7. The taxpayer must sign the Form 433–D when this type of agreement is secured.

  5. After securing the taxpayer's signature on the Form 433-D and managerial approval, take the following steps for correct routing and processing the DDIA:

    1. Under "Option A" , the Forms 3210 and 433-D and the Letter 2849 are generated and printed.

    2. Forward the completed Form 433-D with the bank account information or copy of a cancelled check on the ICS generated Form 3210 for input. ALL field DDIAs are input at the Philadelphia CSCO campus. The address on the systemically generated Form 3210 is :

      Internal Revenue Submission Processing Center

      Mail Stop 4-N31.142

      2970 Market Street

      Philadelphia, PA 19104

    3. Send the closed Bal Due case file on a manually created Form 3210 to Mail Stop 5-E04.115 or on a Form 795B.

    4. Mail Letter 2849 to the taxpayer and representative, if applicable.

  6. After the taxpayer signs the Form 433-D and it is approved by the Group Manager, the agreement can be faxed to the Philadelphia CSCO Campus. The taxpayer must agree to the Form 433-D being faxed. The fax number can be found on the DDIA Liaison web page located at http://serp.enterprise.irs.gov/databases/who-where.dr/ddia_liaison.htm

  7. Occasionally, the IRS may erroneously debit a taxpayer’s bank account. Erroneous debits include IRS initiated duplicate debit entries, debit entries in an amount greater than authorized under the DDIA, and debit entries initiated for settlement earlier than authorized by the taxpayer under the DDIA.

  8. If the IRS erroneously debits the taxpayer’s bank account in violation of the DDIA, and the taxpayer does not seek indemnification directly from his bank then the IRS must return the erroneous payment to the taxpayer. Thus, once an erroneous debit has been identified, and the IRS has confirmed that the taxpayer is not seeking indemnification from his bank, the IRS should immediately take steps to return the erroneously debited funds using manual refund procedures. See IRM 5.1.12.20.1, Manual Refund Procedures. Note: In order to initiate the return of the erroneous debit, all that needs to be established is that the debit entry is erroneous. The taxpayer need not establish hardship or any other criteria. If, however, the taxpayer instructs the IRS to apply the erroneous debit entry to the tax liability, the IRS may follow the taxpayer’s instructions.

  9. Under the Small Claims Act, the IRS may reimburse taxpayers for bank fees incurred due to Service error in implementing a DDIA if the fees were incurred solely because of the Service's error and the taxpayer did not compound the problem. The claim must be filed within one year after the fee is imposed by the bank. Follow the procedures for filing a claim for bank charges due to Service loss or misplacement of a taxpayer check found at IRM 3.17.10.5.

5.14.10.5  (03-11-2011)
Direct Debit Installment Agreements for IBTF Cases

  1. Take the following steps for completion of a DDIA for an IBTF Express or CCP/IBTF-IA:

    1. Using "Option A" within the Installment Agreement menu on ICS, select the appropriate IA type: "- IBTF Express/Direct Debit Combination" , or ; "- IBTF/Direct Debit Combination"

    2. Follow the steps outlined above in IRM 5.14.10.4(4)(b-e).

    3. On ICS the Agreement Locator Number (ALN) will default to an "03" for the "XX" value and the highest priority value will be assigned for the "YY" value. Generally, the ALN will default to 0315.(See Exhibit 5.14.1-2, Installment Agreement Locator Numbers)

    4. Ensure the taxpayer signs the Form 433-D.

  2. These cases are input into Status 60 on IDRS. Only the IBTF-IA is monitored in CCP via an OI systemically created when the IA is approved. For the IBTF-DDIA combinations, information must be sent to both CCP and the Philadelphia CSCO Campus. CCP needs to receive the case file for monitoring and the Philadelphia Campus needs to receive the DDIA information to establish the DDIA processing.

  3. The IBTF Express IA is NOT monitored at CCP. Thus, no NF OI is created.

  4. Forward the case file to the Group Manager for review, approval and processing. Once the Group Manager approves the IA, take the following steps for correct routing and processing of the IBTF-DDIA:

    1. Under "Option A" , two Forms 3210, the Form 433-D and the Letter 2849 are generated and printed. Include a copy of the Form 433-D in the case file.

    2. Forward the IBTF-IA case file to CCP for monitoring on the systemically generated Form 3210 at Mail Stop 5-E04.117.

    3. Forward the IBTF Express IA case file to closed files on the systemically generated Form 3210 at Mail Stop 5-E04.115.

    4. For input of the agreement, forward the original Form 433-D with a copy of a cancelled check or the account/bank routing numbers using the systemically generated Form 3210 to:

      Internal Revenue Submission Processing Center

      Mail Stop 4-N31.142

      2970 Market Street

      Philadelphia, PA 19104

    5. Mail Letter 2849 to the taxpayer and representative, if applicable.

  5. After the taxpayer signs the Form 433-D and it is approved by the Group Manager, the agreement can be faxed to the Philadelphia CSCO Campus. The taxpayer must agree to the Form 433-D being faxed. The fax number can be found on the DDIA Liaison web page located at http://serp.enterprise.irs.gov/databases/who-where.dr/ddia_liaison.htm

5.14.10.6  (03-11-2011)
Credit (and Debit) Card Payments by Taxpayers

  1. Taxpayers may make payments, including installment agreement payments, with a credit or debit card. See IRM 21.2.1.48, Electronic Payment Options for Individuals and e-file Users, for more information.

5.14.10.7  (03-11-2011)
Electronic Funds Transfers by Taxpayer

  1. Taxpayers may make payments, including installment agreement payments, by making Electronic Funds Transfers (EFT) using the Electronic Federal Tax Payment System (EFTPS). See Publication 966, website http://www.eftps.gov or call 1-800-555-4477 for more information.


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