Generally, if a taxpayer seeks to settle a case because of an inability to pay, there is a possibility that the taxpayer may subsequently come into some money or property. The taxpayer may be an individual or corporate taxpayer, who may acquire future assets through earnings, inheritance, or gifts. Therefore, as one of the settlement terms in a collectability settlement, the United States Attorney should consider requiring the taxpayer to enter into an individual or corporate collateral agreement. See Tax Division Settlement Reference Manual, located at http://www.justice.gov/tax/readingroom/settlpdf/Settlement%20Reference%20Manual%202009.%2004-02-09.pdf. This agreement, known as a "future income collateral agreement," requires the taxpayer to pay percentages of annual income (as defined in the agreement) over a period of years. The future income collateral agreement obligates a taxpayer to pay graduated percentages (usually ranging between 20 to 50 percent) of “annual income” that exceeds a threshold or floor for each year the agreement is in force. The United States Attorney can obtain guidance concerning acceptable terms in collateral agreements, including the duration of the agreement and the percentages of income, from the Tax Division’s Civil Trial Sections and Office of Review.

[updated April 2018