SEE - Special Enrollment Exam Quiz: Collection Alternatives
15 questions · exam conditions
0:00
Collection AlternativesQuestion 1 of 15

A taxpayer, age 62, owes $42,000 of assessed income tax. He has $260,000 in cash and marketable securities and a home worth $480,000 with a modest mortgage. His monthly income exceeds his documented living expenses by $900. He wants to submit an offer in compromise for $15,000 because paying the liability would deplete savings he plans to use in retirement.

Which of the following is correct regarding the proposed offer in compromise?

The IRS may accept the offer on the effective tax administration ground because using retirement savings to pay a tax debt is an economic hardship as a matter of law.
The IRS will evaluate the offer as a doubt-as-to-collectibility offer because his disposable income is only $900 per month, and the offer will be measured against that income alone.
An offer in compromise is not realistic because he can pay the liability in full from available assets and his reasons are not the exceptional circumstances that effective tax administration requires.
The IRS will not consider any offer in compromise from a taxpayer who has liquid assets sufficient to pay the liability in full, so an installment agreement is his only option.
← Back to quizzes

SEE - Special Enrollment Exam Quiz

SEE - Special Enrollment Exam Quiz: Collection Alternatives

Practice Collection Alternatives in SEE - Special Enrollment Exam with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Collection Alternatives, giving you a quick way to practice the rules, question types, and explanations that matter most for SEE - Special Enrollment Exam.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A taxpayer, age 62, owes $42,000 of assessed income tax. He has $260,000 in cash and marketable securities and a home worth $480,000 with a modest mortgage. His monthly income exceeds his documented living expenses by $900. He wants to submit an offer in compromise for $15,000 because paying the liability would deplete savings he plans to use in retirement.

Which of the following is correct regarding the proposed offer in compromise?

  1. The IRS may accept the offer on the effective tax administration ground because using retirement savings to pay a tax debt is an economic hardship as a matter of law.
  2. The IRS will evaluate the offer as a doubt-as-to-collectibility offer because his disposable income is only $900 per month, and the offer will be measured against that income alone.
  3. An offer in compromise is not realistic because he can pay the liability in full from available assets and his reasons are not the exceptional circumstances that effective tax administration requires. (correct answer)
  4. The IRS will not consider any offer in compromise from a taxpayer who has liquid assets sufficient to pay the liability in full, so an installment agreement is his only option.
Explanation: Treas. Reg. § 301.7122-1(b). A doubt-as-to-collectibility offer requires a showing that the taxpayer cannot pay the full liability; with $260,000 in liquid assets against a $42,000 debt, that basis fails. An effective tax administration offer is available only where collection would create an economic hardship or would be inequitable, typically because of exceptional circumstances; the desire to preserve savings for retirement is not such a circumstance. Choice C is therefore correct. Choice A misstates the hardship standard; the use of savings to pay a debt is not economic hardship as a matter of law. Choice B is wrong because future disposable income is only one component of reasonable collection potential, which also includes net realizable equity in assets. Choice D is wrong because no categorical bar prohibits offers from taxpayers with liquid assets; the offer would be evaluated on its merits.

Question 2

An unmarried taxpayer owes $43,000 of tax for 2024 plus $8,000 of related penalty and interest, for a combined assessed balance of $51,000. She has filed all required returns and has no other collection history. She wants to set up a long-term online payment agreement to pay the balance over 5 years.

Which of the following is correct regarding her request?

  1. She cannot use the online long-term agreement because the combined balance exceeds $50,000, but she may still apply for an installment agreement by phone or Form 9465. (correct answer)
  2. She can use the online long-term agreement because the tax portion of the balance is below $50,000; penalties and interest do not count toward the online limit.
  3. She can use the online long-term agreement if she agrees to direct debit, because the direct debit program has no dollar ceiling for individuals.
  4. She cannot use any installment agreement because the combined balance exceeds $50,000, so an offer in compromise is her only option.
Explanation: IRC § 6159 and the IRS online payment agreement procedures (Form 9465 instructions). The online long-term payment agreement for individuals is limited to $50,000 of combined tax, penalties, and interest, and all required returns must be filed. Here the combined balance is $51,000, so the online long-term application is not available; the taxpayer may still obtain a regular installment agreement by telephone or by filing Form 9465, with financial information generally required. Choice A is correct. Choice B misstates the limit, which applies to the combined balance rather than the tax portion alone. Choice C invents a direct-debit exception to the online ceiling. Choice D is wrong because a balance above $50,000 is not a bar to an installment agreement; the online application limit is not an eligibility ceiling for all installment agreements.

Question 3

Which of the following is correct regarding the termination of an installment agreement by the IRS?

  1. The IRS may terminate an installment agreement when the taxpayer fails to pay an installment when due, but generally only after providing the taxpayer 30 days' written notice of the proposed termination. (correct answer)
  2. The IRS may terminate an installment agreement without prior notice when the taxpayer's financial condition improves significantly over time, although the taxpayer may generally appeal the termination to the Appeals Office.
  3. Once an installment agreement has been in effect for one year, the IRS generally cannot terminate it unless the taxpayer committed fraud or provided false information in obtaining the agreement.
  4. The IRS must obtain the taxpayer's written consent before terminating an installment agreement, and the taxpayer generally has 90 days to cure a missed payment before a termination takes effect.
Explanation: IRC § 6159(b) and (e). The IRS may terminate, alter or modify an installment agreement if the taxpayer fails to pay an installment or another tax liability when due, fails to provide requested financial information, provided inaccurate or incomplete information, or has a significant change in financial condition, and it may terminate an agreement if collection is in jeopardy. Except in the jeopardy case, the action may not take effect until at least 30 days after the IRS gives the taxpayer notice explaining why it intends to act. A taxpayer may seek independent administrative review of a termination under IRC § 6159(e). Choice A is correct. Choice B is wrong because a significant improvement in the taxpayer's financial condition does not permit termination without notice; the 30-day notice requirement applies to that ground as well. Choice C is wrong because § 6159(b) contains no one-year protection; no such rule exists. The IRS may act on any of the statutory grounds at any time during the agreement, after giving the required notice. Choice D is wrong because the IRS does not need the taxpayer's consent to terminate an agreement, and the notice period is 30 days; there is no 90-day cure period.

Question 4

A single taxpayer owes $9,200 of assessed income tax, penalties, and interest for 2023. He entered into an installment agreement for his 2019 tax year liability in 2021 and paid it in full in 2023. He has filed every required return and is current on his 2025 obligations. He now requests an installment agreement and proposes to pay the 2023 balance in 36 equal monthly installments.

Which of the following is correct regarding his request?

  1. He qualifies for a guaranteed installment agreement because the balance does not exceed $10,000 and the full liability will be paid within 3 years.
  2. He is not eligible for a guaranteed installment agreement because of the earlier agreement, but he qualifies for a streamlined installment agreement without a financial statement. (correct answer)
  3. He is not eligible for a guaranteed or streamlined installment agreement and must file Form 433-A before the IRS will consider any monthly arrangement.
  4. He qualifies for a guaranteed installment agreement because the earlier agreement was fully satisfied, and only an outstanding agreement counts in the 5-year lookback.
Explanation: IRC § 6159(c). A guaranteed installment agreement requires an aggregate assessed balance of $10,000 or less, no installment agreement during the 5 preceding taxable years, and payment in full within 3 years. The taxpayer's 2021 through 2023 installment agreement falls within the 5-year period, so the guaranteed agreement is unavailable. Choice B correctly states the result: under the streamlined installment agreement procedures implementing IRC § 6159, an individual assessed balance of $25,000 or less payable within 72 months does not generally require a financial statement. Choice A ignores the prior-agreement condition. Choice C is wrong because the streamlined program remains available and does not require Form 433-A. Choice D misstates the lookback rule; a completed agreement still counts.

Question 5

A single taxpayer, age 70, owes $38,000 in assessed income tax for 2016 through 2019. His only income is $1,800 per month in Social Security benefits, and his documented monthly living expenses are $2,100. The IRS agrees that he has no assets and no ability to pay, and places the account in currently not collectible (CNC) status in 2025.

Which of the following is correct regarding the CNC status?

  1. The IRS will stop all collection activity, interest and penalties will stop accruing, and the 10-year collection statute will be suspended while the account remains in CNC.
  2. If the taxpayer's financial condition improves while the account is in CNC, the IRS may not resume collection because the CNC determination permanently closes the account.
  3. If the taxpayer later files a return showing a refund, the IRS may not offset the refund because the account is in CNC rather than in active collection.
  4. The IRS will not levy while the account remains in CNC, but interest and penalties continue to accrue and the collection statute is not suspended merely because the account is in CNC. (correct answer)
Explanation: IRM 5.16 (Currently Not Collectible) and IRC § 6502(a). CNC status is a discretionary, temporary suspension of collection activity based on the taxpayer's inability to pay without economic hardship. It does not discharge the liability, stop statutory interest or penalties from accruing, or toll the 10-year collection statute, and refunds may still be offset against the debt. The IRS may later take the account out of CNC and resume collection if the taxpayer's financial condition improves. Choice D is therefore correct. Choice A states the opposite of the accrual and CSED rules. Choice C is wrong because CNC status does not block refund offset. Choice B is wrong because a CNC determination is not permanent.

Question 6

After a trial in 2024, the Tax Court entered a final decision sustaining a deficiency of $18,000 plus penalties against a taxpayer, and the decision was not appealed. In 2025 the taxpayer obtained a legal opinion that the Tax Court misapplied the law. She prepares an offer in compromise based on doubt as to liability, offering to pay 60% of the assessed amount.

Which of the following is correct regarding the offer?

  1. The IRS may consider the offer because doubt as to liability applies whenever a genuine dispute about the correct tax liability exists, even after a court decision.
  2. The IRS may not accept the offer on the doubt-as-to-liability basis because the final court decision established the liability; the taxpayer may still pursue other collection alternatives. (correct answer)
  3. The IRS may not accept the offer, and the court decision also bars the taxpayer from requesting an installment agreement for the assessed amount.
  4. The IRS will treat the offer as one based on doubt as to collectibility because the liability cannot be relitigated, and will evaluate the offer using the taxpayer's financial information.
Explanation: Treas. Reg. § 301.7122-1(b)(1). Doubt as to liability exists where a taxpayer demonstrates a genuine dispute about the existence or amount of the correct tax liability, but it does not exist where the liability has been established by a final decision of a court of competent jurisdiction. The final, unappealed Tax Court decision establishes the liability, so the IRS should not accept the offer on the doubt-as-to-liability basis. Choice B is correct: that bar does not extinguish other collection alternatives, including installment agreements, currently not collectible status, or an offer based on a proper ground. Choice A states the general rule but ignores the final-decision exception. Choice C wrongly extends the bar to installment agreements. Choice D is wrong because the IRS does not convert an improperly based offer into another offer type; a new offer on a proper basis would be required.

Question 7

In April 2024, the IRS accepted a taxpayer's offer in compromise of $15,000, payable in 24 monthly installments, on the condition that she remain current on all filing and payment obligations for 5 years. In October 2025, after making 18 installment payments, she stops paying and has not filed her 2025 return.

Which of the following is correct regarding the IRS's options?

  1. The IRS must continue to accept installments under the offer and cannot collect the original liability because the compromise is a final resolution of the debt.
  2. The IRS may collect only the unpaid balance of the $15,000 offer, because the original liability was extinguished when the offer was accepted.
  3. The IRS may rescind the acceptance and resume collection of the original liability, reduced by the payments already made under the offer. (correct answer)
  4. The IRS may rescind the acceptance, but it must first refund the payments made under the offer before it can collect the original liability.
Explanation: IRC § 7122 and the terms of the accepted Form 656 (Offer in Compromise). An accepted compromise remains binding while the taxpayer performs its terms. If the taxpayer defaults, for example by missing installment payments or failing to remain current on filing and payment obligations, the IRS may either collect the remaining amount of the offer or rescind the acceptance and reinstate the original liability, giving credit for payments already made. Choice C is correct. Choice A ignores the default remedies. Choice B is wrong because the original liability is not extinguished when the offer later goes into default. Choice D is wrong because payments made under an accepted offer are not refunded when the acceptance is rescinded.

Question 8

A married couple owes $32,000 of assessed individual income tax, penalties, and interest for 2024. They are current on every required filing and have no other collection history. They want to pay the balance over 6 years through a streamlined installment agreement, but they refuse to authorize withdrawals from their bank account and insist on mailing monthly checks.

Which of the following is correct regarding their request?

  1. They qualify for a streamlined installment agreement because the balance does not exceed $50,000 and the 72-month term is available without a financial statement.
  2. They do not qualify for a streamlined installment agreement because the balance exceeds $25,000, so a financial statement is required regardless of the payment method.
  3. They qualify for a streamlined installment agreement only if they first reduce the balance below $25,000, because no streamlined tier exists for balances above that amount.
  4. They do not qualify at this balance for a streamlined agreement without direct debit or payroll deduction; with mailed checks, a regular agreement requiring financial information would apply. (correct answer)
Explanation: Under IRC § 6159 and the IRS streamlined installment agreement procedures, an assessed balance of $25,000 or less can be paid within 72 months (or by the collection statute expiration date, if earlier) without a financial statement. For assessed balances from $25,001 to $50,000, streamlined terms are available to an individual or out-of-business sole proprietor only when the agreement is paid by direct debit or payroll deduction; at that balance, a mailed-check agreement does not qualify for the streamlined program and generally requires financial information. Because this couple owes $32,000 and will pay only by mailed checks, the streamlined option is unavailable, so Choice D is correct. Choice A ignores the payment-method condition for balances above $25,000. Choice B is wrong because the upper streamlined tier exists when the direct debit or payroll deduction requirement is met, and Choice C is wrong because a streamlined tier does exist for balances above $25,000 when that requirement is met.

Question 9

Which of the following is correct regarding the user fees for installment agreements and short-term payment plans in effect for 2025?

  1. A taxpayer whose income falls below the federal poverty guidelines pays no user fee for any installment agreement, including one that does not use direct debit.
  2. A short-term payment plan of 180 days or less carries a $22 user fee, which is waived when the taxpayer submits the request electronically.
  3. The user fee for a non-direct-debit installment agreement is $69 whether requested online or by telephone, and a low-income taxpayer is charged $43.
  4. A direct debit installment agreement costs $22 when requested online and $107 when requested by telephone or in person. (correct answer)
Explanation: The IRS installment agreement user fee schedule, set out in the Form 9465 instructions and in effect through December 31, 2025, charges $22 for a direct debit installment agreement requested online and $107 when the same agreement is requested by telephone, mail, or in person. Choice D states this correctly. Choice A misstates the low-income rule: for a qualifying low-income taxpayer the direct debit fee is waived, but a non-direct-debit agreement carries a $43 fee that is reimbursed only upon successful completion, so there is no waiver for every type of agreement. Choice B misstates the short-term plan: a plan of 180 days or less carries no user fee. Choice C misstates the channel: the $69 non-direct-debit fee applies only to online requests; by telephone, mail, or in person the fee is $178, even though the $43 low-income amount it cites is accurate.

Question 10

Which of the following is correct regarding an offer in compromise?

  1. An offer in compromise may be submitted only on the ground of doubt as to liability, because the IRS may not compromise a liability that the taxpayer admits is correct and owes in full at the time the offer is filed.
  2. Filing an offer in compromise suspends the running of the collection statute and prevents the IRS from levying while the offer is pending, but the suspension ends immediately when the IRS rejects the offer.
  3. The IRS generally will not accept an offer in compromise if the liability could be paid in full through an installment agreement, and the taxpayer must have filed all required returns and be current on estimated tax payments before the offer is considered. (correct answer)
  4. The IRS will generally accept an offer in compromise whenever the offered amount exceeds the taxpayer's net equity in assets, because the taxpayer's future income and earning potential are not considered when evaluating the offer and the IRS looks only to the taxpayer's current assets.
Explanation: IRC § 7122 authorizes the IRS to compromise a liability, and the Form 656 instructions require the taxpayer to have filed all required returns and made required estimated tax payments before the offer will be considered; the IRS will not accept an offer when the liability could be paid in full through an installment agreement. Choice C states both requirements. Choice A misstates the grounds: doubt as to collectibility and effective tax administration are valid grounds, and a taxpayer who does not dispute the liability may submit an offer on those grounds. Choice B misstates the timing: when an offer is rejected, the suspension of the collection statute continues for 30 days after the rejection and during any appeal, so the suspension does not end immediately. Choice D misstates the evaluation standard: reasonable collection potential includes the taxpayer's equity in assets plus the present value of future income, so net equity alone is not the measure, and the IRS is not required to accept an offer merely because it exceeds net equity.

Question 11

Which of the following is correct regarding the guaranteed installment agreement under IRC § 6159(c)?

  1. An individual qualifies only if the tax owed, not counting interest and penalties, is $10,000 or less, the liability will be paid in full within three years, and in the preceding five years the individual has not failed to file a return or pay tax shown on a return or entered into an installment agreement. (correct answer)
  2. A taxpayer qualifies when the unpaid tax is $25,000 or less, the agreement runs no longer than 72 months, and the taxpayer is an individual or out-of-business sole proprietor whose income and expenses are shown on Form 433-F and whose returns are current and filed on time in all prior years.
  3. A taxpayer qualifies when the balance due is $10,000 or less and the taxpayer agrees to pay by direct debit from a bank account, regardless of the taxpayer's prior compliance history, because the direct debit eliminates the need for a compliance check.
  4. An individual qualifies only if the combined tax, interest, and penalties are $10,000 or less, the liability will be paid in full within three years, and the individual has filed all required returns for the preceding five years.
Explanation: Governing authority: IRC § 6159(c). The IRS must accept an installment agreement from an individual when the aggregate tax liability, determined without regard to interest, penalties, additions to tax, and additional amounts, is $10,000 or less; the individual has not, during the preceding five years, failed to file a required return, failed to pay a tax shown on a return, or entered into an installment agreement; the IRS determines the individual cannot pay in full when due; the agreement provides for full payment within three years; and the individual agrees to comply during the agreement. Choice A states required conditions correctly. Choice D misstates the measure of the limit: the $10,000 ceiling excludes interest and penalties, so an individual whose tax is $10,000 or less can qualify even if interest and penalties push the balance above $10,000. Choice B misstates the threshold and term: $25,000 and 72 months describe a streamlined agreement, not the guaranteed agreement. Choice C is wrong because the payment method does not replace the five-year compliance history.

Question 12

Which of the following is correct regarding an account that the IRS has reported as currently not collectible?

  1. An account reported as currently not collectible is a written agreement under which the taxpayer makes reduced monthly payments until the liability is paid in full or the collection statute expires.
  2. Interest and penalties continue to accrue while the account is currently not collectible, and the IRS may resume collection if the taxpayer's ability to pay improves before the collection statute expires. (correct answer)
  3. The IRS reports an account as currently not collectible only after the taxpayer signs a waiver extending the collection statute for an additional five years and agrees to file all returns during the period.
  4. A currently not collectible account suspends the accrual of interest and penalties on the liability, and the IRS releases any notice of federal tax lien that was filed with respect to that liability.
Explanation: IRS Pub. 594, The IRS Collection Process, describes currently not collectible status. CNC is a temporary suspension of collection when the taxpayer has no ability to pay and no assets from which the liability could be satisfied. Interest and penalties continue to accrue, the liability is not forgiven, and the IRS may resume collection if the taxpayer's financial condition improves before the collection statute expires. Choice B states the rule. Choice A confuses CNC with a partial payment installment agreement: CNC involves no payment schedule. Choice C misstates the procedure: no waiver of the collection statute is required to place an account in CNC status. Choice D misstates both the accrual rule and the lien rule: interest and penalties keep running during CNC, and reporting an account as currently not collectible does not release a filed notice of federal tax lien.

Question 13

Which of the following is correct regarding installment agreements and payment plans requested through the Online Payment Agreement application in 2025?

  1. A business may use the online application to set up a long-term installment agreement of up to $50,000, provided the business has filed all required returns and agrees to payment by direct debit.
  2. The online application may be used for a short-term payment plan of 180 days or less only when the balance is less than $50,000 and the plan will be paid in full by the end of the plan.
  3. An individual may use the online application to set up a long-term installment agreement when the combined balance of tax, penalties, and interest is $50,000 or less and all required returns have been filed. (correct answer)
  4. The online application is available for any balance, but a taxpayer who owes more than $50,000 must first obtain a collection due process hearing before the plan can be approved.
Explanation: The Online Payment Agreement application is the IRS's self-service portal for installment agreements under IRC § 6159(a). For individuals, the online application will establish a long-term installment agreement when the combined balance of tax, penalties, and interest is $50,000 or less and all required returns have been filed. Choice C states this rule. Choice A misstates the party: businesses cannot use the online application and must contact the IRS; no online business limit applies. Choice B misstates the short-term threshold: a short-term payment plan of 180 days or less is available online when the balance is less than $100,000, not $50,000. Choice D is wrong because the online application is not available for any balance, and a balance above $50,000 does not require a collection due process hearing to obtain an installment agreement.

Question 14

Which of the following is correct regarding a streamlined installment agreement for 2025?

  1. A streamlined installment agreement is generally available to any taxpayer whose total liability, including a trust fund recovery penalty, is $50,000 or less, regardless of the payment method chosen.
  2. A streamlined installment agreement is generally approved without a financial statement when an individual's assessed balance is $25,000 or less and the liability will be paid within 72 months. (correct answer)
  3. A streamlined installment agreement is available when the taxpayer's disposable income will pay the liability within 36 months, and a financial statement must be submitted with the request.
  4. A streamlined installment agreement is available only for balances of $25,001-$50,000 and requires that all payments be made by direct debit from the taxpayer's bank account.
Explanation: Streamlined installment agreements are approved under the IRS's streamlined criteria implementing IRC § 6159(a). An individual taxpayer with an assessed balance of $25,000 or less qualifies when the liability will be paid within 72 months (or before the collection statute expires, if sooner), and a financial statement is generally not required. Choice B states this rule. Choice A misstates the scope: the streamlined criteria do not cover a trust fund recovery penalty, and the $25,001-$50,000 tier is not available regardless of the payment method chosen. Choice C misstates the term: the streamlined term is 72 months, not 36 months, and a financial statement is generally not required. Choice D is wrong because the streamlined agreement also covers balances of $25,000 or less without any direct debit requirement; direct debit or payroll deduction is required only when the balance exceeds $25,000.

Question 15

A taxpayer has an assessed balance of $30,000 from 2023, and the IRS filed a Notice of Federal Tax Lien in January 2024. In March 2025, he entered into a direct debit installment agreement to pay the balance over 5 years. He now asks the IRS to withdraw the lien notice, explaining that withdrawal would help him refinance his home at a lower rate.

Which of the following is correct regarding the IRS's authority to withdraw the notice of federal tax lien?

  1. The IRS may withdraw the notice; entering into an installment agreement under § 6159, such as his direct debit agreement, is a statutory ground for withdrawal unless the agreement provides otherwise. (correct answer)
  2. The IRS may not withdraw the notice until the liability is paid in full or the collection statute expires, because withdrawal is available only after a release of the lien.
  3. The IRS may withdraw the notice only if the withdrawal will facilitate collection, and the taxpayer's wish to refinance does not satisfy that standard.
  4. The IRS may withdraw the notice only after a Collection Due Process hearing, because lien withdrawal is determined exclusively in that forum.
Explanation: IRC § 6323(j)(1). The IRS may withdraw a notice of federal tax lien if the filing was premature or erroneous, if the taxpayer has entered into an installment agreement under § 6159 to satisfy the liability (unless the agreement provides otherwise), if withdrawal will facilitate collection of the tax, or if, with the consent of the taxpayer or the National Taxpayer Advocate, withdrawal is in the best interests of the taxpayer (as determined by the National Taxpayer Advocate) and of the United States. The taxpayer's installment agreement is therefore a statutory ground; the statute does not require that it be paid by direct debit. The IRS separately runs an administrative direct-debit withdrawal program with its own balance and payment criteria, but that is IRS policy, not the statutory test. A refinancing purpose by itself is not a statutory ground. Choice A is correct. Choice B confuses withdrawal of the notice with release of the lien under IRC § 6325; withdrawal does not require payment in full. Choice C ignores the installment-agreement ground and treats facilitation of collection as the only ground. Choice D is wrong because lien withdrawal is requested by the taxpayer, typically on Form 12277, and is not a determination made exclusively in a CDP hearing.