A Partial Pay Installment Agreement (PPIA) is one of the best tax relief programs you have ever heard about. Offers in Compromise (OIC) get all the attention for their “pennies on the dollar” debt reduction potential. But there is a lot to love about partial pay installment agreements. In some cases, partial pay installment agreements provide an even better deal. They are certainly easier and faster to qualify for than OIC.
This post will provide an in-depth analysis of the Partial Pay Installment Program. Please read it to the end to become an informed taxpayer. Understanding your options will help you be an active player in your personal tax relief program. However, only a certified tax expert, such as a tax attorney, an enrolled agent, or a CPA, can determine the best option for your particular tax liability situation.
What are partial payment installment agreements (PPIA)?
Partial payment installment agreements (PPIA) are available through the Internal Revenue Service to taxpayers who can afford to make monthly payments but lack the ability to pay their entire tax debt in time. You see, the Internal Revenue Service (IRS) only has 10 years to collect taxes from the date they were assessed. Once the time is up, the debt is forgiven. Although the IRS has special collection powers, such as tax liens and tax levies, these have little effect on taxpayers who already have bad credit and don’t have assets. In such cases, the IRS installment agreement may reduce your tax bill and allow you to pay the balance with a payment plan.
A Partial Pay Installment Agreement (PPIA) is a payment plan that doesn’t require taxpayers to pay their entire tax debt. It combines characteristics from the Offer in Compromise (OIC) program and regular IRS installment agreements. The guidelines that regulate them are set out in section 5.14.2 of the IRS Manual.
If you’re wondering which tax relief strategy is best for you, read on. This guide will provide simple yet detailed information on:
- Who qualifies for a partial pay installment agreement (PPIA)?
- How do PPIAs compare with other tax relief programs?
- When does it make sense to apply for a partial pay installment agreement?
Who qualifies for a Partial Pay Installment Agreement?
To qualify for a partial payment installment agreement, you need to:
- File and pay your tax liability on the tax returns for previous years.
- Not file for bankruptcy.
- Not have an active Offer of Compromise.
- Have no marketable assets or:
- Your equity is insufficient to allow a creditor to loan funds.
- The loan payments would exceed your disposable income and, consequently, would disqualify you for the loan.
- Your spouse owes no tax liability, is part owner of the asset, and refuses to pursue the loan.
- Your asset generates income required to finance the PPIA, and the present value exceeds your yield on its sale.
- The sale of the assets, loans on those assets, or the use of those assets to pay your taxes would create an economic hardship on you.
How do partial pay installment agreements compare with other tax relief programs?
Other IRS installment agreements base your monthly payments on the amount of taxes you owe. However, a Partial Payment Installment Agreement (PPIA) considers your living expenses to determine what you can afford to pay each month. Additionally, a Partial Payment Installment Agreement may offer a longer repayment term than the typical 36 or 72 months you get with the more conventional guaranteed and streamlined installment agreements.
As long as you are current with your payments, the IRS cannot take any additional collection actions. However, you will need to provide a financial statement and supporting financial documents.
The IRS re-evaluates every two years
Every two years, they will re-evaluate the terms of your Partial Payment Installment Agreement (PPIA) to see whether you can pay more. Keep organized, detailed records. Remember, providing detailed financial information to the IRS can be risky. Any information you volunteer can be used against you.
Consult with a tax relief firm that has tax attorneys on staff before making a decision.
Partial Pay Vs. Other IRS Installment Agreements
- Tax forgiveness. With a partial payment installment agreement (PPIA), you don’t have to pay your entire tax debt. That is the big win. Unfortunately, you first need to prove to the IRS that you cannot pay the full amount before the statute of limitations ends. Other installment agreements, particularly those for less than $50,000, don’t require much in the way of financial documentation.
- Two-year review. Unlike other installment agreements, partial pay installment agreements come with a 2-year review of your financial situation. If you now own assets you could sell, or your income has grown significantly, the IRS may reconsider the terms of your PPIA.
- Longer application process. Partial pay installment agreements also take longer to process than other installment agreements. You can process a streamlined IRS installment agreement online with a few clicks, but a partial payment installment agreement request may take up to a month to complete.
Partial Pay Installment Agreement (PPIA) Vs. Offer in Compromise (OIC)
- Offers in compromise (OIC) take longer to approve. Partial payment installment agreements are easier to apply for and will take 30 days or less to process. An offer in compromise (OIC), on the other hand, takes 5 to 9 months to complete. That is 3 to 6 months for the IRS to determine whether you qualify and 2 to 3 months for an IRS lawyer to review and accept the deal.
- The 5-year probationary period. If the IRS does approve your OIC, it comes with strings attached: the 5-year probationary period. If during the next 5 years you don’t stay current on your tax payments or tax filing, the offer in compromise is canceled. The IRS keeps your money, and you go back to square one.
- Statute of limitations extension. It can take up to a year for the IRS to approve an OIC. During this time, the IRS has to collect taxes on your account is extended.
Does this mean you shouldn’t apply for the Offer in Compromise (OIC) Program? Not at all. The take-home point here is that you need to consider all your options before committing to any particular tax relief program. If you successfully get an Offer in Compromise (OIC) approved, watch your collection statute expiration date. Once the collection statute expiration date passes, the balance of your tax liability should be forgiven.
Applying for an IRS Installment Agreement
When you’re ready to apply for a PPIA, you’ll need to:
- Complete Form 9465, IRS Installment Agreement Request Form. Figuring your monthly payment is a rather complex process, so experts recommend you seek the assistance of a tax professional to ensure you calculate your monthly payment accurately.
- Complete Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals or Form 433-B (Collection Information Statement for Businesses), or Form 433-F (Collection Information Statement). This will allow you to show the IRS that you are unable to pay your taxes. This form is used for an Offer in Compromise (OIC) as well.
- Collect three months of supporting financial documentation for the income and expenses claimed on Form 433-A, Form 433-B, or Form 433-F.
- Write a letter requesting a partial payment installment agreement.
Also, you must submit a filing fee along with your first month’s payment. The amount of the fee depends on the method of payment you choose.
The Partial Payment Installment Agreement (PPIA) is the most difficult installment plan to obtain. However, if you are granted a PPIA, the IRS should advise you within approximately 30 days of your accepted application.
In the meantime, to stay in good standing:
- Make your minimum monthly payment.
- Continue to file all your required tax returns.
- Pay all the taxes you owe.
- Keep the IRS apprised if anything changes, such as your address, phone number, or income.
Even though your tax debt continues to grow due to penalties and interest, you may never have to pay these additional accruals as long as you continue to meet your obligations stated in your IRS installment agreement. Once the 10-year IRS statute of limitations expires, the remainder of your tax debt is forgiven.
When does it make sense to apply for a partial pay installment agreement?
- If you owe a large tax debt and you don’t have the money or assets to pay it off, but you have a regular income, a partial pay installment agreement (PPIA) could be the way to go. The other option is an offer in compromise (OIC). Read above for a detailed comparison of both tax relief programs.
- You don’t want the hassle of an offer in compromise. Partial pay installment agreements are easier and faster to get.
- You don’t like the idea of a 5-year probation period. Although the IRS can increase the monthly payments on a PPIA, you don’t run the risk of owing the entire tax debt amount for missing payments or being late filing a tax return.
Taxpayers who cannot afford to pay taxes in full
When you contact the IRS, only provide the additional information requested. Taxpayers may share information that may further complicate their case. When you are dealing with tax debts and determining how to proceed, tax pros can help.
Collect all your information and have a reasonable idea of the monthly payment you have the ability to pay. Any agreement with the IRS is subject to review. You will complete the collection information statement. Regardless of how you view your financial situation, the IRS will evaluate the documents that support your installment agreement request. You may find the IRS may see your disposable income differently than you do. To protect your assets and achieve tax resolution, you may have to adjust your spending temporarily.
What happens if you don’t pay
If you make monthly payments on your installment plan, the IRS will not take further collection action. If you do not pay your tax liability, the IRS begins the collection process, and it doesn’t end until payments to the IRS are complete.
The IRS will notify you of its intentions through letters. The first letter you will receive will explain how much is due and will demand full payment. If you can’t pay in full, you may be able to work out another payment arrangement with the IRS. If no arrangement is made, the IRS can take collection actions including:
- Serving a notice of levy which allows the seizure of property, refunds, wages, bank accounts, retirement income, and/or social security benefits.
- Filing a notice of federal tax lien is a legal claim to your property or any property you may acquire in the future.
Securing a payment agreement to pay taxes may result in a tight budget and some inconvenience. Still, it is better than having your assets seized, which only makes a financial situation worse.
What is the next step?
If you’re unsure whether a partial pay installment agreement (PPIA) is the best deal for you, read this in-depth guide of tax relief programs. If you do not have the ability to pay your tax debt, there is help. An agreement with the IRS can stop collection efforts, and you may be able to avoid some penalties and interest with an installment agreement.
Check out how to get out of tax debt and start taking control of your financial situation today.
Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.