A Partial Pay Installment Agreement (PPIA) is one of the best tax relief programs you have never 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. 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 situation.
What is a Partial Pay Installment Agreement (PPIA)?
Partial pay installment agreements are the IRS’s answer to taxpayers who can afford to make monthly payments, but could never repay their entire tax debt in time. You see, the 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 may reduce your tax bill and allow you to pay the balance with a payment plan.
A Partial Pay Installment Agreement is a payment plan that doesn’t require taxpayers to pay their entire tax debt. It combines characteristics from the Offer in Compromise 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?
- 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 pay 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 pay installment agreement takes into account your living expenses to determine what you can afford to pay each month. Additionally, a Partial Pay 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.
Every two years, they will re-evaluate the terms of your Partial Payment Installment Agreement to see whether you can pay more. Providing detailed financial information to the IRS can be risky. All the 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 pay installment agreement, 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 are unable to 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 installment agreement online with a few clicks, but a PPIA may take up to a month to complete.
Partial Pay Installment Agreement Vs. Offer in Compromise
- Offers in compromise take longer to approve. A partial pay installment agreement is easier to apply for and will take 30 days or less to process. An offer in compromise, 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 you 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 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.
Applying for a Partial Pay Installment Agreement
When you’re ready to apply for a PPIA, you’ll need to:
- Complete Form 9465, 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 give you the opportunity to show the IRS that you are unable to pay your taxes. This form is used for an Offer in Compromise 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
In addition, 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 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 application that it was accepted.
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 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 could be the way to go. The other option is an offer in compromise. 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.
What is the next step?
If you’re unsure whether a partial pay installment agreement is the best deal for you, read this in-depth guide of tax relief programs.
Andrew is the managing editor for SuperMoney 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.