The Internal Revenue Service (IRS) allows you, the taxpayer, to pay your tax debt in affordable monthly installments in which you determine the amount. These are called Installment Agreements. They are extremely helpful in affording the taxpayer time to pay their tax debt without the IRS forcing payment through liens, levies, wage garnishments and other collection tools.
Of all the installment agreements available, the Partial Payment Installment Agreement (PPIA) affords the best of both worlds to the taxpayer. The taxpayer 1) makes affordable installment payments of his/her own choosing over a set period against the tax debt and 2) after that set period of time, the IRS considers the tax debt paid even if the full amount of the tax debt has not been paid. The IRS usually sets a time period of two years. You must provide full financial disclosure indicating your wages, assets, and expenses to the IRS. If you cannot afford a regular installment agreement and it is unlikely that you can pay the full amount of your tax debt, then the PPIA may be the most beneficial course of action for either you or your business.
The eligibility requirements for the Partial Payment Installment Agreement are similar to the Offer in Compromise. The IRS must determine that:
- You do not have enough assets worth liquidating to pay off your tax debt.
- Your wages do not cover the full payment of your tax debt without you incurring financial hardship and therefore you are unable to cover your basic living expenses.
- You do not have the earning potential to pay your tax debt in full in the upcoming years.
- You are unable to cover the minimum payment requirement of a regular installment agreement.
- You owe more than $10,000 in tax debt.
- You have not filed for bankruptcy.
- You can pay off some of your tax debt, but not all of it, before the statute of limitations expires.
So, if an Offer in Compromise and PPIA are similar, why are they both available? Due to its lack of finality, the IRS is more likely to accept a PPIA because they can review your ability to pay off your tax debt annually. If your ability to pay your tax debt in full increases, then the IRS can collect the full amount before the statute of limitations expires. This is a better outcome for the IRS since it can possibly collect a larger amount than it can with an Offer in Compromise which is final once negotiated and agreed upon. With an Offer in Compromise, the IRS can only collect what it negotiated to collect even if your financial situation improves.
The statute of limitations is the time frame in which the IRS can lawfully seek payment for your tax debt. Usually, the statute of limitations for the IRS to collect a tax debt is 10 years for the date the debt was originally assessed. Once the statute of limitations expires, the IRS cannot collect the tax debt, interest, and penalties from you, even if you can afford to pay the tax debt.
Although you can negotiate a Partial Payment Installment Agreement on your own with the IRS, the question is: why would you? The application process involves the submission of many forms, is complicated and you can be out negotiated by the IRS agent. If you are not eligible for an Offer in Compromise and you cannot afford a regular installment agreement, then a PPIA may be best for you. Let a tax professional from Bullseye Tax Relief assist you. We will discuss all your options and direct you to your best option. Our following blogs will continue discussing other tax relief resolution options.