Partial Payment Installment Agreement
What is Partial Payment Installment Agreement (PPIA)?
A Partial Payment Installment Agreement (PPIA) is similar to other types of installment agreements allowed by the IRS. The IRS allows you to break down your tax debt into affordable monthly installments. The difference between a PPIA and a regular installment agreement is that the IRS agrees to allow you to pay only a portion of your debt over an allotted amount of time that they determine. Typically, the IRS usually allots the taxpayer two years. You must provide the IRS with a full financial disclosure indicating your wages, assets and expenses to apply for a PPIA. If you cannot afford a regular installment agreement and the amount that you would be paying is unlikely to ever cover the full tax debt, then a Partial Payment Installment Agreement may be the most beneficial course of action for you and your business.
What Are the Eligibility Requirements for a Partial Payment Installment Agreement (PPIA)?
Similar to an Offer in Compromise, the IRS must determine that:
- You do not have enough assets worth liquidating to pay off your debt,
- Your wages would not cover the payment of your debt in full plus your basic living expenses, and
- You do not have the earning potential to cover your debt in the coming years.
Additionally, you must also be unable to pay the minimum payment requirement of a regular installment agreement.
The eligibility requirements for PPIA are:
- Able to pay off some of your debt but not all of it before the statute of limitation expires
- Owe more than $10,000 in tax debt
- Have not filed for bankruptcy
- Personal assets cannot cover the tax debt even if they were liquidated
Why Apply for a PPIA and Not an Offer in Compromise (OIC)?
The IRS is more likely to accept a PPIA than an Offer in Compromise because of its lack of finality. With a PPIA, the IRS can review your ability to pay off your tax debt annually. If your ability to pay the debt in full increases, then the IRS can collect it before the statute of limitation expires. This can produce a better outcome for the IRS than an Offer in Compromise, which is final. If your financial situation improves, the IRS would not be able to collect from you more than what was negotiated with an Offer in Compromise, regardless of your future financial situation.
What is the Statute of Limitation?
The statute of limitation is the period of time that the IRS can lawfully seek payment for your tax debt. After the statute of limitation expires, the IRS cannot collect the tax debt from you. Even if you can afford to pay the debt. The interest and penalties assessed could not be collected either. The statute of limitation to collect a tax debt is 10 years from the date the debt was originally assessed.
The application process for a Partial Payment Installment Agreement involves the submission of many forms. The decision must not be taken lightly. It is most beneficial to consult with a tax professional when considering applying for a PPIA. A Partial Payment Installment is usually best if you would not be eligible for an OIC and a regular installment agreement is more than you can afford. Consulting a tax professional will determine if an OIC or PPIA is really the best solution for your situation.