What Is the IRS Partial Payment Installment Agreement?What would you get if you combined the Offer in Compromise with the IRS monthly Installment Agreement? You would get the Partial Payment Installment Agreement.
The PPIA is a payment plan with the IRS that allows the taxpayer to make a monthly payment that will NOT fully pay the tax debt. Here’s an example.
- Jane owes $100,000 to the IRS.
- By completing the 433-F form and providing backup financial documents, Jane proves that the most she can pay toward the back-taxes, without causing a financial hardship, is $100/month.
- Jane does NOT have any assets with equity available to pay the tax.
- In this case the IRS takes what they can get from Jane, a $100/month payment toward the back-tax debt. The $100/month will not fully pay the $100,000 tax liability within the Collection Statute, which is 10 years.
- If Jane pays $100/month for 10 years, she will pay a total of $12,000. Since the IRS’ ability to collect the tax expires after the 10-year period, Jane is no longer responsible for paying the remaining $88,000 + interest.
Of course, there are some stipulations to the PPIA.
Benefits of the PPIA
The positives of the Partial Payment Installment Agreement are obvious. The biggest benefit is the potential to pay the IRS less than the total amount owed. This is what everyone wants, right?
Peace of mind is an often-overlooked benefit to securing an Installment Agreement with the IRS to pay back taxes. The PPIA provides the securityof a formal Agreement with the IRS. You know that the IRS will not –
- garnish your wages,
- levy your bank account, or
- seize your assets.
Your Agreement with the IRS provides this protection for as long as you maintain it.
Stipulations of the PPIA
The Partial Payment Installment Agreement does have a couple of components that you need to be aware of before you ask the IRS for it. I don’t consider them negatives, just components of a helpful program.
- Like all IRS Installment Agreement, you must maintain current tax compliance during your Agreement, or it will default. This means that you must file tax returns timely and pay current taxes on time from the Agreement date forward.
- It is likely that the IRS will review your financial information every 2 years to make sure you still qualify for the PPIA. So, you will have to provide updated financial information every 2 years to renew your PPIA. Depending on your financial situation at the 2-year review point, the PPIA will be reinstated as is, or your monthly payment will change to fit your ability to pay. A standard IRS Installment Agreement does not require future financial reviews.
Overall, the Partial Payment Installment Agreement is a great solution to your back-tax liability with the IRS. Not everyone qualifies for it, but it is attainable. We’ve helped a lot of people all over the country set them up.
Here’s a quick tip – if you can prove to the IRS that you do not have the ability to pay at least $25/month, you may qualify for Currently Not Collectible status, another great solution to your back-tax liability with the IRS.