What Is An IRS Partial Payment Plan?
An IRS Partial Payment Installment Agreement (PPIA) is a type of payment arrangement that allows taxpayers to pay off their tax debt in installments, but at a lower amount than what they owe. It’s designed for individuals or businesses who are unable to pay their entire tax liability in full, but can make regular payments towards reducing their debt over time. It’s important to note that a Partial Payment Installment Agreement is just one of several options available for taxpayers who owe money to the IRS. Other options include a regular Installment Agreement (where you pay the full amount owed over time), an Offer in Compromise (a settlement for a reduced amount), and currently not collectible status (temporary suspension of collection efforts due to financial hardship).
IRS PARTIAL PAYMENT PLAN PROCEDURE
- Step 1- Negotiation: The IRS is contacted on the taxpayers behalf to negotiate a payment plan. Detailed financial information is provided to the IRS, including income, expenses, assets, and liabilities.
- Payment Proposal: Based on the financial information provided, the IRS determines an affordable monthly payment amount that the taxpayer can pay toward the tax debt. This amount is usually lower than the total amount owed.
- Agreement Terms: If the IRS approves the proposal, they will establish the terms of the agreement, including the monthly payment amount and the duration of the agreement. The agreement is formalized in a written contract.
- Regular Payments: The taxpayer is required to make monthly payments on time, as specified in the agreement. These payments will continue until the tax debt is paid off or until the statute of limitations on the debt collection expires.
- Review and Adjustments: The IRS may periodically review the taxpayer’s financial situation and make adjustments to the payment amount if there are significant changes in the taxpayer’s income or expenses.
Partial payment plans are difficult to come by because the IRS is essentially giving up on collecting the full balance owed. In circumstances where a partial payment plan may be warranted, the IRS will receive all available collection sources in order to determine their collectability. This includes any equity in assets, the taxpayer’s current monthly income and expenses, and projected future income and expenses. Undergoing this detailed financial analysis is a necessary part of the process before the IRS will consider a partial payment plan. This is not to say that taxpayers have to be fully drained of any equity before being set up on partial payment plans. The IRS examines a taxpayer’s situation on a case-by-case basis and in some cases, may allow the taxpayer to retain some of the equity in their assets and to be set up on a partial payment plan.
WHO QUALIFIES FOR AN IRS PARTIAL PAYMENT INSTALLMENT AGREEMENT?
Qualifying for an IRS Partial Payment Installment Agreement (PPIA) involves meeting certain criteria and demonstrating financial need. The IRS evaluates each taxpayer’s situation individually. Here are some general guidelines that may help you understand who could potentially qualify for a PPIA:
- Financial Hardship: You must demonstrate that paying your tax debt in full would create a significant financial hardship for you. This typically means that your monthly income is not sufficient to cover your basic living expenses and the full tax debt.
- Inability to Pay in Full: You need to show that you genuinely cannot afford to pay your entire tax debt through other means, such as a regular installment agreement, a lump-sum payment, or through the sale of assets.
- Detailed Financial Information: The IRS will require you to provide detailed financial information, including your income, expenses, assets, and liabilities. This information helps the IRS determine the appropriate monthly payment amount.
- Tax Compliance: You must be up to date with your tax filings. This means you have filed all required tax returns for previous years.
- Reasonable Payment Proposal: Based on your financial information, you must propose a monthly payment amount that is acceptable to the IRS. This proposed payment should be based on what you can reasonably afford after accounting for your essential living expenses.
- Debt Amount and Remaining Collection Statute: The IRS will consider the total amount of your tax debt and the remaining time they have to collect it (known as the Collection Statute Expiration Date or CSED).
- Documentation: You will need to provide supporting documentation to verify your financial situation, such as pay stubs, bank statements, and information about your expenses.
It’s important to understand that the IRS will review your financial information and assess your ability to pay. If they determine that you can afford to pay the full amount through an alternative arrangement, such as a regular installment agreement, they may not approve a Partial Payment Installment Agreement.
IRS partial payment plans are sometimes difficult to negotiate because of the hesitancy by the IRS to grant them or even consider them as an option. Some of the more junior collection agents will not even offer them as a solution to the taxpayer. However, partial payment plans can be a viable avenue for reaching a tax resolution with the IRS and getting a much needed fresh start. It may be a solution worth pursuing. At CuraDebt Tax, we have a team of tax professionals who are able to find the best IRS resolution available to you. Contact us to better understand your tax problems and to choose the best IRS resolution option.
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