Do you want to avoid paying the IRS a large lump payment of your tax debt? Do you want to reduce your tax bill and make monthly payments? In this scenario, the best option for you is to go for a Partial Payment Installment Agreement (PPIA).
A partial payment installment agreement helps you settle tax debts for less than you have to pay. With this option, you pay monthly until a set date, after which the IRS nullifies the remaining tax liability. Thus, it cuts your tax bill, letting you pay in installments.
Now, the question raised in your mind is, is this option right for you, and do you qualify for this type of payment plan? The experts at V-Tax Services can help you decide if a Partial Pay Installment Agreement fits your situation, and we help you throughout the application process. This article will teach you about the Partial Pay Installment Agreement.
What Is a Partial Payment Installment Agreement?
With a partial payment installment agreement, you pay monthly until the collection statute expiration date (CSED), usually 10 years after tax assessment. After the CSED, you do not need to pay more, even if your payments were less than what you owed.
How Partial Payment Installment Agreements Work
Partial payment installment agreements work simply. Here is a simple analogy to show how they work. For example, someone owes $30,000 in taxes; however, they can only afford to pay $200 each month. The collection statute for their installment expires in five years. If they qualify for PPIA, they have to pay $200 every month for five years. After that, even if they have only paid $12,000, they won't owe anymore.
But there's a twist. Every two years, the IRS rechecks the taxpayer’s financial situation. Let's say after two years, the IRS sees the taxpayer's financial situation has improved. Then, the taxpayer might have to pay $300 monthly instead of $200 for the rest of the five years.
In the other case, if the IRS finds out the taxpayer inherited a vacation home, it has the authority to require the taxpayer to sell it or get a loan against it to pay off the taxes. This is a downside of these payment plans.
Who Should Adopt a Partial Payment Installment Agreement?
The answer to this question comprises the following conditions. If your financial situation meets the following conditions, you must go for the PPIA plan:
You can not pay all your taxes at once.
You do not own anything valuable to sell and pay off your taxes.
You can not borrow money to cover your taxes.
You can not manage the monthly payments on a regular IRS payment plan.
Your request for a lower settlement was turned down.
You don't meet the requirements for financial hardship relief or are currently not collectible.
A partial payment plan is a good choice for those who can not pay the whole amount of owed tax. It is the best option if you meet the above specific conditions. If you cannot decide on the conditions, you must approach V-Tax Services consultants for the tax resolution process.
Requirements for a Partial Payment Installment Agreement
To qualify, you must usually owe $10,000 or more in back taxes. You must show that you don't have assets to sell or can't afford monthly payments on a regular IRS plan. Also, you can't be in bankruptcy or have had an offer in compromise accepted.
For instance, if you owe $20,000 for 2018 taxes and get an offer in compromise accepted, you can't switch to a Partial Pay Installment Agreement for those taxes.
It's best to set up automatic payments from your bank account or paycheck if you qualify. If you defaulted on an agreement in the last 24 months, you must use these options unless you're unbanked or self-employed.
You also need to be updated with tax filings, deposits, and estimated payments. The IRS checks your finances every two years. If things change, they might ask for higher payments or full repayment.
How to Apply for a Partial Payment Installment Agreement
To sign up for a Partial Payment Installment Agreement, apply online or fill out Form 9465 (Installment Agreement Request). You must also complete either IRS Form 433A (for individuals) or 433B (for businesses). These forms ask for detailed info about your money, like what you own, owe, and make. In this situation, V-Tax Services can help you deal with the PPIA plan to the IRS on your behalf.
The IRS might look even closer at your finances depending on how much you owe. If they spot anything that may be an alternative to your tax debt, they might ask for:
Details about any money or stuff you didn't mention.
Why has your income dropped by 20% or more?
Records of things you own, like land or cars.
Info from the Department of Motor Vehicles.
Your credit report.
Bank statements.
After reviewing your finances, the IRS might ask you to sell stuff or take out loans. After that, the IRS determines how much you must pay each month.
How the IRS Calculates Your Monthly Payment
With IRS payment plans, you have to pay what you can afford. However, you are not allowed to decide the amount. IRS has strict policies about expenses and wants you to use all your extra money for tax payments. An expert tax advisor like V-Tax Services can help you get the most allowances.
Usually, you need to pay at least $25 a month for a partial payment plan. If you cannot afford this threshold amount, you might qualify for hardship status, where the IRS stops collecting until your situation improves.
Selling Assets for Partial Payment Installment Agreements
The IRS may require you to sell assets or take a loan against them to cover part of your tax liability. For instance, if you owe $30,000 and you own a new luxury car, you will probably be required to sell it. Only a few assets are exempt from this requirement as the IRS has power when collecting overdue payments.
You might not have to sell your assets or borrow a loan if these situations apply:
The assets have a minimum cost.
No creditors will grant you a loan against this asset.
If your spouse shares ownership of the asset but isn't responsible for the tax debt
The asset cannot be sold in the market.
The asset is the primary source of income so you cannot make your monthly PPIA payments without this asset.
Selling the asset would push you into a severe economic crisis.
Before selling any of your assets as demanded by the IRS, you need to consult with tax advisors of V-Tax Services. They can ensure you make the best decisions and get the best deal with the IRS.
Once more, the collection statute expiration date (CSED) marks when the IRS can no longer demand payment for your taxes. If the IRS thinks you will gain something valuable that could cover your tax debt after this date, they might ask you to extend it before agreeing to a PPIA.
If you are on a fixed income and can only afford small payments but expect a large sum from a trust after your tax collection time ends, the IRS might require you to extend the deadline before approving your payment plan. The same applies to businesses holding assets that could cover taxes after the deadline, like unsellable property.
Your tax collection deadline (CSED) will extend automatically in these cases:
Applying for an offer in compromise.
Requesting a Collection Due Process (CDP) hearing.
Asking for innocent spouse relief.
Having your case reviewed in tax court.
During a bankruptcy case and six months after the automatic stay.
Before extending your CSED, you need to ask V-Tax Services experts. The experts will guide you and help you make an informed decision regarding the extension of CSED as it may be necessary for a PPIA and to avoid further collection actions, but only do so if it benefits you.
How Can V-Tax Services Help You?
A Partial Payment Installment Agreement (PPIA) is a tax resolution method the IRS provides to settle your outstanding tax debt through monthly payments over a set period. Some individuals may opt for a lump-sum payment through an Offer in Compromise, others find it more convenient for PPIA payments until the expiration of the collection statute.
To determine the most suitable approach for your circumstances, seek guidance from the tax specialists at V-Tax Services. We will assess your situation and recommend the IRS resolution option that aligns with your financial situation.
Setting up a PPIA can be complex, but we can help. At V-Tax Services, our experts are experienced in PPIAs and other tax resolution methods. We work hard to minimize your tax payments, saving our clients millions of dollars.
Very useful information! Thank you!