How Can a Partial Payment Installment Agreement Help You Save Money?

If you receive notices from the IRS, your taxes are off. This is always a challenging place to be in. 

When most clients come to us at the Cumberland Law Group, they are in dire straits, panicky and unsure of what to do with their accumulating debt. 

You should know that as vicious as the IRS can be, it’s always open and keen on helping people resolve their tax liabilities amicably. 

The IRS has numerous plans to help taxpayers get back on track with their taxes. One of these is the Partial Installment Agreement. 

What Is A Partial Payment Agreement?

The IRS realizes that while some people can fully settle their tax liabilities, others just can’t. 

As such, the IRS has several structures and payment strategies to accommodate the latter. One of these plans is a Partial Payment Installment agreement. 

With this, the IRS allows you to pay to make payments until a specific date. Past that point, it writes off whatever balances are on your account. This option saves you some cash because part of what you owe is written off. 

It also eases your tax burden by gaining you manageable installments. 

The payments made with this plan last until the Collection Statute Expiration Date (CSED). 

Typically, the statute of limitations on tax collections Is ten years from when the taxes were assessed.

When the collection statute expires, the taxpayer is not required to make any more payments. This is true even when they have yet to fully pay what they owe. 

Once you have a partial payment installment agreement, the IRS ceases further collection actions like levies and seizures.

How Does A Partial Payment Agreement Work?

Let’s look at a practical example. 

Assuming you owe $15,000 in back taxes, penalties, and interest included. You have delayed making these payments for a few years, and the collection statute expires in 4 years. 

After the financial assessment, it’s determined that you can make $150 to the IRS in monthly installments. 

This means:

$150 × 48 months = $7,200

When the collection statute expires, after paying $7,200, you will still technically owe $7,800. The IRS will write off this $7,800, meaning you have saved this much. 

Nevertheless, as is always the case with the IRS, there is a but. 

Once the Partial Payment Installment Agreement is in place, the IRS doesn’t sit pretty until the collection statute expires. 

Instead, the IRS will review your finances every two years within the collection period. Now, if things begin looking up at any point during the collection period, and you are making more: the IRS will increase your monthly installments. 

For example, you are paying $150 for four years. You then get a better-paying job or get promoted at work two years in. The IRS can increase your $ 150-a-month payment (per our earlier example) to $300 monthly for the remaining two years. This will allow the IRS to collect more by the time the statute expires. 

Similarly, let’s imagine a scenario where you come into some inheritance. This could be property or money. Again, the IRS can change the installment plan to allow it to recover more. With assets, the IRS can insist on you selling or taking out a loan on the asset to finance your taxes. 

Who Is Eligible For a Partial Payment Installment Agreement?

Like other IRS tax settlement plans, the Partial Payment Installment Agreement is worth considering for anyone with a tax debt. 

Is this option right for you? Here are some indications that it is:

• You are unable to settle your tax liability in full
• You can’t take out a loan to repay your tax debt
• You don’t own any assets you could sell to pay your tax debt
• Your disposable income doesn’t support a monthly payment installment
• You dint quality for an offer-in-compromise
• You are not eligible for hardship or a currently not collectible status
• The IRS does not believe you will earn enough to cover your tax debt in the near future

Even with the above, the IRS has eligibility requirements for taxpayers it can offer a Partial Payment Installment Agreement. If you are considering requesting this agreement, it helps to talk to a tax attorney first. They can review your tax obligation Vis a Vis your finances and advice on whether this would be a good option for you. If it isn’t, they can direct you to the best one. 

IRS Partial Payment Installment Agreement Eligibility Criteria

It’s important to assess yourself against the IRS’s eligibility requirements for a Partial Payment Installment Agreement. 

To qualify for one, you need to meet the following stipulations:

• Your liability needs to be $10,000 and above
• You can pay the IRS, but not in full
• you cannot be in bankruptcy
• You applied for an offer in compromise and got rejected
• Your assets can or be used to settle your tax liability in full because:

• The sale of your assets or credit on the assets would create financial hardship for you
• Your assets are jointly owned with your spouse, who has no tax liability and doesn’t want part of their assets sold
• the asset is not enough to get credit against
• Selling your assets would not settle your tax liability in full

• You must agree to set up a direct debit from your bank or allow the IRS to have the installments deducted from your paycheck. This goes for all applicants except those that are unbanked or self-employed. 
• You must be current with tax filings, estimated tax payments, and federal tax deposits.

Let’s talk about the offer in compromise Vis a Vis a Partial Payment Installment Agreement. Assuming you owe $15,000 on your 2022 taxes, and you successfully apply for an offer in compromise. 

You cannot change your mind and apply for a Partial Payment Installment Agreement after that on the same 2022 taxes. Once an offer in compromise is accepted, your option for a Partial Payment Installment Agreement is voided. 

How to Apply For A Partial Payment Installment Agreement

The first thing to a PPIA agreement is determining how much you owe the IRS. This is something you should do before approaching the IRS for a PPIA. 

You can look at copies of your tax return transcripts online or call the IRS. Be ready for the amount, however. 

Remember that the total figure you get will include penalties and interest that will have accumulated above your tax balance. 

If you meet the eligibility criteria and wish to proceed, you need to fill in three forms. These are:

Form 9465 (Installment Agreement Request)

Your tax attorney can help you calculate a reasonable monthly installment to propose to the IRS. This form helps you do that. The IRS will review this and tell you how much it expects. This figure is open to negotiation. 

Form 433A (Collection Information Statement for Wage Earners and Self-Employed Individuals)

This is the same form used for an offer in compromise as well. This one contains basic information and can help you determine whether to go for a PPIA or an OIC. 

Form 433B (Collection Information Statement for Businesses)

This form seeks information on business income, assets, expenses, and potential future earnings. 

The PPIA process is not prohibitively challenging. However, it’s advisable to have a tax attorney oversee your application process. This is because these forms require you to fill in information regarding your assets, income, expenses, and liabilities in extreme detail. This makes it useful to have a tax debt expert on your side. An attorney can also help negotiate the best monthly payment option with the IRS.

This information will be used to gauge your ability to pay and determine your partial payment. Having your attorney guide you through this can help protect your interest and improve your chances of being granted a Partial Payment Installment Agreement. 

Going by how much you owe, the IRS can dig deeper into your finances. If they flag any issues. They might also request the following, in addition to the filled forms:

• Any income and assets not disclosed in Forms 9465,433A or 433B
• An explanation for income decreases of more than 20%
• Real property records
• Personal assets records
• Records from the Department of Motor Vehicles
• Bank statements
• Credit reports

With the above information, the IRS can determine whether you need to sell your assets to settle your liability or take credit against them to resolve your liability. The IRS will then compute how much you should pay monthly before the statute expires. 

How Does The IRS Determine Your Monthly Payments?

You can negotiate your monthly payments, but the IRS doesn’t allow you to make this determination without it’s input. 

The goal for the IRS is to collect as much as it can before the collection statute expires, but without putting you in hardship. It’s a delicate balance. 

As such, the IRS scrutinizes your expenses and places strict rules as to which expenses you can have. The idea here is to free up as much cash as possible to make payments. So the IRS will have a say on how much you should spend on transportation, clothing, shelter, and even what you eat!

Again, these amounts are negotiable. At Cumberland Law Group, we negotiate the highest possible allowances under your circumstances. 

In most cases, your payments should at least be $25. If you cannot make $25 payments monthly, consider applying for hardship status. If you qualify for this:

• The IRS ceases collections until your income improves, or
• The collection statute expires

Can The IRS Extend the Collection Statute Expiration Date?

Indeed it can!

If the IRS believes you might come into an asset whose value could cover your tax liability after the statute expires, it can extend your Collection Statute Expiry Date (CSED). You must agree to this before the IRS approves your PPIA.

This goes for both businesses and individuals. 

Similarly, your Collection Statute Expiry Date can be extended if:

• You apply for an Offer-In-Compromise
• You request Innocent Spouse Relief
• Your case is in tax court
• You request a Collection Due Process hearing
• Have a stay of a bankruptcy case plus six months

While you must agree to extend your CSED to get a PPIA, this might not always be in your best interest. Again, conferring with your attorney will help you evaluate your options and determine if this will deliver the best outcome. 

Partial Payment Installment Agreement vs. Offer In Compromise

Both these options allow you to settle your tax debt for less than you owe. Once you pay what you have agreed with the IRS, the part of your debt that’s written off doesn’t come into play again. 

Similarly, you must go through some strict qualifying criteria for the IRS to offer you either agreement. However, the two have some glaring differences. 

The first is the duration of payment. With an offer in compromise, you must clear your balance (minus what the IRS has written off) in 24 months. With a PPIA, you have until the expiry of the collection period to clear your balance. 

Second, the IRS can review a PPIA if your financial status changes. This does not happen with an offer in compromise. If your finances will likely remain the same for years, you can save some cash with a PPIA. However, an Offer in Compromise might be the best way out If you expect to come into good cash or valuable asset in the near future.  

It’s also important to mention that the IRS tends to approve PPIA’s more often than it does Offers in Compromise. 

Which One Should You Go For?

This is a question we can answer after reviewing all your financial information. 

Our job at the Cumberland Law Group is to ensure your best interest are protected and that you walk away with the best deal possible. We bet this is your goal as well. So call us today for a free consultation, and let’s get started.