For taxpayers with IRS back tax issues the Partial Pay Installment Agreement (PPIA) and Regular Installment Agreement (IA) are frequently utilized resolution options. Let’s compare these two resolution options and their qualification criteria.
The regular IA applies to the taxpayer that has income and or assets which would be deemed adequate to pay off their back taxes in entirety over time. If you owe less than $50,000 in most cases the taxpayer should be able to get an IA payment plan for 6 years just based on their request for it. If the taxpayer owes more than $50,000 the IRS will task the taxpayer with providing them a significant amount of financial information. The IRS will analyze the taxpayer’s income and or assets contained in the Form 433-A or B to ascertain the amount the taxpayer can pay.
The most prudent way to make an IA offer to the IRS is to ensure your offering a payment plan which you can fulfill. Don’t over promise just to get the plan approved. A default of an existing IA will likely lead to its termination and leave the taxpayer right back where they started with a large liability and much less credibility to negotiate a favorable settlement with the IRS again. In general, an IA will require the taxpayer to pay back the entire tax liability within 7 years or no later than the Collection Statute Expiration Date (CSED) whichever comes first. The (CSED) is the collection cutoff date with which the IRS can collect on unpaid back taxes. Its 10 years from the date that the tax is assessed by the IRS.
In contrast to a regular IA, a partial Payment Installment Agreement (PPIA) is a contract between the IRS and a taxpayer in which the taxpayer agrees to pay a monthly amount towards his or her tax liability, but that monthly amount will not be enough to satisfy the liability before the CSED expires. PPIA’s will only be considered after a full financial review by the IRS, considering both monthly disposable income (as determined by the IRS’ standards) and the taxpayer’s available equity in assets.
Another way to think of a PPIA is where a taxpayer’s disposable income is too great for him/her to qualify for CNC status, but lower than the SIA amount (if they qualify), or a substantial payment that would otherwise satisfy the liability.
It is important to keep in mind PPIA’s have two principle limitations. First, they are temporary, not lasting more than 2-3 years on average. The IRS will eventually terminate the PPIA and expect updated financials in order to reinstate it. Second, liens will be filed to preserve the IRS’s interests.
Procuring an IA doesn’t relieve the taxpayer of paying interest and penalties. Both continue to accrue until your back-tax balance is zero. In most cases the IRS will file a Federal Tax Lien on an IA between $25,000 and $50,000 if the IA payment is not set up with an automatic deduction from their paycheck or direct debit. In almost all cases the IRS issues a Federal Tax Lien for taxpayers that procure an IA of $50,000 or greater.
A PPIA provides eligible taxpayers the opportunity to make monthly payment just like the regular Installment Agreement, however, with the understanding that at the expiration of the liability CSED date, the liability will not be paid in full. For example, a taxpayer who owes the IRS $100,000 or more in back taxes may ultimately pay off only $50,000 of that liability by the expiration of the CSED.
Just as in the case of an IA, PPIA or any installment agreement the IRS can revoke it and put the taxpayer in default of it. A taxpayer will generally default on any form of installment agreement when:
- Payments are missed
- Taxpayer has not filed a tax return for the current year
- Taxpayer has unpaid taxes due
- Information provided to IRS in the IA process was inaccurate or as noted for the PPIA the taxpayers financial position has changed enabling them to increase their payments
A default puts the taxpayer right back to where they started such as wage garnishments, tax levies or liens. Lastly, to get back in compliance they must go through the rigorous process of renegotiating their IA or PPIA from a compromised position in that the IRS is much more likely to make the renegotiation more difficult as a result of the default.
Need help? If you are overwhelmed with a Personal or State back tax issue, call the qualified team at The W Tax Group for a free consultation where you can get the answers you need.
Call 877-500-4930 for your free consultation to get the answers you need.