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Partial Payment Plans

November 12, 2015

The IRS accepts partial payments in installments if a taxpayer is financially incapable of making the full payment of tax debt. These payments are made under the payment plan called the Partial Payment Installment Agreement (PPIA). Before the PPIA came into existence, the IRS would accept partial payments from taxpayers, but without the statutory authority.

Qualifying Factors

Only taxpayers that cannot pay their entire tax debt can hope to achieve a resolution under the PPIA. You need to use Form 9465, Installment Agreement Request to request to pay a partial amount in tax debt. It is important to hire a tax professional who can calculate the amount of payments you can make depending upon your financial situation. Certain financial documents to prove inability to pay the full amount also need to be provided to the IRS. All the financial information provided to the IRS is reviewed and verified by them.

Essentially, the IRS will look at your income sources and assets to judge the maximum amount that you can pay. They will also consider your ability to take on new credit.

Periodic Reviews

After a taxpayer has qualified for the Partial Payment Installment Agreement, the IRS will conduct a financial review every two years. If they see an improvement in the taxpayer’s financial circumstances, they may increase the amount of installment payments. If the fiscal improvement is such that the taxpayer can pay the full amount of taxes owed, the IRS may terminate the agreement.

Penalties and Fee

The IRS charges a one-time fee of $120 if you pay your installments using any method other than direct debit. For direct debit, the fee is reduced to $52. For low-income taxpayers, the fee is $43.

Penalties and interest continue to build onto to the tax debt amount to be paid even after a taxpayer has qualified for the PPIA and begun to make payments. The IRS may also place a federal tax lien on one or more of the taxpayer’s properties. Using a tax professional’s assistance may be essential to correctly plan, prepare for and finalize a PPIA.

 

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