Every year, you take the time to make sure your tax return is accurate and filed by the deadline. Then reality hits. You discover you owe the IRS a substantial amount of money. There are insufficient funds in your bank account to cover the back taxes. What do you do?
The good news is that while your tax debt will not go away, the Internal Revenue Service has established methods to pay it back over time. It presents you with some flexibility without having to pay off the financial burden all at once.
IRS Code 5.14.2 has guidelines for how taxpayers can resolve debt in a reasonable time frame. Learn more about how you can make partial payments to the IRS to resolve a debt.
IRS Code 5.14.2 Partial Payment Installation
The IRS provides multiple ways to pay back taxes. Installment agreements, as defined by IRS Code 5.14.2, is one of the most popular and convenient ways to settle an outstanding balance.
The IRS partial payment program, or installment agreement, is comparable to the way you handle credit card debt.
You enter an agreement with the IRS that sets forth a method to pay back taxes. The IRS grants you some leeway in determining how much you can afford to pay in monthly installments. The IRS generally accepts installment agreements so long as the debt can get settled within three years.
The biggest problem with an installment agreement is you need to provide a checking account that the funds are automatically withdrawn from each month. You must make sure you have the proper amount of funds each month to cover the withdrawal or the IRS could terminate the agreement.
Additionally, there is a one-time fee ($60 to $225) for establishing an installment agreement and interest continues to accrue as long as the debt remains.
Installment Agreement vs. Offer in Compromise
You may know someone who was able to negotiate with the IRS through an Offer in Compromise (OIC) and settle the debt for less than what was originally owed.
An Offer in Compromise is an exciting avenue to pursue because you may end up paying less than owed. However, it’s not nearly as practical as an installment agreement. The bottom line is, the IRS only accepts so many Offer in Compromises, and there is a fair amount of preparation needed to prepare an OIC.
Installment agreements are less time consuming to request and easier to reach a quick solution. The important thing with an installment agreement is you must make sure the amount you propose to pay each month to the IRS is possible. Failure to pay regular monthly payments could terminate the agreement and the IRS will transfer your debt to collections.
Qualifications for IRS Installment Agreements (PPIA)
The Internal Revenue Service (IRS) has guidelines for a partial payment installment agreement (PPIA).
First, you must owe the IRS at least $10,000. The amount includes interest and penalties added to the taxes owed. Additionally, you cannot currently be in any type of bankruptcy or ever had an Offer in Compromise with the IRS.
The IRS will consider any assets you own when determining eligibility. The agency likes to avoid situations where you could liquidate the assets. It also considers if the equity of your assets is sufficient to cover the tax debt.
Lastly, the IRS will consider financial hardship. Those who can demonstrate they don’t make enough income to pay back tax debt in full have the greatest likelihood of acceptance.
Making an Installment Agreement Request
To request an installment agreement from the IRS, complete Form 9465. The form is an official request for a PPIA.
It is recommended that you speak with a tax professional while preparing IRS Form 9465. The consultant can help you calculate a reasonable and acceptable monthly payment plan. The IRS does allow you to dictate how much you can afford to pay back each month, so the calculations are important.
You also must complete IRS Form 433-A. The Collection Information Statement is used for both partial payment installment agreements and Offers in Compromise. You will need to attach three months of backup documentation for all income and expenses reported to the IRS.
A written request for a partial payment installment agreement, along with Form 9465 and Form 433-A, needs to get sent to the IRS Revenue Officer supervising your case, an Automated Collection System unit, or the nearest IRS Service Center.
The IRS generally responds to PPIA requests within 30 days.
Get Help with Your PPIA Request
Levy & Associates has worked with many taxpayers preparing partial payment installment agreement requests. We can help calculate a suitable amount you can pay back to the IRS each month.
Contact us for more information at 800-TAX-LEVY, or visit www.levytaxhelp.com.