Archive for Partial Payment Installment Agreement
When you cannot pay your taxes in full you may be allowed to pay over a prescribed period of time. If full payment cannot be achieved by the Collection Statute Expiration Date (CSED)- USUALLY 10 YEARS, and you have some ability to pay, the IRS can enter into Partial Payment Installment Agreements (PPIAs) as provided by the authority of The American Jobs Creation Act of 2004 which amended IRC § 6159.
To be considered for a PPIA you must provide complete and accurate financial information that will be reviewed and verified. You will also be required to address equity in assets that can be utilized to reduce or fully pay the amount of the outstanding liability. In addition, if granted a PPIAs you will be subject to a subsequent financial review every two years. As a result of this review, the amount of the installment payments could increase, decrease or be terminated contingent upon your financial condition changes.
The PPIA payment option will provide an appropriate payment option for many taxpayers. Those who qualify for the PPIA option will be strongly encouraged to make their payments via the direct debit option. However, complete utilization of equity is not always required as a condition of a PPIA.
For liabilities in excess of $25,000.00 you have to prepare a IRS Form 433A and base the monthly payment amount on the excess of income over expense based on the IRS National Standards. Medical expenses coincidentally are practically unlimited as long as you can provide proof of their accuracy. In addition you also have to demonstrate that you can not borrow on any assets to pay his or her tax liability.
A strategy always worth considering is to get your tax liability below $25,000.00 and then submit IRS Form 9465 which will allow the tax liability to be paid within 60 months. Some people I am told have been able to request that the payments be directed to principal liability first and then as the principle gets close to being paid request an abatement of remaining interest and penalties. It is worth at least asking for when making the request.
Another interesting point that I picked up from a LinkedIn Group is that if you are going to be setting up any type of installment agreement for any state tax liability be sure to do so in advance of filing for the PPIA with the IRS to accurately reflect the payments made to the state on IRS Form 433 and subsequently in theory create basis to reduce the IRS payment amount.
According to the Internal Revenue Manual Chapter 18.104.22.168.1 a full Collection Information Statement is required for all Partial Payment Installment Agreements (PPIA’s). IRS Forms 433A or 433B must be completed to determine the taxpayer’s ability to pay
Conditional expenses are not allowed for PPIAs. Only necessary expenses are permitted.
For in-business trust fund accounts (employment tax obligations), use the guidelines in IRM 22.214.171.124(7), (IBTFIA guidelines), which state that at a minimum you should:
- Verify income and expenses. Use bank statements to verify both income and expenses;
- Request documentation if assets, liabilities, expenses or income appear questionable;
- Complete record checks to determine ownership and equity in real and personal property, including motor vehicles;
- If appropriate, request that taxpayers sell assets or borrow on equity in assets in order to make payment on the delinquent taxes;
- As noted in IRM 126.96.36.199(1)(b), ensure that the taxpayer has the ability to pay current taxes as well as operating expenses and pay delinquent taxes.
For out-of-business trust fund accounts, use the guidelines in IRM 188.8.131.52.1(13).
Because the underlying liability will not be fully paid, the trust fund recovery penalty will usually be assessed. The only exception to this requirement is in circumstances in which there is no collection potential from the responsible officers.
The taxpayer must agree to pay the maximum monthly payment based upon the taxpayer’s ability to pay.
Filing and Paying on Time Saves MoneyIf you have a balance due and do not pay by April 15, you are subject to a failure-to-pay penalty. If you cannot complete your return and file it by April 15, you may request an extension of time to file. However, an extension of time to file is not an extension of time to pay.
If you cannot pay the full amount you owe, you will still benefit from filing your return and paying as much as you can by April 15 because interest and failure-to-pay penalties are due only on the unpaid balance.Members of the military and some others currently serving in combat zones can wait until after April 15 to file and pay. Those eligible get the extra time penalty- and interest-free without having to ask for it. Normally, the filing and payment deadline is postponed until 180 days after the service member leaves the combat zone. Victims of recent natural disasters, listed on IRS.gov, also have extra time.
A number of electronic payment options are available to taxpayers. Payments can be made online, by phone using a credit or debit card or through the Electronic Federal Tax Payment System. Taxpayers who e-file their returns may use the electronic funds withdrawal option for submitting an electronic payment. It’s possible, for example, to e-file in February or March but schedule the payment for withdrawal as late as April 15.
Information on these options can be found on the Electronic Payment Options Home Page of IRS.gov. Some taxpayers who itemize may now deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2-percent limit on Form 1040, Schedule A. Taxpayers may also pay any taxes by check made out to the “United States Treasury.” Include Form 1040-V, Payment Voucher, along with the payment and tax return. If you have already submitted your tax return but still need to pay all or some of the balance, you may mail the check to the IRS with Form 1040-V.Installment Agreements and Online ApplicationsIf you can’t pay in full by April 15, consider applying for an installment agreement.An installment agreement allows you to pay any remaining balance in monthly pieces. Taxpayers who owe $25,000 or less may apply electronically, using the Online Payment Agreement application. Or attach Form 9465, Installment Agreement Request, to the front of your tax return. You must show the amount of your proposed monthly payment and the date you intend to pay each month. The IRS charges $105 for setting up the agreement, or $52 if the payments are deducted directly from your bank account. Qualified lower-income taxpayers pay $43.You will be required to pay interest plus a late payment penalty on the unpaid taxes for each month or partial month after the due date.Offers in CompromiseThis filing season the IRS has given its personnel additional flexibility on offers in compromise for struggling taxpayers. For some taxpayers, an offer in compromise, an agreement between a taxpayer and the IRS that settles the taxpayer’s debt for less than the full amount owed, is a viable option.Specifically, IRS employees will be permitted to consider a taxpayer’s current income and potential for future income when deciding on an offer in compromise. Normally, the standard practice is to judge an offer amount on a taxpayer’s earnings in prior years. This new step provides greater flexibility when considering offers in compromise from the unemployed. The IRS may require that a taxpayer entering into such an offer agree to pay more if the taxpayer’s financial situation improves significantly.