by Dave Horwedel, CEO of Torchlight Tax.
Today I am going to explain the IRS Partial Pay Installment Agreement, or PPIA. Most taxpayers have never heard of it, but it can be an effective tool for reducing IRS debt.
A Partial Pay Installment Agreement is a payment plan where you pay the IRS an affordable monthly amount, even though those payments will not fully pay off your tax debt before the IRS collection period runs out. When that legal time limit, called the statute of limitations, expires, the unpaid balance is gone by law.
The IRS looks at three things to decide if a PPIA is appropriate.
First, your true ability to pay. The IRS uses Form 433 financial statements and their own “allowable” expense standards, not your feelings. They start with your income and subtract what they consider reasonable living expenses. What’s left is what they say you can pay every month. Now, at Torchlight Tax, we use your data and our advanced software to actually calculate this amount. This gives us a chance to review or correct what you submit before it is submitted. This professional review is a major advantage of using a firm such as ours.
Second, the time left on the collection statute. The IRS usually has 10 years from assessment to collect each year of tax. The end of that 10-year period is called the Collection Statute Expiration Date. If you owe a big balance but only have a few years left on the clock, and your allowed payment times for those remaining months adds up to much less than what you owe, you may be a strong candidate for a Partial Pay Installment Agreement.
Third, your assets. The IRS asks, “Can you sell something or borrow against it?” If you have a lot of equity in real estate or other assets, they may push for a different resolution. Our job is to show the realistic, quick-sale value of assets, what is already encumbered, and what would cause real hardship if tapped.
Now, the Offer in Compromise (OIC) is usually a better deal for the taxpayer than a PPIA. However, there are situations where the IRS will reject an OIC but approve a PPIA. At Torchlight Tax, we have an expansive view of IRS tools. We use them all. For example, we may try an OIC first. If disapproved, we can ask for managerial review, go to IRS Appeals, or go to a PPIA, or even petition Tax Court.
We do the full gauntlet of bookkeeping, accounting, AND tax preparation for personal and business. We also do the full gauntlet of IRS Representation up to and including Tax Court. Most tax firms are not really proficient at IRS representation. And of these, very few actually go to Tax Court. Usually only tax attorney legal firms go to Tax Court. Few of these legal firms are proficient in bookkeeping, accounting, and tax filing.
For us, PPIA is one of a series of related options. On one end, you have Currently Not Collectible status, where you pay nothing because your income is too low relative to your allowed expenses. Next you have PPIA, where you can pay some of the debt, but not all of it. On the other end, you have full-pay installment agreements, where your payments are high enough to pay the entire balance within the 10-year Statute of Limitations period. Offers in Compromise are great but sometimes hard to get approved. PPIAs, Manager Conference, IRS Appeals, the Taxpayer Advocate Service, and Tax Court are additional tools to get the IRS to reconsider.
If the IRS has arbitrarily refused your settlement option, then these provide many options to get them to reconsider. All of these options are discussed among the four hundred articles and videos on the Torchlight Tax website and YouTube channel. An OIC requires a 20 percent down payment of whatever you are offering. If you cannot come up with the down payment, then a PPIA may work. You can also move between options. You ask for an Offer in Compromise, are disapproved, but then get CNC status or a PPIA. Then, with different financials, you apply anew for an OIC.
The PPIA is not a “set it and forget it” program. The IRS can review your finances and try to increase your payment if your situation improves. You must stay current on new tax filings and payments or the agreement can default.
At Torchlight Tax, we start by pulling your IRS transcripts, calculating the statute expiration date for each year, and then doing a careful financial analysis based on real documents—not guesses. Then we compare your options: PPIA, Offer in Compromise, Currently Not Collectible, full-pay plans, Taxpayer Advocate, and even bankruptcy referrals when appropriate. Tax Court can also be a great tool. The IRS Attorney going to Tax Court knows he has to defend the IRS position before an impartial Federal judge. He has no interest in wasting his time trying to enforce an arbitrary IRS decision. The goal is to use the law and the IRS’s own rules to protect your livelihood and get you a fair settlement.
Contact Torchlight Tax for a free consultation at 877-758-7797 or fill out a form here for help on settling IRS debt.
