Partial Payment Installment Agreement
An IRS Partial Payment Installment Agreement is an arrangement in which the taxpayer and the IRS agree that the taxpayer will pay a specified amount of money to the IRS in exchange for having their taxes forgiven. For many taxpayers this will be a great deal, as they may be in financial hot water and need all of their back taxes removed. For others however this may not be such a good idea. For one thing, if the Internal Revenue Service tries to collect the unpaid taxes from a taxpayer who has an IRS Installment Agreement in place with the agency, the taxpayer may not be entirely innocent of the debt and may actually be involved in the act of tax evasion. A typical IRS Installment Agreement is one that contains a schedule of events, which has various payments set up between the taxpayer and the IRS. The most basic of these types of agreements will contain a schedule of the due dates for payments to be made, along with the amounts and frequency of those payments. If the taxpayer has a large amount of back taxes to deal with then this schedule may contain an even larger payment plan that allows for the full recovery of the back taxes over a certain period of time. The agreement may also include provisions which allow the taxpayer to make payments into an escrow account, where the money will be held until the back taxes are paid.
why is a Partial Payment Installment Agreement created
An IRS Installment Agreement can be used to settle a federal tax liability or to start an Installment Agreement with the IRS. In the case of a liability, the IRS may choose to settle the liability by agreeing to accept less than what is owed in return for the taxes being waived. In the case of an Installment Agreement the IRS may choose to accept a settlement in which the taxpayer pays a lump sum, in exchange for having interest charged on the balance for a specified number of years. In the case of an Installment Agreement the amount of interest that is applied to the balance may vary. However, the IRS will always require that the taxpayer be completely financially able to pay the agreed amount before applying the interest rate.
If a taxpayer has not been able to make one or more of their regular payments on time then they may seek an IRS Partial Payment Installment Agreement from the IRS. In the case of a liability, an Installment Agreement allows the taxpayer to request that interest be applied to the deficit and any other applicable charges be waived. If a taxpayer has never requested an IRS partial payment installment agreement then they may do so at their earliest possible convenience. In addition, if a taxpayer is determined to be in default of a debt they can also request an IRS Installment Agreement to repay the debt.
When using an Installment Agreement in the case of a federal tax liability, there are a couple of different ways to work a payment plan. In most cases, the taxpayer will make one monthly payment to the IRS on the agreed amount plus any applicable late fees and interest. They will then distribute the payment to the IRS in a single monthly payment. This plan can work for most federal tax liabilities as long as the debt itself is not considered “durable” like charitable contributions or second homes. In the case of a retirement account, the IRS can use a PPI (personal property insurance) compromise to settle the liability, but will not allow a charitable contribution.
The IRS does not require any special paperwork or upfront fees when utilizing IRS Installment Agreements in order to settle the federal tax debt. The IRS will not collect a percentage of the total settlement until all monies owed have been received. In most cases, the IRS will require one year to pass before collecting the full amount of the settlement. Because of this streamlined process, many taxpayers are opting to use an IRS Installment Agreement when resolving their federal tax debts.