Partial Payment IRS Installment Agreement PPIA - John R. Dundon II, Enrolled Agent
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Partial Payment IRS Installment Agreement PPIA

Partial Payment IRS Installment Agreement PPIA

The PPIA is an installment agreement that pays back less than what is owed to the IRS because of the expiration of the statue of limitations for collection. It is requested by filing out  IRS form 433. The PPIA was formally authorized in the American Jobs Creation Act of 2004 which amended Internal Revenue Code (IRC) Sec. 6159. IRC Sec. 6159 defines the authority of the IRS to accept payments against a debt through the installment method.

The PPIA is essentially a hybrid of the traditional installment agreement and the Offer-In-Compromise (OIC). It provides a taxpayer with the time to repay the debt within the limits of his or her disposable income without having to necessarily include payment for equity in assets, an issue that often causes problems in the OIC program. The Internal Revenue Manual (IRM) explains that PPIAs may be accepted if a taxpayer does not sell, or cannot borrow against, assets for the following reasons:

  • The assets have minimal equity (or are insufficient to obtain lending);

  • The taxpayer is unable to use the equity;

  • The assets have some value but the asset is unmarketable;

  • The asset is necessary to generate income for the PPIA;

  • Selling or borrowing against the asset would impose an economic hardship; or

  • The taxpayer’s loan would exceed the taxpayer’s disposable income, preventing him from qualifying for a loan.

In general a tax payer should consider a PPIA when disposable income is modest; disposable income will not repay the debt within the statute of limitations for collection and there is little equity in assets or exceptional circumstances exist that do not allow the equity to be realized.

A personal PPIA can be requested by IRS Automated Collection System (ACS) or a revenue officer.  Business cases however demand a revenue officer investigation and will not be granted by ACS. All PPIAs require IRS group manger approval to ensure sufficient:

  1. Analysis of financial statements,

  2. Consideration of other available means of collection, and

  3. Rationale exists for allowing the taxpayer to retain assets with equity.

The PPIA program has two distinct possible disadvantages. These potential downsides must be considered in the context of each tax payer’s case because what may be a potential pitfall for one taxpayer may not be of concern to another taxpayer.

The first issue with a PPIA is that unlike an OIC the IRS reserves the right to review a taxpayer’s financial information throughout the course of an installment agreement to determine if a taxpayer’s financial condition has changed. This continual review may have an impact on the taxpayer’s moving on with his or her life. Also failure to provide an update of financial condition when requested is grounds for termination of the agreement. The PPIA usually and customarily demands that a tax payer’s financial condition be reevaluated every two years. This means that even after a taxpayer has been given a PPIA, the IRS has the right to request a review of financial information and potentially modify or terminate the installment agreement that is in place.

The second issue that should be considered when considering a PPIA is the impact of a federal tax lien. When comparing the PPIA to the OIC, there is a big difference between the two programs relating to the federal tax lien. Once an OIC is resolved the indebtedness to the IRS is concluded and the taxpayer will receive a release of federal tax lien if requested because the debt is considered paid in full. The PPIA however is not a conclusion to the outstanding debt until IRS’ collection statute has expired. This means that you must be able to survive the 10-year statute of limitations with a federal tax lien. The tax lien obviously impacts credit, financing options, and public perception.