If you owe tax debt and are unsure of what to do, a partial payment plan may be the solution you are looking for. This option lets you make affordable monthly payments and may allow you to have part of the debt forgiven. Consider contacting a knowledgeable tax lawyer with Damiens Law by calling (601) 957-9672. We can analyze your unique situation and advise you how to request a partial payment plan with the IRS.
What is a partial payment plan with the IRS?
With a partial payment plan or partial payment installment agreement, a taxpayer makes monthly payments to the Internal Revenue Service (IRS). However, they ultimately pay less than they owe during the repayment term because some of the tax debt expires before the end of the term. Taxpayers can pay off their tax debt without being required to make a large lump sum payment.
Reasons to consider a partial payment plan
A partial payment plan may be a viable option when taxpayers are in the following situations:
- They owe a large debt but do not have enough assets they can liquidate to pay off the liability
- They cannot afford to pay off the tax debt before the Collection Statute Expiration Date
- Their monthly disposable income does not qualify for a regular IRS installment agreement
- The IRS has rejected their Offer in Compromise
- They do not qualify for hardship
- The IRS does not believe you will earn enough money to cover the tax debt in the coming years
Amount of partial payment plan
The amount of partial payments depends on the taxpayer’s total amount of debt, repayment term, and financial situation. To qualify for a partial payment plan, individual taxpayers must complete Form 433-A. Businesses must complete Form 433-B. These forms collect information about the taxpayer’s:
Ultimately, the IRS will attempt to obtain a clear picture of your financial situation and why you cannot afford to pay off all of the debt you owe. Your tax lawyer can help identify documents and legal arguments to help establish your perspective with the tax authorities.
Differences between partial payment plans and installment agreements
Taxpayers who enter into a regular installment agreement with the IRS are generally required to make payments so that they pay off the back due taxes within six years. Therefore, they would need to make a minimum monthly payment of $100 for 72 months if they owed $7,200. There are times when the time period may be shortened or lengthened.
Generally, taxpayers who enter into an installment agreement must pay off their entire tax debt. It is a pretty straightforward process to apply for and receive an installment agreement with the IRS. However, to obtain a partial payment plan and pay less than the tax they owe, a taxpayer has to go through a more extensive process and submit documentation that proves their financial status. Additionally, the IRS can reconsider the terms of the partial payment plan after two years.
Because the taxpayer is making smaller monthly payments, part of their tax debt may expire while they are on a partial payment plan. The IRS waives the remaining balance, and the taxpayer is not responsible for it.
Differences between partial payment plan and offer in compromise
Another option to resolve tax debt is making an offer in compromise to the IRS. Taxpayers can settle their debt for less than they owe. Key differences between a partial payment plan and making an offer in compromise are:
- Ease of obtaining solution – It is usually easier for people to obtain a partial payment plan than to have an offer in compromise accepted. It only takes about 30 days to process a partial payment plan request while it can take up to nine months for the IRS to respond to an offer in compromise. It requires less paperwork to obtain the partial payment plan.
- No probationary period – An offer in compromise imposes a five-year probation period. If a taxpayer files tax returns late or misses payments, their entire tax debt can be owed. This is not the case with a partial payment plan.
- Lower monthly payments – Because a partial payment plan with the IRS is an option for people who do not have sufficient income to pay a regular installment agreement, monthly payments are usually lower than those required of an offer in compromise.
- No lump sum payment – An offer in compromise usually requires a lump-sum payment, but this is not the case with a partial payment plan.
- No extension of statute of limitations – With a partial payment plan, a taxpayer can have part of their debt forgiven because it expires. With an offer in compromise, the IRS may be able to legally extend the statute of limitations to collect on the debt for longer.
Eligibility criteria for a partial payment plan
Not everyone is eligible for a partial payment plan. This option is only available to taxpayers who cannot afford a regular installment agreement’s monthly payments. The taxpayer must complete an application and send a full financial disclosure to the IRS to request this tax relief. Taxpayers must meet all of the following eligibility criteria to qualify for a partial payment plan:
- Able to pay some but not all tax debt
- Filed all required tax returns
- Made all required estimated tax payments
- Owe in excess of $10,000 in tax debt, plus interest and penalties
- Have not filed for bankruptcy
- Does not have an active offer in compromise
- Completed Form 433 and provided all requested documentation to substantiate their financial situation, which may include bank statements
Taxpayers who have assets may find it more difficult to qualify for a partial payment plan because the IRS may require that the taxpayer borrow against the asset to pay off the tax debt. However, the IRS will consider whether the taxpayer cannot access the asset’s equity or if it does not make sense to liquidate the asset because:
- Selling the assets or encumbering them would create a financial hardship
- The taxpayer’s spouse does not owe any taxes and does not want their share of the assets sold
- The asset’s value is insufficient to allow a creditor to loan funds on it
- Selling assets would not be sufficient to pay off the tax debt
It can be complicated to apply for and be approved for a partial payment plan with the IRS. A knowledgeable tax lawyer with Damiens Law can assist with the application process and try to minimize the amount of the monthly tax payment. You can authorize your tax lawyer to communicate with the IRS on your behalf and to request a partial payment installment agreement.
How to request a partial payment plan with the IRS
The process to request a partial payment plan with the IRS involves the following steps:
- Completing Form 433-A for individuals or Form 433-B for businesses
- Estimating how much you can afford to pay each month on Form 433
- Completing Form 9645 and propose a reasonable monthly payment that you can afford
- Gathering financial documents to support the information you include on these forms
- Sending the forms with a copy of the most recent tax filing (only required for paper applications)
- Paying the application fee
- Making the first payment
It is very important that you carefully consider what payment you can actually afford to make each month. If you default on the payment agreement, you may have to begin the process from square one.
After submitting the application, the IRS will usually respond to the request within 30 days. If you do not hear back by then, you may want to contact them and inquire about the status of your application. You can make monthly payments while your application is pending.
The IRS can also request additional information from you after you submit your application. You may receive a letter from the agency requesting specific information and a deadline to provide it. The IRS can reject your proposal if you miss this deadline. Your lawyer can submit this information on your behalf. After you submit supplemental information, the IRS may take additional time to review it and make a decision.
Even after your partial payment plan agreement is accepted, the IRS can review the plan every two years. They will determine if your financial situation has improved enough that you can afford to make a higher payment. If they make this determination, you may be able to refute this with proof that you cannot afford a higher proposed payment.
Contact Damiens Law for tax legal advice and guidance
The knowledgeable team at Damiens Law is here to assist you with resolving your tax debt. We can advise you on how to request a partial payment plan with the IRS and discuss other options. If you would like more information on partial payment plans or alternatives, consider contacting a knowledgeable tax lawyer with Damiens Law by calling (601) 957-9672.