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In a NutshellOwing a lot of income tax debt often feels inescapable, and the Internal Revenue Service (IRS) can seem intimidating. Fortunately, the IRS has many options available to taxpayers who can’t pay all their taxes right away and will usually work with you to find a solution. This article takes a closer look at how the partial payment option works, how it compares to other solutions, and whether it may be a good choice for your situation.
Owing a lot of income tax debt often feels inescapable, and the Internal Revenue Service (IRS) can seem intimidating. Fortunately, the IRS has many options available to taxpayers who can’t pay all their taxes right away and will usually work with you to find a solution.
Some examples of these potential solutions include an installment agreement, an offer in compromise, or a partial payment plan. This article takes a closer look at how the partial payment option works, how it compares to other solutions, and whether it may be a good choice for your situation.
Federal law grants the IRS broad collection powers, including the ability to seize and liquidate assets, levy funds from your bank account, set up a wage garnishment, and place a tax lien on your property. If you owe a large amount of past-due taxes, you’ll likely have to face your tax problems sooner or later — hiding from the IRS is not usually a successful plan.
With that said, the IRS ordinarily tries to work with taxpayers to find manageable tax payment solutions that benefit both sides. The taxpayer can resolve their debt and move forward, and the IRS can collect more than it might have been able to otherwise.
Some of the most common solutions available to taxpayers who can’t afford to pay their taxes include:
To determine whether a partial payment agreement is the best tax relief option for you, it helps to understand how it compares to other possible solutions.
Most ordinary installment plans require you to pay the full amount of your tax debt over the course of the payment plan. That said, the payment plans don’t last forever. Federal tax law limits the payment period for most installment agreements. Typical agreements (sometimes called streamlined installment agreements) must be completed either within 72 months or by the collection statute expiration date (CSED), whichever comes first. The CSED is the collection cutoff date: The IRS can’t continue trying to collect a tax debt after its cutoff date has passed.
A few important things to know about the CSED:
In some cases, you might not be able to completely pay off your back taxes within the payment period required for an ordinary installment plan. This is usually because either your tax debt is too high, or your monthly disposable income is too low. In this situation, a partial payment agreement might be a better choice.
To be eligible for a PPIA, you must be able to prove that you don’t have enough money or property to be able to complete a standard installment agreement. If the IRS believes you can fund an ordinary plan, you won’t qualify for a partial agreement.
Both an offer in compromise and a partial pay installment agreement allow you to pay less than the total amount that you owe, but there are many significant differences between these two options. Each has its unique benefits and drawbacks.
With an OIC, the IRS agrees to accept less than the full amount owed — usually in a lump sum payment — as final settlement of a tax debt. One of the most important advantages of an OIC over a partial payment agreement is that the IRS accepts an offer in compromise as a final satisfaction of the debt owed. In other words, with an OIC, you will no longer owe affected tax debts, even though you haven’t paid them in full. With a partial payment plan, you will continue to owe all unpaid taxes until the CSED passes. (Fortunately, the IRS won’t take other collection actions if you stay current on your installment payments.)
Another advantage of an OIC is that there are no consequences if your income increases after entering the agreement. Over the course of a partial payment agreement, the IRS will re-evaluate your financial situation every 2 years. You may have to submit additional documentation for each financial review. If your income increases or your situation changes, your payments may increase.
One advantage of a PPIA is that federal laws allow you to complete more than one of these agreements during your life. An OIC, on the other hand, is a once-in-a-lifetime solution. If you have ever completed an OIC before, you aren’t eligible for another, making PPIA your better — or only — option. A partial payment agreement is also a better choice if you were recently rejected for an OIC.
Another advantage of a partial pay agreement is that the processing time for this option is that it is much faster than it is for an OIC. While the IRS typically processes a partial payment plan request in around 30 days or less, it usually needs 3-6 months to determine whether you qualify for an OIC, plus an additional 2-3 months for legal review and final approval. To make matters worse, the CSED is usually suspended during the 5-9 months that your application is pending. This gives the IRS more time to collect against you if your offer isn’t approved.
A partial pay agreement is almost always a better option than a CNC status, because the PPIA is a solution, while a CNC merely defers or delays the situation. The CNC may be a better alternative if you truly can’t afford even a small monthly payment and are relatively certain that your situation isn’t going to change before your CSED expires.