According to the IRS Internal Revenue Manual 126.96.36.199:
"All taxpayers are expected to immediately full pay delinquent tax liabilities. When this is not possible taxpayers may be allowed to pay their liabilities over a prescribed period of time. If full payment cannot be achieved by the Collection Statute Expiration Date (CSED), and taxpayers have some ability to pay, the Service can enter into Partial Payment Installment Agreements (PPIAs)."
This article will attempt to spell out the important benefits of a partial payment installment agreement, and how to qualify for one.
The IRS wants to get paid…now
If you owe the IRS money, the IRS will inform you of the myriad ways of paying them in full now. Borrowing, liquidating 401ks, even putting the amount on your credit card! What they won't tell you is why those are bad ideas.
So if you can't pay now, the IRS wants you to pay over time
Option #1 – Installment Agreements
There are a few different types of installment agreements. For large dollar figures, the IRS will give you up to 6 years to pay the IRS in full. Oftentimes, the IRS will tell taxpayers this is their only option. This is unfortunate, as agreeing to what the IRS wants can actually make a tax problem bigger.
Option #2 – Offer in Compromise
Oftentimes, a Revenue Officer will suggest you file an Offer in Compromise. Many taxpayers make the mistaken assumption that if a Revenue Officer would recommend an Offer in Compromise, the changes of getting one accepted are good. We find that Revenue Officers will recommend that you file an Offer in Compromise because (1) your guard is down; (2) you must disclose your entire financial picture; (3) so when your Offer in Compromise is rejected the IRS knows exactly where to go to levy you in case you don't agree to their harsh repayment terms.
An Offer in Compromise can be an incredibly valuable tool. However, there are times when it is not in your best interest.
Option #3 – IRS Partial Payment Installment Agreement (PPIA)
With a PPIA, you pay the IRS a low payment, but it will not pay off the debt within 6 years or perhaps even longer. You may think "Great, then I will owe the IRS forever!" But this is not true. The IRS has a limited amount of time to collect on a tax debt. Once they can't collect, that's it. The tax debts go away. It's called a "Statute of Limitations".
NOTE: there are circumstances when the IRS will sue taxpayer in court. In that case, that civil judgment could go on forever. This typically happens when the IRS doesn't like a taxpayer for some reason, like the taxpayer committed fraud or is unsavory. For instance, if O.J. Simpson doesn't pay his tax debt in full within the 10-year period, I would expect the IRS would sue him.
Option #4 – Currently non-Collectible
So what if I can't even to afford to pay the IRS anything each month? You may be able to negotiate for a temporary solution that could turn permanent once the Statute of Limitations expires using Currently non-collectible status.
Don't let the IRS force you to accept a tax debt settlement that is in your best interest. Become educated about the best possible ways for you to settle your tax debt by clicking here, or contact us for help!