Overview: This program is for individuals that have very little disposable income and unable to pay the minimum payment amounts under the other IRS programs and/or unable to pay the total amount due in full. It is called a partial pay installment agreement because typically some of the tax will expire and be no longer collectible while in this repayment program. While the account is in the payment plan, the IRS will generally not engage in collection activity (for example, they will not levy assets and income).
However, the IRS will still charge interest and penalties to the account, and may keep refunds and apply them to the past due tax debt. To place the taxpayer in a partial pay installment agreement, the IRS will ask for financial information with supporting documentation. The taxpayer will have to show that after paying necessary living expenses like rent, utilities, car payment, health insurance, current taxes, etc. they only have a certain amount of disposable income to the pay the IRS, even though it will NOT full pay the tax.
In addition, the IRS will only look at necessary expenses and will typically not count expenses that are substantially over the IRS Collection Financial Standards. These amounts can be found on the IRS website here.
Furthermore, the IRS will generally not allow voluntary unnecessary payments such as private school tuition or college tuition for adult children. Lastly, the IRS usually will not count payments for unsecured debts like credit cards, medical bills, and personal loans. However, there are some exceptions to these general rules, which is why it is very important to speak with a qualified and experienced tax attorney.
Requirements: All returns must be filed and any required estimated tax payments made if applicable.
Liens: Tax liens will be filed under this program.
Pros: Taxpayer will still owe the debt but will have a smaller monthly payment based on ability to pay, which could help taxpayer stay in good standing with the IRS while the statute is running. Partial Pay Installment Agreements are a great option for taxpayers that have very little disposable income, cannot afford a regular IRS installment agreement plan, and whose tax liability may be close to expiration.
Cons: Tax liens will be filed. In addition, the IRS can ask for updated financials approximately every 2 years, which means the taxpayer will have to provide financial information every couple of years. If at a later date, the taxpayer is making substantially more money (approximately 25% more than they were making at the time they were placed into the partial pay agreement), the IRS could ask for the taxpayers to start making payments based on the taxpayer’s new ability to pay.
Lastly, if the taxpayer’s financial condition changes and they are required to start making larger monthly payments, the amount of the debt may be larger due to the interest and penalties that accrued while the small payment plan was in place.