The IRS expects that taxpayer will pay any back taxes that are owed in full at the time that they are due or will get on a payment plan for the amount in question. However, the IRS does not like to wait long for funds and payment plans are generally granted only in circumstances where the taxpayer can set up a payment plan to pay the balance owed, plus applicable penalties and interest within five years or prior to the expiration of the Collection Statute Expiration Date (CSED), whichever is first. However, there are some instances where this is not possible and the IRS is forced to consider the alternative. In these instances, the IRS will sometimes consider a partial payment plan for the taxpayer.
Partial payment plans and the IRS’s authority to consider them is a fairly recent development. The IRS was not previously able to consider partial payment plans and instead would just resort to adverse collection measures. However, The American Jobs Creation Act of 2004 amended IRC § 6159 to provide this authority. Partial payment plans essentially recognize that it is sometimes not economically feasible for a taxpayer to pay their full balance owed and instead creates a method for them to pay as much of their back tax liability as possible without putting them in economic hardship and without the IRS resorting to adverse collection activity.
All that considered, partial payment plans are difficult to come by based on the fact that the IRS is essentially giving up on collecting the full balance owed. In circumstances where a partial payment plan may be warranted, the IRS will receive all available collection sources in order to determine their collectability. This includes any equity in assets, the taxpayer’s current monthly income and expenses, and projected future income and expenses. Undergoing this detailed financial analysis is a necessary part of the process before the IRS will consider a partial payment plan. This is not to say that taxpayers have to be fully drained of any equity before being set up on partial payment plans. The IRS examines a taxpayer’s situation in a case-by-case basis and, in some cases, may allow the taxpayer to retain some of the equity in their assets and to be set up on a partial payment plan. However, this normally only occurs in situations where a levy, seizure or garnishment would not substantially impact the satisfaction of the outstanding tax obligation or is not appropriate. Only after this review is conducted are partial payment plans considered.
In order for partial payment plans to be set up, the taxpayer will need to contact the IRS to request one. Any application for a partial payment plan will require a collection information statement (generally, IRS Form 433-A) and a written request on how much the taxpayer intends to pay monthly based on their financial circumstances and their ability to pay. Generally, the IRS will want the maximum monthly amount that the taxpayer can afford without resulting in financial hardship.
In conclusion, IRS partial payment plans are sometimes difficult to negotiate because of the hesitancy by the IRS to grant them or even consider them as an option. Some of the more junior collection agents will not even offer them as a solution to the taxpayer. However, partial payment plans can be a viable avenue for reaching a tax resolution with the IRS and getting a much needed fresh start. If you have any further questions regarding payment plans, please get in touch with me through the contact information on this website.
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