Partial Payment Installment Agreement (PPIA)

If you owe taxes, penalties, and interest of more than $10,000 and cannot pay them in full, you might consider requesting a Partial Payment Installment Agreement (PPIA) with the Internal Revenue Service.  For your application to be considered by the IRS, you will need to file Form 9465 Installment Agreement Request, Form 433-A or Form 433-B The Collection Information Statement (for an individual and a business, respectively), a letter requesting a Partial Payment Installment Agreement, and three months of documentation substantiating all income and expenses reported on Form 433-A or Form 433-B.  Ordinarily under a Partial Payment Installment Agreement, you would be expected to pay the available equity in your assets as well as your disposable income over the remaining statutory period of collection of your tax assessment (ten years less the intervening period since the date of assessment) in order to satisfy your tax liability.  Your application for a Partial Payment Installment Agreement may be approved even if you have no assets or equity in assets.  Furthermore, it may be granted even if you have equity in assets but do not sell or cannot borrow against those assets for the following reasons:

  1. Your equity is insufficient to allow a creditor to loan funds.
    1. E.g., your equity in your house is less than 20%, a common threshold for lenders.
  2. Your loan payments would exceed your disposable income and, consequently, would disqualify you for the loan.
    1. The IRS requires you to make a good faith attempt to obtain a loan, using normal business standards when applying for an equity collateralized loan; consequently, retain copies of all loan application documents in order to substantiate a bonafide attempt to secure a loan.
  3. Your asset is currently unmarketable, due to a decline in values or its particular nature.
  4. Your asset generates income required to finance the Partial Payment Installment Agreement, and that income stream’s present value exceeds your yield on its sale.
    1. E.g., business assets often generate more revenue over time than their sale.
  5. The sale of the assets, loans on those assets, or the use of those assets to pay your taxes would create an economic hardship on you.
    1. I.e., if the sale, loans, or use of those assets cause you to be unable to pay your reasonable basic living expenses.
      1. Conditional expenses are excluded.
    2. Or if you have extraordinary circumstances, such as a dire medical condition.
    3. E.g., if you are elderly, in poor health, subsiding solely on social security, and your only asset is your house, and its sale, seizure, etc., would make you unable to find suitable replacement housing or meet necessary living expenses.

As in an Offer in Compromise, the Internal Revenue Service will evaluate your Reasonable Collection Potential, which, in essence, is what it reasonably and potentially could expect to collect from you from the attachment of your wages and income as well as from the seizure of your assets in order to settle the tax assessment against you.  It would equal the realizable valueof all of your assets (assuming none of the circumstances itemized above would exclude the equity in your assets from consideration) after deducting all loan balances remaining on those assets plus your monthly disposal income times the number of months remaining in the statutory collection period of your tax assessment.  Disposal income equals your monthly income lessnecessary living expenses.  Monthly income includes monthly wages, interest, dividends, pensions, social security, child support and alimony, business profits, rental income, and Schedules K-1 distributions.  Necessary living expenses include expenditures for food, clothing, housekeeping and personal care items, rent or mortgage, property taxes, residential and life insurance, maintenance, dues, fees, utilities, vehicle leases or loans and operating costs, mass transit fares, medical expenses, court order payments, child/dependent care, taxes, secured debts. All of the above information to allow the determination of your Reasonable Collection Potential is required to be entered in Form 433-A The Collection Information Statement along with three months of supporting documentation in order for verification by the Internal Revenue Service.

For further explanation, feel free to contact our legal counselors. We will walk you through the entire process.

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