What if you can afford a monthly installment agreement with the IRS, but your payments will not ever repay what you owe?
The good news is that the IRS will give you a payment plan – and leave you alone – even though you cannot pay them back.
The IRS calls this partial pay installment agreements (PPIA). Payment agreements that do not pay the IRS in full are permitted not only by IRS internal guidelines (Internal Revenue Manual 5.14.2), but by law (Internal Revenue Code Section 6519).
Internal Revenue Code 6159(a) specifically states that the IRS can enter into an agreement that facilitates either full or partial collection of an unpaid tax liability.
Even better news: In conjunction with your partial pay installment agreement, keep in the back of your mind that the IRS does have a time limitation on how long they can collect a tax debt. The time limitation, which is known as the statute of limitations on collection, is 10 years. The 10 years starts when the IRS first determines that you owe them money – that can be when you filed your tax return, when the IRS completed an audit of your tax return and found you owed additional money, or when the IRS filed a tax return for you (called a Substitute for Return) because you never filed on your own. Whenever the IRS puts a balance owed on its books, that’s when the 10 year time to collect starts. IRS collection does not last forever, and neither do payment agreements.
They are called partial pay installment agreements for a reason.
What does this mean to you? To sum up, the IRS will accept partial pay installment plans, and combined with the limitation on how long the IRS has to collect a debt, this results in an agreement where you repay the IRS less than what you owe. In other words, partial pay installment agreements present a viable settlement alternative to the IRS offer in compromise program.