CONSIDER THE FOLLOWING SCENARIO:
John Smith owes $100,000 to the IRS. John is on a fixed income and receives $1500 per month from Social Security. He owns his home, but is in poor health; selling or taking a loan against his property would cause obvious hardship. He is worried that the IRS will levy his retirement accounts, on which he relies monthly to pay his bills—or worse, his home.
John’s tax representation, WatchGuard, determines that the IRS collection statute is nearing its expiration in one year. The IRS is also aware of this fact, and prepares a more aggressive collection approach before time runs out. WatchGuard is able to fend off these collection actions by the IRS and advises John not to sign anything that will waive or extend his statute, keeping the pressure on the IRS. WatchGuard offers to have John pay the IRS $200 per month on a Partial Payment Installment Agreement (PPIA), and—after a tough negotiation—the IRS accepts. The IRS locks in this payment until the statute expiration. One year later, John’s remaining liability is no longer collectible, and his monthly payments come to an end.
By this point, John will have paid 12 monthly installments of $200, for a total of $2400, to effectively resolve a $100,000 balance. He will also have protected his home and all of his assets.
YOU CAN ONLY PAY WHAT YOU CAN PAY
John’s situation is not unique, nor is this the only useful application of a PPIA. This little-known program may be the right fit for your tax issue. For John and for you, it pays to understand all of the options on the table.
First, it helps to remember that a tax liability is not a loan or even a debt. When you borrow money to purchase something—such as a car or a house—the terms are agreed upon by all parties in advance. The lender sets up installments which are structured to pay the debt in full. But tax liabilities are, by definition, not a borrowing arrangement; there was no loan, no pre-established payment terms. The IRS wants the money right now, or as much as they can get.
Sometimes tax liabilities are so large, and interest is accruing so quickly, that repayment is simply not feasible within the time the IRS has to collect. A PPIA is a way for IRS to collect something, even if you can’t pay the full balance.
A PPIA allows you to make monthly payments based on what you afford. Your payment will be reviewed every two years and adjusted as necessary; although for many taxpayers, especially for those on a fixed income, this biennial review can result in no change or even a reduction in the payment amount. For this reason, PPIA is often the best option for older taxpayers who often have equity in a home or retirement accounts, though taxpayers of all kinds may benefit from its use.
PPIA is often used in strategic combination with Collection Statute Expiration Dates to save substantial amounts, just as in the example of John Smith above. As soon as the IRS collection statute of limitations (typically 10 years from the most recent assessment date) expires, the IRS can no longer collect on the liability. If the liability is nearing its expiration date, a PPIA (as long as payments are faithfully made) may lock in a savings you never thought possible, savings that perhaps could not have been achieved any other way.
To learn more about PPIA, or any other IRS or state tax relief options, contact WatchGuard today. You will be offered a free consultation and the chance to meaningfully address your tax issue once and for all.