When a client comes to you with a tax debt they simply can’t afford to pay, you have two primary options to help them resolve their IRS problem: a Partial Payment Installment Agreement (PPIA) or an Offer in Compromise (OIC). The two methods of settling tax debts are very similar in several ways. Candidates for your services are often in similar situations, the IRS requires a similar set of information for both OIC and PPIA, and the taxpayer ends up paying less than their total tax debt if the offer or payment plan is approved.
So then why would you choose a PPIA over an OIC, or vice versa?
You have two primary options to help them resolve their IRS problem: a Partial Payment Installment Agreement or an Offer in Compromise.
Reasons to Choose an OIC over a PPIA
The most notable downside of a PPIA is the lack of finality. When you agree to a PPIA, you’re also agreeing to allow the IRS to review the taxpayer’s financial situation every two years. That means that if the CSED is more than two years away and the taxpayer’s financial situation improves (such as an increase in income and/or equity), the IRS can demand an increased monthly payment and the sale (or borrowing against equity) of assets. In other words, the IRS is willing to agree to a small payment for now in hopes of getting a larger payout later.
When you agree to a PPIA, you’re also agreeing to allow the IRS to review the taxpayer’s financial situation every two years.
An OIC, on the other hand, is traditionally much more difficult to get approved but offers more closure. Once the agreement is finalized and the bill paid, the tax debt is settled, regardless of the amount of money the taxpayer makes after the fact.
Reasons to Choose a PPIA over an OIC
Though the lack of finality in a PPIA is a con for taxpayers, the IRS sees that as a major benefit. The IRS will often prefer a PPIA over an OIC (especially if the CSED is still years away) in the hope that the taxpayer’s finances will improve, allowing the IRS to collect more on the outstanding tax debt. Because of this, the most appealing feature of a PPIA for tax pros is that it is traditionally easier to get approved by the IRS than an OIC.
The most appealing feature of a PPIA for tax pros is that it is traditionally easier to get approved by the IRS than an OIC.
Other benefits of a PPIA include a much faster decision from the IRS, no required lump-sum payment, and (often) lower monthly payments than in an OIC.
This article is a modified excerpt from our free ebook, An Introduction to Partial Payment Installment Agreements. Click below to download the entire thing, free!