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Partial Pay Installment Agreements In the Dark

Posted on Apr. 5, 2022

A recent TIGTA report highlights the redheaded stepchild of collection alternatives, partial pay installment agreements (PPIAs). The report discusses how relatively infrequently taxpayers enter into PPIAs and reveals how a lack of outward facing information about PPIAs contributes to their low use and jeopardizes taxpayer rights.

The TIGTA report’s use of a taxpayer rights framework in evaluating the IRS’s performance in administering PPIA’s is significant, and highlights the relationship of taxpayer rights to tax collection. (For more on that relationship, see Nina’s post discussing the upcoming Seventh International Taxpayer Rights Conference, which focuses on tax collection and taxpayer rights).

What is a PPIA?

A PPIA is a form of installment agreement (IA) where a taxpayer makes regular monthly payments but the payments do not pay fully the liability.  Congress gave IRS authority to enter into these types of installment agreements as part of the 2004 American Jobs Creation Act. This allows for taxpayers who cannot  fully pay their liability over time to make some payments. At the end of the PPIA, the IRS is prohibited from collecting the balance because the SOL has expired. Taxpayers get the benefit of avoiding levy (though are subject to offset), and IRS is required to check in every two years to see if their financial conditions have changed.

For taxpayers who enter into a PPIA, as with other IAs (i.e., Guaranteed, Streamlined and Routine IAs), taxpayers must make their monthly payments on time and remain compliant with all of their tax obligations. A taxpayer who misses two monthly payments typically receives a letter giving the taxpayer the option to resume payments. Following the letter, a taxpayer who does not contact the IRS or does not make another payment will lead to IRS terminating the PPIA.

As TIGTA notes, installment agreements are down generally over the past few years, and PPIAs in particular have dropped significantly. PPIAs comprise only two percent of new IA’s from FY 16 to FY 20, and even lower number of all IA’s in IRS inventory:

Figure: image.png

Why Are PPIA Numbers So Low?

Of course, in the COVID-19 era collection numbers are down generally, but the report illustrates a lack of use of PPIA that has nothing to do with COVID-19.The report suggests that the low number of PPIA’s may be due to the absence of any information about PPIAs on the IRS web page. Even if someone knows enough to search for PPIAs on the IRS web page, the result comes up empty when it comes to outward facing guidance (you do get access to an IRM and a mention on the TAS Roadmap). In addition, the IRS form for submitting an IA request, Form 9465, and its instructions, also fail to mention PPIAs.

As a result, to know that they have the right to request this collection alternative, taxpayers facing possible enforced collection are greatly dependent on IRS to suggest the PPIA collection alternative:

Unless revenue officers or Automated Collection System employees make the decision whether to place taxpayers accounts into Currently Not Collectible (CNC) status or place taxpayers on a PPIA, taxpayers may be unaware the PPIA is a collection option available with the IRS.

TIGTA then rightfully notes how this undermines taxpayer rights:

Under the Taxpayer Bill of Rights, taxpayers have the right to be informed, and this should include the right to request PPIA agreements to address delinquent tax accounts with the IRS….Taxpayers are also statutorily entitled to an independent review of any IA request, including a PPIA, that is denied as well as to a hearing before the Office of Appeals for a rejected IA

However, because there is no clearly established mechanism for a taxpayer to request a PPIA and information about PPIAs is very limited, taxpayers appear to be effectively denied these rights.

In addition to directly noting the relationship of the IRS’s failure to publicize PPIA’s on taxpayer rights, TIGTA notes that the IRS’s Burden Reduction program has recommended that IRS make changes to Form 9465 but IRS has resisted.

What Reason Would IRS Have For Not Making This Information More Available?

TIGTA noted that during the audit IRS offered “various rationales” for not beefing up the 9465 to include PPIA’s but at the conclusion settled on the following:

  1. A change is not necessary because the form already allows the taxpayer to propose any amount to pay monthly;
  2. IRS employees would be inundated with PPIA requests if taxpayers were made aware of PPIAs on the form; and
  3. Rejected PPIAs would cause taxpayers to flood the Office of Appeals while pursuing their statutory rights to appeal.

According to IRS, this would “lead to an avoidable and inefficient expenditure of resources to address PPIA proposals for taxpayers that do not qualify as well as an undesirable customer experience for the taxpayer.“

Conclusion

As TIGTA noted, the IRS rationale in support of its decision to not modify the 9465 could justify denying taxpayer information to other statutorily created collection alternatives, and “is not a sound basis to provide no information about PPIAs or an effective means for taxpayers to request PPIAs.”

To be sure, at the conclusion of the report, TIGTA noted that IRS has agreed to add information about PPIAs on the web page and work with the Taxpayer Advocate Service and the Taxpayer Experience Office to explore potential changes to the Form 9465. Those changes would help align with taxpayer rights; it is significant that TIGTA is taking that rights based perspective in its work.

On balance, however, it would be better if IRS were proactively considering these issues from a taxpayer perspective without the need of a TIGTA audit. To that end, see Reducing Administrative Burdens to Protect Taxpayer Rights, a paper that Keith, Nina and I have written that is forthcoming in the Oklahoma Law Review that proposes a more robust and proactive approach to identifying and minimizing burdens that impinge on taxpayer rights. For those with an interest in collection and tax administration, I recommend reading the whole report. It also discusses IRS performance in reviewing and maintaining taxpayer financial information for those taxpayers who entered into or defaulted into PPIAs and situations where the IRS itself overlooked PPIAs and perhaps improperly put taxpayers in currently noncollectible status.

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