Decisions, Decisions: Should I Pursue An OIC Or A PPIA?
In very simple terms, a Partial Payment Installment Agreement (PPIA) requires you to give part of what you earn to the IRS, and an Offer in Compromise (OIC) requires you to give part of what you own to the IRS.
Anatomy of an IRS Partial Payment Installment Plan
The Service generally accepts PPIA applications if the taxpayer has insufficient assets to liquidate and insufficient income for a full payment plan. Here are the specific qualifications per the Internal Revenue Manual:
- Limited disposable monthly income,
- Owe over $10,000,
- File Forms 433 and 9465,
- No outstanding returns,
- Not in bankruptcy,
- No offer in compromise in force, and
- Limited assets.
Calculate your payment based on your disposable income in Form 433. The IRS expects the maximum, but do not go too high or you risk defaulting on the agreement. The filing fee is $225 ($107 if you elect the direct debit option).
Pros and Cons of an OIC
Sometimes, an Offer in Compromise is better than an IRS partial payment installment agreement. An OIC’s biggest advantage is its finality. One agreement with the IRS, and the entire issue goes away. If you qualify, the total amount paid could literally be pennies on the dollar. That’s an incredibly attractive idea. In fact, for many, an OIC is essentially a no-brainer. That’s especially true now that the acceptance rate has gone up significantly.
However, the disadvantages are almost as significant, and that’s enough to steer some people to an IRS partial payment installment agreement. An OIC’s results depend exclusively on the taxpayer’s Reasonable Collection Potential. If the numbers do not work out, the IRS will reject your offer out of hand. Furthermore, the affair is very time-consuming. From start to finish, the OIC process could take several years. Finally, an OIC requires extensive paperwork.
That last downside could be the biggest one. IRS agents have been known to suggest an OIC simply so they can have easy access to all the taxpayer’s financial information. Then, once they deny the request, agents know where to find the taxpayer’s assets.
Pros and Cons of an IRS Partial Payment Installment Agreement
This time, we’ll start with the cons. A PPIA is not final. The IRS requires you to re-qualify every two years. It usually asks for higher monthly payments biannually, until the collection statute of limitations expires. Essentially, the Service accepts lower payments now in hopes of higher payments later. Additionally, an IRS partial payment installment agreement keeps the taxpayer under the agency’s thumb.
Now for the good stuff. It is easier to qualify for a PPIA than an OIC, because the agent-in-charge has a little more discretion. Moreover, the IRS partial payment instalment agreement process might only take a few months from start to finish. Finally, and this is very important for some people, there is much less paperwork.
When Should You Ask for a PPIA?
Some people say that a PPIA is an excellent fallback if the IRS refuses an offer in compromise. Others say that taxpayers should not pursue an OIC at all and should always apply for an IRS partial payment installment plan instead.
Truthfully, it’s impossible to answer this question without taking a good, long look at the taxpayer’s current financial picture and probable financial future. The only thing we can tell you right now is that the wrong decision will most likely be very, very costly. So, never take on the IRS alone. The stakes are simply too high.