TIGTA Finds That The Administration of IRS Partial Payment Installment Agreements Needs Improvement

TIGTA found that the IRS has not provided taxpayers with adequate information on PPIAs on its public website or with the instructions pertaining to the form used to request an installment agreement, nor has the IRS created an effective means for taxpayers to request PPIAs or appeal rejected PPIAs as required by law. 

PPIAs Generally Accounted For Less Than 2 Percent of 

The New Installment Agreements Established From Fiscal

 Years 2016 Through 2020, While Streamlined Installment Agreements Accounted For 56 Percent.

Also, TIGTA found that PPIAs were established without evidence of a complete financial analysis of the taxpayers’ ability to pay. From a judgmental sample of 30 PPIAs, TIGTA determined that the taxpayers’ financial statement had been deleted from IRS files for 11 PPIAs because more than one year had elapsed since the PPIA was established. With no financial statement in the file, TIGTA could not determine whether the IRS had properly computed the maximum monthly payment amount the taxpayers had the ability to pay. 

Collection default data indicate that the IRS is also establishing PPIAs for amounts that taxpayers cannot afford. 

The Default Rate For PPIAs Is Higher (23 Percent) Than
All Other Types Of Installment Agreements (9 Percent),
And In Some Years, The Amount Defaulted Was
Greater Than The Amount Placed Into PPIAs.

Contributing to the higher default rate, TIGTA found 1,007 taxpayers defaulted on their PPIA, with an original PPIA balance over $197 million, when they failed to comply with an essential term of their agreement. 

From Fiscal Year 2016 To Fiscal Year 2020, The IRS
Established PPIAs For Nearly $19.7 Billion, While
Taxpayers Defaulted On PPIAs Totaling $17.6 Billion.

Lastly, TIGTA found that the IRS procedures to close cases as currently not collectible should be enhanced with a PPIA option. The decision process for determining a currently not collectible case are similar to the steps taken by the IRS prior to granting a PPIA. 

TIGTA Reviewed A Random Sample of 51 Taxpayer Accounts Closed As Uncollectible During Fiscal Year 2020 And Determined That The IRS Should Have Offered Four (8%) of The Taxpayers A PPIA Instead of Closing the Case as Currently Not Collectible.

If PPIAs were established for these four taxpayers, TIGTA estimates that they could have paid over $79,724 before their respective collection statutes expired. Based on our random sample, TIGTA projects that the 16,026 taxpayers who had tax liabilities closed as uncollectible could have entered PPIAs and paid a total of over $319 million before their respective collection statutes expired. 

TIGTA made six recommendations to help the IRS improve administration of PPIAs. IRS management agreed to inform taxpayers of the availability of PPIAs and provide outreach; explore and consider additional changes to the instructions for Form 9465; extend AMS history note retention requirements; remind Collection employees to conduct and document a financial analysis; and request a change to Computer Paragraph 522. IRS management partially agreed to revise CNC procedures.

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