Tax authorities use pay plans as a collections tool. When a taxpayer agrees to be on a payment plan, it is an acknowledgement of his/her tax debt. Pay plans are typically used to satisfy obligations in which the taxpayer cannot satisfy the total obligation with one lump payment.
The pay plan's terms are typically negotiated between the tax authority and taxpayer. The payment amount and specific date intervals of the pay plan include such factors as total obligation amount and the taxpayer's ability to pay. Payments received are used to satisfy tax, penalty, and interest.
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