A Simple Guide to the Partial Pay Installment Agreement

Key Takeaways

Understanding IRS Partial Pay Installment Agreements can provide crucial tax debt relief for taxpayers facing financial hardship who cannot pay their full tax liability before the collection statute expires.

• PPIA allows partial debt forgiveness: Pay affordable monthly amounts until the 10-year collection statute expires, then remaining balance is legally waived by the IRS.

• Strict qualification requirements apply: Must owe at least $10,000, demonstrate financial hardship, be current on all tax filings, and prove inability to pay full debt.

• Mandatory financial reviews occur every two years: IRS reassesses your situation and may increase payments if income improves, unlike settled Offer in Compromise agreements.

• Complete financial disclosure is required: Submit detailed Forms 433-A/B documenting all income, assets, and expenses using IRS national standards for evaluation.

• Faster processing than Offer in Compromise: PPIAs typically approve within 30 days versus 5-9 months for OIC, making them ideal for quicker relief.

A PPIA provides immediate protection from aggressive collection actions while offering a realistic path to resolve overwhelming tax debt, though it requires ongoing compliance and periodic financial reviews throughout the agreement term.

What is an IRS Partial Pay Installment Agreement?

A Partial Pay Installment Agreement (PPIA) from the IRS lets taxpayers set up monthly payments when they can't pay their full tax debt before the Collection Statute Expiration Date (CSED). The CSED usually runs for 10 years after the tax assessment, though it might run longer in some cases.

This payment plan works well because taxpayers can make affordable monthly payments until the CSED runs out. Once that happens, the law says the IRS must write off any remaining balance. The American Jobs Creation Act of 2004 made PPIAs possible by changing IRC 6159.

PPIAs are different by a lot from regular installment agreements. Regular plans need you to pay everything back. A partial payment plan knows you might have money troubles and lets you settle for less than what you owe. The trade-off is that you'll face stricter rules and oversight.

Getting approved means showing the IRS you're paying as much as you can each month based on your money situation. You'll need to fill out a Collection Information Statement - Form 433-A if you're an individual or Form 433-B for businesses. These forms show the IRS exactly what you can afford.

Here's a real example: Let's say you owe $15,000 in back taxes with six years left on your CSED. If you can only pay $50 monthly based on your income and expenses, you'd pay $3,600 total. The IRS would waive the remaining $11,400 after your CSED expires.

Unlike some regular payment plans, managers must approve all PPIAs. They check that the financial analysis is complete and the IRS looked at other ways to collect the debt.

A PPIA has these conditions:

• You must make all monthly payments on time

• You need to file taxes and pay on time

• The IRS will apply your tax refunds to what you owe

• The IRS might file a Notice of Federal Tax Lien

The agreement means interest and penalties keep adding up while you're paying. Every two years, the IRS checks your finances again. If you're doing better financially, they might change your payment amount.

A partial payment plan gives you big benefits - mainly keeping the IRS from taking your assets or levying your accounts. Just remember that missing payments can end your agreement, and the IRS can start collecting again.

How does a Partial Pay Installment Agreement work?

A Partial Pay Installment Agreement lets taxpayers make monthly payments based on what they can afford toward their tax debt until the Collection Statute Expiration Date (CSED). The CSED runs for 10 years from the tax assessment date, which sets a legal time limit for IRS collection. The IRS removes any remaining tax balance after this period expires.

Here's a real-world example: Let's say you owe $30,000 in tax debt. Your finances allow you to pay $200 monthly, and your CSED has four years left. After paying $9,600 through 48 monthly payments, the statute expires and wipes out the remaining $20,400 from your tax bill.

The IRS needs you to provide detailed financial information through Form 433-F, Form 433-A (if you're an individual), or Form 433-B (for businesses) to figure out affordable monthly payments. These documents must show your income sources, basic expenses, asset equity, and what you owe others.

The IRS reviews your finances every two years - that's a must with PPIAs. These reviews help them see if your situation has changed and they might adjust your payments. A taxpayer who starts earning more after 24 payments might see their monthly payment jump from $200 to $500 for the rest of the agreement.

The IRS looks at your assets too before setting payment terms. New assets during the agreement - like inherited property - might mean you need to borrow against them or sell them to reduce your tax debt.

Your approved PPIA stops aggressive collection tactics like wage garnishments and bank levies, as long as you stick to the agreement. You can focus on managing your money without worrying about harsh collection methods.

Interest and penalties keep adding up while you're in the agreement. The IRS also puts any tax refunds you might get toward your outstanding balance automatically.

What are the IRS requirements for a Partial Payment Installment Agreement?

The IRS has set clear criteria you must meet to get a Partial Payment Installment Agreement. Several basic requirements need your attention before the IRS will look at this payment option.

You can't pay full debt before CSED

The main qualification for a PPIA shows you cannot pay your full tax liability before the Collection Statute Expiration Date (CSED). Your CSED usually runs for 10 years from when the tax was assessed, though some situations might extend this timeline. You might qualify for a PPIA if you can prove you lack enough resources to clear your debt within this timeframe, even with reasonable payments.

You have limited disposable income

There's another reason that involves your disposable income limits. Your disposable income must not be enough to cover the full debt within the statute of limitations. This amount remains after you subtract allowed expenses from your income. The IRS looks at your full picture using Form 433-A (for individuals) or Form 433-B (for businesses) to confirm this limitation.

Yes, it is important to note that only needed expenses count when calculating disposable income for a PPIA. The IRS won't allow non-essential expenses, unlike standard installment agreements. You must still pay the highest monthly amount based on what you can afford.

You're current on tax filings

The IRS demands that you file all required tax returns before they'll review your PPIA application. The Internal Revenue Manual states, "Current returns for taxes must be filed and current deposits paid before an IA can be approved". You must stay tax compliant throughout your agreement. This means you need to:

• File all required tax returns on time

• Make all required estimated tax payments

• Stay current on any payroll tax deposits (for business owners)

Your agreement will default if you don't follow these filing requirements, and the IRS might restart aggressive collection actions.

Who qualifies for an IRS Partial Payment Plan?

You need to meet specific IRS criteria to qualify for a partial pay installment agreement. The tax authority will review several important factors before they approve your payment arrangement.

Minimum debt and financial hardship

Your combined taxes, penalties, and interest should be at least $10,000 to be eligible for a partial payment plan. This minimum amount exists because managing these agreements costs money, which must make sense given the debt amount. Financial hardship is a key qualification factor. The IRS defines this as when you "cannot pay reasonable simple living expenses". So, you must show that you don't have enough resources to fully pay your tax debt within the collection statute timeframe.

Filing and compliance requirements

The IRS requires complete tax compliance before they'll think over a PPIA. You must:

• File all required tax returns

• Stay current with federal tax deposits and estimated tax payments

• Not be in bankruptcy proceedings[142]

• Not have a pending Offer in Compromise for the same tax periods[154]

The IRS will reject your application right away if you have unfiled returns or haven't met ongoing tax obligations. You need to fix any compliance issues before starting the qualification process.

Asset and income evaluation

The IRS gets a full picture through required Collection Information Statements (Form 433-A if you have individual returns or Form 433-B for businesses). This review looks at:

Income verification - The IRS matches your current income against your last filed tax return. They'll ask questions if your income drops by 20% or more. Larger debts might need extra verification steps.

Asset examination - The IRS team carefully reviews your home equity, retirement accounts, vehicles, and savings/investments. They'll check property records, Department of Motor Vehicles records, and search for accounts with big balances. They want to learn about whether you could sell assets or borrow against them to pay your tax debt.

If you owe more than certain amounts, the IRS might ask for complete credit reports and extra financial documents. This detailed review will give a clear picture of whether you could pay your taxes through asset sales or regular installment agreements.

How to apply for a Partial Pay Installment Agreement

Getting approved for an IRS partial pay installment agreement needs proper preparation and paperwork. Here's what you need to do step by step.

Step 1: Gather financial documents

You'll need to collect detailed financial documentation to get an accurate assessment. Your paperwork should include pay stubs, income statements, bank statements, investment records, mortgage documents, rent receipts, utility bills, vehicle information, and monthly expense records. The IRS uses these documents to assess your financial capacity during the application process.

Step 2: Fill out IRS Form 433-A or 433-B

You need to fill out the right financial information form: Form 433-A if you have self-employed status or Form 433-B for businesses. These forms need detailed information about your assets, liabilities, income, and expenses. Any mistakes or missing information will delay your approval. The IRS follows strict national standards to assess expense claims.

Step 3: Submit Form 9465

You must submit Form 9465 (Installment Agreement Request) to formally ask for the payment arrangement. The form doesn't have a specific PPIA option, so add a note explaining that you want a partial payment plan. You can submit your application by mail, online, or at an IRS office.

Step 4: Wait for IRS review and respond if needed

The review process usually takes several weeks to months. You might need to provide more documents or information if the IRS asks. After approval, make sure to follow the payment instructions exactly. Keep in mind that the IRS reviews your case at least every two years and needs updated financial information.

Partial Payment Installment Agreement vs Offer in Compromise

Taxpayers looking at tax resolution options often compare an IRS partial pay installment agreement with an Offer in Compromise (OIC). These programs help resolve tax debt but work in different ways.

Key differences in eligibility

The OIC program needs taxpayers to file all required returns and make estimated payments. You can't be in an open bankruptcy proceeding. A PPIA looks mainly at your limited disposable income and checks if you can pay the full amount before the CSED expires. The numbers show that OICs are harder to get approved. Only about 32% of applications make it through.

Impact of future income

The biggest difference shows up in how these programs handle future income. An accepted and paid OIC settles your tax debt whatever you earn later. The PPIA works differently. The IRS checks your finances every two years and might raise your payments if your situation gets better.

Time to approval and complexity

You can get a PPIA approved in about 30 days. OICs take much longer - usually 5 to 9 months from start to finish. OICs need lots of documents and financial details, which makes them harder to handle than PPIAs.

Which one is better for you?

The OIC might be your best bet if you want to close this chapter and have few assets with little chance of making more money soon. Pick a PPIA if you need quick relief, have steady but limited income, or don't qualify for an OIC based on what you own.

FAQs

Q1. What is the main purpose of an IRS Partial Pay Installment Agreement? A Partial Pay Installment Agreement allows taxpayers to make affordable monthly payments on their tax debt until the Collection Statute Expiration Date, after which any remaining balance is forgiven.

Q2. How does the IRS determine if someone qualifies for a Partial Payment Plan? The IRS evaluates factors such as the taxpayer's ability to pay, financial hardship, compliance with tax filings, and a thorough assessment of their income and assets to determine eligibility for a Partial Payment Plan.

Q3. What happens during the mandatory 2-year review of a Partial Pay Installment Agreement? During the 2-year review, the IRS reassesses the taxpayer's financial situation and may adjust the monthly payment amount based on any changes in income or financial circumstances.

Q4. How does a Partial Pay Installment Agreement differ from an Offer in Compromise? While both help resolve tax debt, a Partial Pay Installment Agreement involves ongoing payments and periodic reviews, whereas an Offer in Compromise settles the debt for less than the full amount owed with no future adjustments based on income changes.

Q5. What documents are required when applying for a Partial Pay Installment Agreement? Applicants need to gather financial documents, complete Form 433-A (for individuals) or 433-B (for businesses), and submit Form 9465 to request the installment agreement, along with a note explaining the request for a partial payment plan.