Is a Partial Payment Installment Agreement Right for You?
Although the IRS has a reputation for being strict and inflexible, the agency actually offers a wide range of payment options for taxpayers who cannot pay in full by the due date. One of these options is a Partial Payment Installment Agreement or PPIA. This payment arrangement allows taxpayers who demonstrate financial need to make small monthly payments to pay off part of their tax debt, and once they reach the collection expiration date (about 10 years after filing or assessment), the remaining tax debt gets settled.
However, this isn’t the right payment solution for everyone. Learn more about how PPIAs work, how to qualify, your next steps, and when it’s time to reach out to a tax professional.
Key Takeaways
- A Partial Payment Installment Agreement allows you to pay less than the monthly payment that the IRS normally requires on a payment plan.
- The Collection Statute Expiration Date determines when payments end. After this date, the remaining balance is waived.
- You must qualify for a PPIA by proving financial need and providing financial information.
- Every two years, the IRS may revisit your PPIA to determine if your payment amount will change.
What is a Partial Payment Installment Agreement?
A Partial Payment Installment Agreement is a form of tax relief that requires you to pay part of your total tax debt over a period of time. It stretches payments out until the Collection Statute Expiration Date, which is generally 10 years from the date that taxes are assessed.
Generally, the IRS prefers to receive payment in full by the due date. When that is not possible, they will take payment in full over a period of time. When that still isn’t possible, they may be willing to accept partial payment over a period of time – that’s where this program comes in.
Who Should Consider a PPIA?
This type of tax relief is generally best for those who have financial limitations preventing them from paying in full, either upfront or over time. While they may not be able to afford the minimum payment for a standard installment agreement, they can afford a lesser amount on an ongoing basis.
Partial Payment Installment Agreements are only available to certain individual and business taxpayers. When a taxpayer remains on a PPIA until the Collection Statute Expiration Date (CSED), the IRS has to write off a portion of their tax debt, and they aren’t going to grant that as an option unless it’s in their best interest.
However, in the right situations, a PPIA offers benefits to both taxpayers and the IRS. Taxpayers get relief from some portion of their tax debt and stave off enforced collection actions. The IRS gets some part of the amount owed without having to go through the expenses and time associated with enforced collection actions.
What Makes It Different From a Standard Installment Agreement
Qualifying for a standard installment agreement is usually simple and straightforward. Most taxpayers can apply online and get an immediate decision, with only a small percentage of individual and business taxpayers needing to send in additional financial information and documentation. By the end of an installment agreement, a taxpayer will have paid off their balance in full, including all interest and penalties.
On the other hand, qualifying for a Partial Payment Installment Agreement requires a substantial amount of work and documentation. Upon completion of a PPIA, a taxpayer will have only paid off part of their balance. Let’s break down the differences:
| Installment Agreement | PPIA | |
|---|---|---|
| Apply online? | Yes, if owe less than $50,000 | No |
| Collection information statement required? | Only if owe more than $50,000 or have a history of default | Yes |
| Minimum monthly payments | $25 or the balance divided by 120 or the number of months left until the expiration date | Based on your disposable income |
| Must liquidate assets? | No | Yes, if you have equity that could be put toward the debt |
| Tax lien | If already issued, may be removed after you make three payments | Yes. In most cases, a tax lien will be filed against you. |
| Interest and penalties | Will continue to accrue | Will continue to accrue |
| Financial reviews | No | Yes, about every two years |
| Final result | Pay tax debt in full | Pay tax debt partially |
PPIA Eligibility Requirements
To qualify for a PPIA, you must be able to demonstrate long-term financial hardship. A missed paycheck or temporary decrease in hours isn’t enough to warrant a PPIA. The IRS requires extensive financial documentation about your income and assets to ensure that the partial payments are the most you can afford to pay.
How does the IRS determine if a taxpayer qualifies? Depending on whether you’re an individual or business taxpayer, you will need to submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses. In some cases, you may need to fill out Form 433-F, Collection Information Statement, which is for individuals and shorter than Form 433-A.
You have to provide information on income sources, assets, equity, debts, monthly obligations, and other expenses. If you have enough disposable income or equity in your assets to cover your tax debt, you’re unlikely to be approved for a PPIA. The IRS would rather see you exhaust your equity and other avenues before accepting partial payment.
Before the IRS will even consider your application, you must be up-to-date with all of your tax returns. If you are beyond both on filing and paying, file your past-due tax returns before requesting a PPIA.
How to Apply
This application process cannot be completed online. You will need to submit the following forms and supporting documentation to the IRS via mail:
- Form 9465, Installment Agreement Request. On this form, you calculate what your standard monthly payment would be and indicate what you can afford to pay.
- Collection Information Statement, which may include Form 433-A for individuals, Form 433-B for businesses, or Form 433-F.
- Supporting documentation as outlined on the collection information statement. You should typically include proof of all income, expenses, assets, and debts.
The IRS may request additional documents after you apply.
What Happens Next
Unfortunately, the IRS can take months to respond to a PPIA application, which is another reason why it’s critical to work with a professional. If they approve your PPIA request, they will send a notice indicating what your monthly payment will be and when your next payment is due. They may also request more information from you before making a decision. They may need proof of certain claims on your application or financial records.
Finally, they may deny your request for a Partial Payment Installment Agreement. If the IRS believes you are able to pay your tax liability in full, based on your assets and income, they will not accept a lower monthly payment. You will then need to pay in full or explore other payment options to avoid enforced collection actions.
Terms and Conditions That May Affect Your PPIA
Partial Payment Installment Agreements are very different from standard installment agreements, and it’s important to know what you’re agreeing to when you apply. The monthly payment the IRS accepts is based on what you are able to pay.
While a standard installment agreement payment is based on the debt amount, a PPIA payment is based on your financial ability. If you are approved for a PPIA, the IRS may review your financial status every two years by requesting a new Collection Information Statement. Then, one of the following may happen:
- If your ability to pay has increased, your required monthly payment will increase, but you’ll still be on a PPIA.
- If your finances have improved, the IRS may require you to make payments on a standard installment agreement.
- If your financial situation has worsened, your monthly payment may decrease.
- If your financial situation is the same, the IRS will keep your payment agreement the same.
As is the case with a standard installment agreement, interest and penalties will continue to accrue on your tax liability. This won’t really affect you if you are on a PPIA until the Collection Statute Expiration Date, but if you are ever expected to resume normal payments, you will end up paying the interest and penalties.
If you are on a PPIA until the expiration date for the debt, the remaining debt is then written off, and the agreement ends.
Is a PPIA Right for You?
Before you decide whether or not to apply for a Partial Payment Installment Agreement, consider the benefits and downsides of this option.
Here are the main advantages of a PPIA:
- Possible settlement of the tax owed.
- Monthly payments based on your budget.
- Avoid aggressive collection actions, including levies and wage garnishment.
But, there can also be disadvantages:
- Detailed application process.
- You may have to liquidate assets and put the funds toward the tax debt – although this is rare, it’s possible.
- If your financial situation improves, the IRS can require full payment or higher monthly payments.
- The IRS may file a tax lien while you’re on the payment plan.
- Generally not available for in-operation businesses that owe payroll tax.
- There may be restrictions on in-operation businesses that owe other taxes.
A PPIA can be incredibly helpful in the right situation, but it’s not the best option for everyone. When you contact the team at 20/20 Tax Resolution, they’ll help you find the best relief option for your situation.
Other Potential Payment Options
If a Partial Payment Installment Agreement doesn’t fit your needs, there are other options to consider:
- Standard installment agreement: If the IRS determines that you can afford to pay your taxes in full, you can still get some relief with a standard installment agreement. By extending your payments over a period of up to 10 years, you can limit the financial impact of your tax liability.
- Offer in compromise: An offer in compromise settles your tax debt for less than you owe if you can demonstrate financial need. Some of the financial requirements are similar to PPIA requirements, so you may want to discuss this option with a tax professional before putting time into the long application process.
- Currently not collectible: If you cannot afford any monthly payment on your tax debt, consider requesting currently not collectible status. This temporarily pauses all collection efforts, although the IRS may resume collection efforts when your financial status changes.
Be aware that the IRS is much more willing to work with individuals or out-of-operation businesses on payment plans and settlements. If your business is still operating, there may be relief available, but you may need to meet additional requirements. In most cases, in-operation businesses will only be able to settle income taxes (not payroll or excise taxes), and even that can be relatively rare. To protect yourself, work with a tax pro who has dedicated experience solving business tax problems, like the specialists at 20/20.
How a Tax Professional Can Help
Trying to find the right tax relief solution for your needs can be stressful, especially if you cannot afford a more conventional option like a standard installment agreement. The IRS is fairly strict with its requirements for relief options that lower your debt amount, and working with a tax pro gives you a chance to submit the strongest application possible.
There is far more scrutiny around PPIAs, offers in compromise, and currently not collectible status than there is with standard installment agreements.
Our team provides guidance regarding which financial documents you should submit, your chances of being approved for a PPIA, and other payment options that may accommodate your needs more effectively. If the IRS suggests a higher payment or does not believe you qualify, your attorney may negotiate on your behalf for the best possible outcome.
The team at 20/20 Tax Resolution is here to help you take control of your tax debt situation and stop worrying about IRS collection efforts. Schedule a free consultation now by calling us at 1-877-369-5420 or sending us a message online.
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We Are Committed To Finding SolutionsLearn MoreFrequently Asked Questions
How does a PPIA differ from a regular installment agreement?
You only pay part of the minimum monthly payment each month, which means you ultimately only pay off part of your tax liability. Additionally, the IRS may revisit your ability to pay every two years, potentially resulting in a change in your monthly payment.
What financial documents do I need to apply?
You need to provide a collection information statement, along with proof of your debts and monthly payments, assets and their value, and funds on hand.
Can the IRS change my monthly payment later?
Yes. They can revisit your PPIA every two years, and if your financial situation changes, they may change your monthly payment amount.
Will interest and penalties still apply?
Interest and penalties will continue to accrue over the life of your PPIA.
What happens if I default on a PPIA?
The IRS may give you a chance to rectify the issue. If you do not, payment in full is due immediately, and you may face aggressive collection actions.
Is a PPIA better than an offer in compromise or currently not collectible status?
This answer is different for everyone. It depends on how much you owe, your financial situation, and how much time is left until the CSED.
How long does it take to get approved?
The IRS tries to answer all requests within 30 days.
Can I apply on my own, or should I use a tax professional?
You can technically apply on your own, but the IRS is very thorough in its review of PPIA applications. Working with a tax professional may give you the chance to submit a stronger application.
Sources:
https://www.irs.gov/forms-pubs/about-form-9465
https://www.irs.gov/instructions/i9465#en_US_202407_publink1000124091
https://www.irs.gov/pub/irs-pdf/f9465.pdf
https://www.irs.gov/taxtopics/tc202
https://www.irs.gov/instructions/i9465#en_US_202407_publink1000124091
https://www.taxpayeradvocate.irs.gov/notices/partial-payment-installment-agreement/
https://www.irs.gov/payments/payment-plans-installment-agreements
https://www.irs.gov/pub/irs-pdf/p5059.pdf
https://www.irs.gov/pub/irs-pdf/f433a.pdf
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