Partial Payment Installment Agreements

A partial payment installment agreement is a special payment plan that lets you make monthly payments while also settling for less than you owe. This type of payment plan requires a lengthy application process, and it’s subject to reversal if your finances improve. A PPIA is intended to provide financial relief to taxpayers who want to pay off their tax debt, can’t settle with a lump sum, and need a longer time to make payments than offered by a standard installment agreement.

A 2020 report issued by the IRS showed that the tax agency collects an average of $60 billion in unpaid taxes every year through enforcement actions. If you’ve fallen behind on your tax obligations, then it’s important to promptly make payment arrangements because the longer you wait, the more leverage the IRS will have to enforce collection efforts against you. Setting up a PPIA or another arrangement from protect you from unwanted collection actions. 

Are you currently facing unpaid tax or unfiled tax problems in Washington? Are you considering applying for a partial payment installment agreement? Learn more about this IRS tax solution and how to request an installment agreement below.

What is a Partial Payment Installment Agreement?

A partial pay installment agreement allows you to set up a payment plan with the IRS that runs from the time you apply to the collection statute expiration date (CSED). After the CSED, the IRS can no longer collect the unpaid tax, and at that point, the agency waives the remaining balance. However, to qualify, you must prove that you are making the largest monthly payments you can afford based on your financial situation. 

Here’s a quick example. Say that Joan owes $15,000 in back taxes and the CSED is in six years. Joan does not have any assets that she can sell, and based on her income and necessary expenses, she can afford to pay $50 per month. The IRS agrees to this arrangement, and Joan pays $50 per month for six years. By the end of the payment plan, she has paid off $3,600 in tax debt, and the IRS waives the remaining $11,400 of her balance. 

Note that the above example does not include interest or penalties for the sake of simplicity. But in reality, interest and a small penalty would have continued to accrue on her account, and at end of the term, those amounts would have been included in the settlement. 

Benefits of PPIAs

A PPIA lets you pay off your taxes for less than owed. Additionally, while you make consistent payments every month, the IRS will agree not to pursue collection efforts against you. So you won’t have to worry about an unexpected bank levy, wage garnishment, loss of your home, or any other similar collection actions. 

You’ll have to remain consistent and persistent, though, because a failure to pay will invalidate your agreement and lead you back into delinquent status.

Disadvantages of PPIAs

The main drawback of a PPIA is that the arrangement is subject to change. The IRS will review your financial situation every two years, and during the review, you may be required to complete another financial disclosure. If your finances have improved, the agency can take away the PPIA and require you to pay in full or make larger monthly payments. However, if your finances have gotten worse, you can qualify for lower monthly payments.

Another disadvantage is that you may be required to sell or borrow against your assets if you have any. However, that’s not always required. The IRS understands that sometimes you cannot easily access the equity in your assets or that it would be unfair to make you do so. 

Finally, be aware that the IRS may encourage you to sign a waiver to extend the statute of limitations if the agency believes that you may have the ability to pay in full after the CSED. For example, say that the tax debt expires in two years but you come into a trust in three years. In this case, the IRS agent may ask you to extend the statute. To protect yourself, you should always consult with a tax attorney before signing this type of waiver. 

The Purpose and History of PPIAs

Partial pay agreements exist to benefit taxpayers who are struggling to pay off their tax debt in full and likely won’t be able to pay off their full tax liability even over a long period of time. Partial pay agreements were established under the 2004 American Jobs Creation Act specifically for individuals whose financial situations prevent them from being able to fully pay off their balance, even over time, within the collection statute expiration date. 

These arrangements exist because they benefit both taxpayers and the IRS. Taxpayers aren’t excessively penalized for an inability to pay, and the IRS doesn’t have to waste resources tracking down what they’re owed. On top of that, the taxpayer gets to settle for less than owed, but the agency still gets to collect some of the balance due.

Qualifying for a PPIA

Not every taxpayer has the right to get approved for a partial payment installment agreement plan. In general, only taxpayers who genuinely can’t pay off their tax burdens before the collection statute expiration date will get approved for a partial payment plan. They must also meet the following criteria:

• Up-to-date on tax returns for previous years.
• Not in an open bankruptcy case.
• Does not own any marketable assets or can’t access asset’s equity.

Taxpayers must undergo a significant financial analysis to prove these factors. If IRS agents determine that you do have the ability to pay or you’re not experiencing financial difficulty, then you likely won’t qualify and get denied.

The Initial Steps of Applying for a PPIA

To apply for a partial pay installment agreement, you’ll need to file Form 9465 (Installment Agreement Request). This form is meant to help you estimate how much you can pay every month as part of your partial payment plan obligations. It’s the same form you use to apply for all IRS payment plans.

Then, you also need to submit a financial disclosure which is generally Form 433-A if you are an individual or Form 433-B if you are representing a business. Sometimes, the agency may ask for Form 433-F instead. These documents collect details about your income, expenses, assets, and debts, and that info helps the IRS determine if your financial situation makes you eligible for a PPIA plan. 

Negotiating Terms

The above forms help you create a picture of your financial situation for the IRS. However, you need to be aware that the IRS doesn’t consider every expense to be valid. The agency doesn’t allow you to include private school tuition or even college tuition in your necessary finances, and it also has strict requirements on your other expenses. 

The IRS uses a set of financial standards to determine how much taxpayers should be spending on housing, food, transportation, utilities, and other essentials. Some of the standards are the same for everyone in the United States, while others vary based on the cost of living in your location. 

To ensure you get the best deal possible, you must present your financial situation effectively especially if you have any expenses that exceed the standard allowances. Produce the right documentation that backs up your claims, and if necessary, consider getting statements from experts. For example, if your monthly medical expenses are higher than the IRS’s standards, you’ll want to include a doctor’s note explaining why. 

The IRS Installment Agreement Approval Process

Once you’ve submitted all the proper paperwork, the IRS will review your situation and documents. You should receive a response within 30 days that either rejects your application or confirms the accepted offer. 

Once approved, you’ll start receiving monthly reminders about payments, but if you set up direct debts, make sure that you remember when the payments are going to come out of your bank account. If the IRS rejects your offer, you may have the chance to appeal or apply for a different arrangement. 

Terms and Conditions of Partial Payment Installment Agreements

Your PPIA requires you to make your monthly payments as agreed upon every month. Additionally, you agree to file your tax returns on time every year, and you also agree not to incur any new tax debt. Additionally, if you file a tax return showing a refund, the IRS can keep the refund. If you don’t abide by these terms, you will lose your arrangement. 

Also, as stated above, you also agree to let the IRS review your finances every two years. Typically, the IRS employee will set a reminder for two years from the date you set up the plan, and at that point, you will be required to submit another 433 form. Then, your payments may go up or down, or the plan may be terminated.

Duration and Compliance: What to Know

A PPIA is designed based on the conclusion that you won’t be able to pay off your full tax liability by the time the debt collection date expires. That means that plans generally run from the time you apply to the CSED. The CSED is 10 years after the date you filed or the return due date if you filed early. 

So, PPIAs can theoretically be in existence for up to 10 years. However, they are generally shorter as they often deal with tax debt that is already several years old. 

When to Consider Talking to a Tax Professional

If you’re considering applying for a partial payment installment agreement and you’re not sure how to move forward, then a tax professional can help you navigate the situation. A tax resolution professional can be a huge advantage during the PPIA process because you’ll be able to lean on their experience, knowledge, and expertise. The right tax expert will have ample experience dealing with the IRS and negotiating successful payment arrangements.

A tax professional is a huge benefit because they’ll help advocate for your rights and best interests. When you’re dealing with the IRS or the state, t’s helpful to be supported by someone who has knowledge of the tax code. The right tax resolution expert will also have experience negotiating with tax agents, so you can rest assured knowing that you’re going to get the best possible payment arrangements.

Alternatives to Partial Payment Installment Agreements

Before you make a decision on applying for a PPIA, you need to know all your options. Aside from paying your entire balance in full, you could also consider applying for an OIC, full payment agreement, or CNC status. We’ll go over each of these options below.

Offer in Compromise (OIC)

An Offer in Compromise agreement is similar to a PPIA plan because both options allow you to pay less than what you actually owe the IRS over a period of time. An OIC can be more difficult to get approved for, but it’s also more concrete and final on the terms. With a PPIA, you’ll have your financial situation reviewed every two years. If your financial situation has changed, then your payment plan might, too. An OIC, on the other hand, won’t change even if your finances do, but that said, the IRS can take back the settlement if you don’t meet other conditions such as filing your tax returns for the five years after approval.

Installment Agreement

If you don’t qualify for a partial pay agreement, then you aren’t out of options! The IRS might determine that you have the ability to pay in full before the collection statute date, which means you can still possibly qualify for a full payment installment agreement. The IRS has many different IAs to work for different situations.

Currently Not Collectible (CNC)

Currently not collectible is another option you have available to you if you’re sincerely experiencing financial distress. In these circumstances, the IRS will ask you to prove your inability to pay. If you have a legitimate situation going on, then you won’t have to pay anything for now, and the IRS will not pursue collections for at least a year while your account is under “CNC” status. 

Your situation will get reviewed often, though. In some cases, the IRS will reach out to you every year or two to ask for new financial details. In other cases, they will just mark your file, and they won’t review anything until you file a tax return that shows a higher income. 

FAQs: IRS Installment Agreements

Do you have more questions about IRS installment agreements, partial payment plans, or other tax alternatives? A tax resolution professional is in the best position to listen to your unique circumstances and financial situation in order to provide you with personalized tax and legal counsel, but below, we’ll go over some general answers to some of the most frequently asked questions.

How do I apply for an IRS Partial Payment Installment Agreement?

Fill out Form 9465. If you cannot afford to pay the monthly payment noted on line 10, suggest an amount you can afford on line 11. Then, file Form 433-A or 433-B to prove that amount is the most you can afford to pay. Talk with the IRS about a PPIA and sign any required documents to finalize the process.

Can the IRS deny a partial payment installment agreement application?

Yes. A partial pay installment agreement isn’t available for every taxpayer. The IRS will only approve your application if your financial needs match up with your relief requests. If the IRS determines that you have the ability to pay in full or you aren’t in need of a partial payment plan, then they may deny your application. 

What are the compliance requirements for maintaining a Partial Payment Installment Agreement?

You must make your monthly payments on time and in full. You must file all future tax returns on time and pay in full. You must let the IRS keep your tax refunds. You must provide financial details as requested every two years.

Are there any alternatives to a Partial Payment Installment Agreement for handling tax debt?

Yes, an installment agreement lets you make monthly payments on your tax debt. An offer in compromise allows you to settle with a lump sum payment or up to 24 monthly payments. There’s also currently not collectible status that allows you to pay nothing until your finances improve. 

Are You Weighing Out Your Tax Options?

If you’re behind on taxes and can’t pay off your full obligations right away, then a partial payment installment agreement (PPIA) might be a good option for you. This type of arrangement allows you to pay off your IRS tax debt over several months while also getting some level of protection from future collection efforts.

It’s important to consider your options, though, because if you later fail to make a payment, then IRS collection efforts will immediately resume. In general, the best way to determine your options is to seek out expert advice from a tax professional. A tax resolution specialist will help you go over all your options so you can make an informed choice moving forward.

Are you ready to weigh out your tax options and find a solution? Schedule a consultation with our team now to get started on finding tax relief.