IRS Partial Payment Installment Agreement: How to Qualify and Apply

Despite how effective the IRS is in collecting tax debts, they understand the financial realities of trying to collect taxes from taxpayers who don’t have much money. This is one reason why the IRS encourages taxpayers with unpaid tax bills to set up monthly payments, but in some cases, the IRS may be willing to accept a tax bill as settled for an amount that’s less than the total balance.

One such option is the Partial Payment Installment Agreement. In this article, we’ll explain what this is, including its eligibility requirements, how to apply, and what you can expect if you get accepted. Read on to learn more or feel free to contact the Law Offices of Stephen B. Kass for additional guidance.

Key Takeaways

• Partial Payment Installment Agreement (PPIA) – make monthly payments until the expiration of the Collection Statute of Limitations Deadline (CSED), with any remaining balance being written off by the IRS.
• Eligibility – you must be current with required tax returns and demonstrate sufficient financial hardship.
• How to apply – complete Forms 9465 and 433-F or 433-B.
• Pros – Smaller monthly payments and settling a tax debt for less than the full amount.
• Cons – accruing interest and penalties, possible tax liens, and the IRS can require larger monthly payments if your finances improve.

What Is an IRS Partial Payment Installment Agreement?

An IRS Partial Payment Installment Agreement (PPIA) is a type of payment plan where the taxpayer makes monthly payments toward an outstanding balance until the Collection Statute Expiration Date (CSED) for that tax debt passes. After this deadline, the IRS agrees to forego collecting any remaining tax balance. The CSED is usually 10 years after the date of the tax assessment but can be extended in certain situations.

The goal of the PPIA is to provide a long-term payment option for taxpayers who can’t otherwise afford to pay off their full tax debt with a traditional installment agreement. As long as the taxpayer complies with PPIA’s terms and conditions, the IRS won’t take more extreme collection actions, such as tax levies and property seizures.

Because the taxpayer may be able to wipe away their entire tax debt without paying the full amount, the PPIA has fairly stringent eligibility requirements. These primarily relate to the taxpayer’s finances, meaning that the IRS won’t usually agree to a PPIA unless the taxpayer is struggling financially.

PPIA Eligibility Requirements

Before you apply for a PPIA, you need to make sure you’ve filed all required tax returns with the IRS. Even if you can’t afford to pay the taxes arising from these returns, you still need to be current on all returns before the IRS will consider you for a PPIA.

You’ll also need to be dealing with an ongoing financial hardship. The IRS has its own criteria on exactly what this entails, but it often means you can’t afford to pay your tax debt, even with the help of a conventional payment plan. “Can’t afford” generally constitutes not having the funds to pay both your necessary living expenses and make monthly payments to the IRS in a traditional installment agreement.

Other eligibility requirements include:

• Owing a tax debt that exceeds $10,000.
• Having the financial means to pay some amount of money to the IRS each month, but not enough to fully pay the tax balance before the expiration of the CSED.
• Not being in bankruptcy.
• The IRS not accepting an earlier offer in compromise request (assuming you made one).

How to Apply for an IRS PPIA

You can apply for a Partial Payment Installment Agreement by mail or by phone. If you apply over the phone, you’ll call the number listed on your IRS notice or call 1-800-829-1040 (if you’re an individual taxpayer) or 1-800-829-4933 (if you’re a business taxpayer). If you apply by mail, you’ll need to complete the following steps:

• Fill out IRS Form 9465, Installment Agreement Request.
• Fill out IRS Form 433-F, Collection Information Statement (if you’re an individual taxpayer) or IRS Form 433-B, Collection Information Statement for Businesses (if you’re a business taxpayer).
• Attach the necessary financial documentation to support the amounts listed on these forms – for instance, proof of your income and expenses.
• Pay the application fee (this can vary depending on the payment method and your income status, but it’s usually $107 or $178. If you’re low-income, the IRS may agree to waive or refund this fee).
• Calculate how much you can afford to pay each month.

While not required, it’s recommended that you include your first proposed monthly payment as part of your PPIA application. You should also continue making this payment each month until you receive a decision from the IRS, which should come within 30 days of submitting your application. However, it may take up to 60 days to hear back.

In certain situations, the IRS may ask for additional information. For example, if the income you report on Form 433 is significantly lower than what you reported on your last income tax return, the IRS may ask for additional financial information from you, such as bank statements from the past few months.

If the IRS rejects your request, you have the right to file an appeal through the Collection Appeal Program (CAP).

Terms and Conditions of a Partial Payment IA

If the IRS accepts your PPIA application, they’ll expect you to comply with several PPIA requirements to remain in the program.

Selling Assets

Most taxpayers accepted into a PPIA don’t have any significant assets. Or if they do, they’re not in a position to sell them to use the proceeds to pay off the unpaid taxes. That being said, there are some cases where you can enter into a PPIA, but the IRS will expect you to sell one or more pieces of property and use those proceeds to help pay off your tax debt. In other cases, the IRS may ask that you take out a loan to pay some of your tax balance and use your assets as collateral.

The IRS usually won’t ask you to sell or borrow against your property if one or more apply:

• You can’t sell the assets.
• Selling the assets would impose a financial hardship on you.
• The assets generate income.
• If you take out a loan with your assets as collateral, you can’t afford the terms of that loan.

Making Monthly Payments

This is the most important term of the PPIA. Although you told the IRS what you believe your PPIA monthly payments should be, the IRS gets to make the final decision on how much you pay each month. To aid in this decision, the IRS will rely heavily on the information you provide with Form 433. This involves examining your income, expenses, assets, and debts, along with how far away the CSED is.

The IRS compares your income to expenses to determine how much cash you have each month for monthly payments. They then compare your assets to your debts to decide how much equity you have in your property. Assuming you have equity, the IRS will calculate your realizable equity by taking a percentage of your overall equity. Your monthly payment under the PPIA will be your available cash each month plus the realizable equity divided by the number of months until the CSED.

Note that the IRS doesn’t necessarily accept all expenses. If the agency thinks that you’re overspending on housing, food, medical care, transportation, or any other category, they will expect you to make larger payments. The IRS uses set financial standards to determine how much taxpayers should be spending – some standards like medical care are the same everywhere, but others like housing vary based on where you live.

Avoiding Default

The PPIA remains in effect until the CSED expires or you default on the agreement. The IRS may consider you to be in default if you:

• Fail to provide updated financial information (which you’ll have to provide at least every two years);
• Incur additional tax debts;
• Miss a payment; and/or
• Don’t file a future tax return.

Because you’re required to provide updated financial information to the IRS at least every two years, it’s possible to adjust your monthly payments, either up or down.

Benefits of a PPIA

A PPIA provides three main benefits.

• Stops IRS tax levies – A PPIA can help you avoid wage garnishment or property seizure.
• Provides financial relief in the form of more manageable monthly payments.
• Offers the ability to resolve a tax debt for less than the full balance.

PPIA Drawbacks

As nice as the PPIA is, there are several disadvantages or drawbacks to keep in mind before applying.

Tax Liens

Even though the IRS won’t levy your property, they’ll more than likely file a Notice of Federal Tax Lien. This will make it difficult to sell property subject to the tax lien, although you most likely won’t have assets worth selling. If you did, the IRS would have likely required you to sell those assets as part of the PPIA’s terms or those assets would have prevented you from being eligible for a PPIA.

Statute of Limitations

Requesting a PPIA will usually pause the running of the CSED clock. Once you apply for a PPIA, the CSED is suspended until the IRS decides on your request. If the IRS rejects your request, the CSED clock doesn’t resume until 30 days later. If you decide to challenge the rejection, the CSED is also paused for the duration of your appeal. If you’re like most taxpayers, delaying the CSED due date by a few months won’t normally be a problem, but it could be in certain situations.

Interest and Penalties

After acceptance into a PPIA, interest and penalties will continue to accrue until the full tax balance is paid or the CSED expires.

Default

If you default on a PPIA, the IRS has the discretion to terminate the agreement. This not only prevents you from settling your tax debt for less than what you owe, but it also means the IRS could resume collection actions, such as levies. As if to add insult to injury, the IRS canceling a PPIA due to your default could result in additional CSED extensions.

Partial Payment Installment Agreement Alternatives

If you’re not eligible for a PPIA or decide its drawbacks outweigh its benefits, you have at least three other options to think about.

Offer in Compromise (OIC)

This may be the most promising possibility, as it offers you the ability to settle your tax debt for less than what you owe. The catch is that it’s usually more difficult to qualify for an OIC, and it can take longer to apply and get accepted, too.

Currently Not Collectible (CNC) Status

In severe financial hardship situations, the IRS will stop all collection activities. This pause is temporary and interest and penalties will continue to accrue during this collection moratorium. The IRS will apply any tax refund checks or credits to your tax balance and may file a Notice of Federal Tax Lien. Despite this, the IRS won’t take your property or require you to make any payments as long as you have CNC status.

Conventional Payment Plan or Installment Agreement

These are often easier to apply for and have more manageable eligibility requirements. However, the monthly payments will be higher than those in a PPIA and there’s no option to settle the tax debt for less than the full amount.

How a Partial Payment Installment Agreement Tax Pro Can Help

You don’t have to consult with a tax professional to apply for a PPIA, but there are several reasons why you should:

• Guidance – a tax pro can help you decide if a PPIA is best for you and if so, if you’re likely to be accepted.
• Help with the application – The required forms aren’t the easiest to fill out and incomplete information can lead to a rejection or delays.
• Negotiation – A tax professional can also negotiate on your behalf to increase your chances of PPIA acceptance and obtaining lower monthly payments.
• Decision-making – They can help you with key decisions during the PPIA process. For example, applying for a PPIA will extend the CSED. As mentioned earlier, this usually isn’t an issue, but it might go against your best interests in some cases. Another example is when the IRS asks you to sell one or more assets as part of the PPIA. There could be alternatives available and if not, a tax pro can help you obtain the best results possible during the sale.
• Assistance with compliance – Finally, your tax resolution professional can help monitor your situation and help you remain compliant with the terms. They can even work with you to lower monthly payments if your financial situation changes and respond to IRS requests for updated financial information.

A Partial Payment Installment Agreement can reduce your tax burden and provide relief. Contact the Law Offices of Stephen B. Kass, P.C. today to discuss your options and start the process of settling your tax debt.