How To Qualify For An IRS Partial Payment Agreement

IRS Partial Payment Installment Agreement

A partial payment installment agreement (PPIA) is a payment plan that allows taxpayers to pay off their tax debt over time in smaller, more manageable amounts. Unlike a traditional installment agreement, a PPIA does not require the taxpayer to pay the full amount owed before the statute of limitations expires. The partial payment installment agreement was established by the American Jobs Creation Act to help taxpayers facing financial difficulties resolve their tax liabilities.

Low Monthly Payments With the Possibility of Settlement

If you cannot afford to pay your tax debt in full or make the minimum monthly payments on a payment plan, then, consider a partial payment installment agreement (PPIA). PPIA let you make low monthly payments until the collection expiration date. On that day, the remaining tax debt expires, and you no longer have to make payments. 

To learn more about these payment plans and other tax relief options, contact Damien’s Law by calling (601) 873-6510. We can analyze your unique situation and help you find relief.

Key takeaways

• Partial payment installment agreement – Make low monthly payments until the Collection Expiration debt. Then, the IRS waives the remaining debt.

• Application – Apply for a payment plan and provide a collection information statement.

• Terms – The IRS will require full payment if your financial situation improves. If you default on your IRS installment agreement, there can be significant consequences.

What Is a Partial Payment Installment Agreement?

This is a type of payment plan where the Internal Revenue Service (IRS) allows a taxpayer to make monthly payments based on their disposable income and assets. The taxpayer must make payments until the tax debt expires (typically 10 years after assessment). When the debt expires, the remaining amount doesn’t have to be repaid.

However, while on a PPIA, taxpayers are subject to financial checkups from the IRS. An IRS agent will review your financial disclosure forms, such as Form 433-A, 433-B, or 433-F, to assess your eligibility. The IRS determines your eligibility for a PPIA based on your financial difficulty and monthly income. During the agreement, the IRS charges interest and applicable penalties on the outstanding balance. Typically, the agency just puts a note in the system to check your income tax return every two years. If your income increases, the IRS will contact you about making larger payments, or they may demand payment in full if your situation indicates that you can afford that.

Introduction to IRS Installment Agreements

IRS installment agreements are payment plans designed to help taxpayers manage their tax debt when they cannot pay the entire tax liability at once. These installment agreements allow individuals and businesses to make monthly payments over time, making it easier to fulfill their tax obligations without facing immediate financial strain. One of the most flexible options is the partial payment installment agreement (PPIA), which enables taxpayers to make monthly payments that are less than the full amount owed. By entering into a partial payment installment agreement, taxpayers can avoid aggressive IRS collection actions, such as levies or property seizures, while steadily reducing their tax debt. Payment plans like the PPIA are a valuable tool for those who need more time and flexibility to resolve their entire tax debt, and they can be requested through the IRS’s installment agreement process, including the payment installment agreement PPIA.

Reasons to Consider a Partial Payment Plan

You may want to consider applying for a PPIA in the following situations:

• You owe a large debt but do not have enough assets to liquidate to pay off the liability.

• You cannot afford to pay off the tax debt in monthly payments before the Collection Statute Expiration Date.

• The IRS has rejected your Offer in Compromise application.

• You have too much disposable income to qualify for currently non collectible status – where the IRS pauses collection actions due to financial hardship and you don’t have to pay anything.

• You cannot afford to pay much, and a tax attorney has suggested this option to you.

To apply, contact the IRS directly or find a tax attorney to help you. You can start the process by calling the IRS or filing Form 9465 to request a traditional installment agreement. As part of the application, you must provide a financial disclosure to the IRS, typically using specific forms. Payment arrangements can be set up using your bank account for direct debit, or through a payroll deduction installment agreement, which allows automatic payments from your paycheck. A revenue officer may be assigned to review your financial disclosure and assist in handling tax debt.

Individual taxpayers should complete Form 433-A. Businesses should complete Form 433-B. These forms collect information about your income, expenses, assets, and debts. Note that all outstanding tax returns must be filed before the IRS will approve any payment arrangements. For more information about the installment agreement process, see the Taxpayers Complete Guide To IRS Form 433-D.

Ultimately, the IRS will attempt to obtain a clear picture of your financial situation and why you cannot afford to pay off all of the debt you owe. Your tax lawyer can help identify documents and legal arguments to help establish your perspective with the tax authorities.

Eligibility Criteria for a Partial Payment Installment Agreement

You must meet all of the following eligibility criteria to qualify for a partial payment plan:

• Able to pay some but not all tax debt.

• Filed all required tax returns – typically the last six years are required.

• Stay current on tax return filings and pay all required estimated tax payments and taxes owed on time.

• Not in an active bankruptcy case.

• Does not have an active offer in compromise

• Completed the required IRS forms and submitted supporting documents as required.

If you do not qualify for a PPIA, you may need to consider a full payment installment agreement to pay the entire balance.

Depending on how much you owe, the IRS may investigate the claims made on your application form. For instance, the IRS determines your eligibility based on your financial disclosure and the tax balance you owe. The agency may check public records to ensure that you reported all of your assets. They may carefully review the fair market value of your home or other assets reported to ensure that you didn’t underestimate their value.

Collection Statute Expiration Date Considerations

The collection statute expiration date (CSED) is a crucial element in any IRS installment agreement, especially a partial payment installment agreement. The CSED is generally set at 10 years from the date the IRS assesses the tax debt, and it marks the end of the period during which the IRS can legally collect the outstanding balance. When you enter into a partial payment installment, your monthly payments continue until the statute expiration date CSED is reached. At that point, any remaining tax debt is forgiven, and you are no longer obligated to pay the balance. However, it’s important to be aware that certain actions—such as filing for bankruptcy or submitting an Offer in Compromise—can automatically extend the collection statute, giving the IRS more time to collect. Understanding the collection statute and how it impacts your payment plan is essential for effective tax debt management and planning.

Collection Information Statement Requirements

To qualify for a partial payment installment agreement, you must submit a Collection Information Statement (CIS) as part of your installment agreement request. This document provides the IRS with a comprehensive overview of your financial information, including your income, expenses, assets, and liabilities. The IRS uses the details from your collection information statement to assess your ability to pay and to determine a reasonable monthly payment amount for your installment agreement. It’s essential to be thorough and accurate when completing the CIS, as any discrepancies or omissions can lead to the rejection of your payment installment agreement. The IRS may also request supporting documentation, such as recent bank statements or pay stubs, to verify the information you provide. Being transparent and organized with your financial disclosures will help ensure a smoother approval process for your partial payment plan.

Low Income Taxpayer Considerations

Low income taxpayers facing financial hardship may qualify for special considerations when applying for an installment agreement. The IRS takes into account your ability to pay by reviewing your income and necessary living expenses, and may offer reduced or even waived fees for low income taxpayers. If you are struggling to meet your tax obligations, you may be eligible for lower monthly payments or more flexible terms under a partial payment installment agreement. Additionally, the IRS provides resources such as the Low Income Taxpayer Clinic (LITC) program, which offers free or low-cost assistance to those who qualify. Consulting with a tax professional can help you determine the best payment plan for your situation and ensure you take advantage of all available relief options for low income taxpayers.

Monthly Payment Calculations and Compliance

The monthly payments required under a partial payment installment agreement are calculated based on your disposable income—the amount left after covering basic living expenses. The IRS uses national and local standards to determine what qualifies as allowable living expenses, and your monthly payment is set accordingly to ensure it is manageable given your financial situation. It’s crucial to make consistent payments each month to avoid defaulting on your agreement. Missing payments or incurring new tax debt can result in the termination of your PPIA and the resumption of IRS collection actions. Before entering into a partial payment plan, carefully review your finances to ensure you can meet the monthly payment requirements. Working with a tax attorney or tax resolution specialist can help you navigate the process, maintain compliance, and address any changes in your financial situation that may affect your payment plan.

Applying for a PPIA When You Have Assets

Taxpayers who have assets may find it more difficult to qualify for a partial payment plan. If you have significant assets, the IRS may require you borrow against them or liquidate them. An IRS agent or revenue officer will review your financial disclosure, typically using forms like Form 433-A, 433-B, or 433-F, to determine if asset liquidation is necessary.

However, the IRS will consider the following scenarios:

• If selling the assets or encumbering them would create a financial hardship.

• If your spouse does not owe any taxes and doesn’t want their share of the assets sold.

• If the asset’s value is insufficient to allow a creditor to loan funds on it.

• If selling assets would not be sufficient to pay off the tax debt.

It can be complicated to apply for and be approved for a partial payment plan with the IRS. A knowledgeable tax lawyer with Damiens Law can assist with the application process and try to minimize the amount of the monthly tax payment. You can authorize your tax lawyer to communicate with the IRS on your behalf and to request a partial payment installment agreement. Scheduled payments must be made throughout the collection period to maintain the agreement.

What to Expect After You Apply

After you submit the application, the IRS will usually respond to the request within 30 days, but sometimes, it may take longer. If you do not hear back by then, you may want to contact them and inquire about the status of your application. You can make scheduled payments while your application is pending, which is important to remain in compliance and avoid default.

The IRS may also request additional information from you after you submit your application. You may receive a letter from the agency requesting specific information and a deadline to provide it. If you miss the deadline or fail to make required payments, the IRS may reject your proposal, charge a reinstatement fee, or even terminate your agreement. Failure to comply can also result in IRS collection action, such as levies or seizures.

What If the IRS Rejects Your Application?

If the IRS rejects your request for a PPIA, you can appeal. Consider working with a tax attorney to reduce the risk of getting your installment agreement rejected

You have 30 days after you receive the rejection to appeal. During the appeal, you can explain why you should qualify and share new documents if you have them. The collection period may be suspended while your appeal is pending. The IRS determines whether to accept your appeal based on your updated financial information. You can also talk with the IRS about other payment alternatives.

What to Expect If You’re on a PPIA

Even after your partial payment plan agreement is accepted, the IRS can review the plan every two years. They will determine if your financial situation has improved enough that you can afford to make higher payments. Typically, the agency assesses your finances by monitoring your annual tax return, but alternatively, they may contact you to request a new collection information statement.

It is important to handle tax debt responsibly to avoid negative consequences such as additional penalties, interest, or enforcement actions.

If the IRS notes that your finances have improved, they will terminate your agreement and request payment in full or larger monthly payments. However, you may be able to refute this with proof that you cannot afford a higher proposed payment. Generally, you must respond to the plan termination letter within 30 days.

You are also required to stay compliant with tax laws while you are on a PPIA. If you don’t file a tax return, miss a scheduled payment, or incur new tax debts, the IRS can default your arrangement. Defaulting on your agreement can result in IRS collection action, such as levies or seizures, and may negatively impact your credit report. Additionally, while you are on a PPIA, the IRS may apply your federal tax refunds to your outstanding tax debts. Making all scheduled payments on time is essential to maintain your agreement and avoid termination.

Alternative IRS Payment and Relief Options

The Partial Payment Installment Agreement (PPIA) isn’t the only option for taxpayers who owe back taxes. Partial payment installment agreements are one of several payment arrangements offered by the IRS to help manage your tax balance. Some taxpayers may be able to fully pay their tax balance as an alternative to a PPIA, while others may need a partial pay solution due to financial hardship. Payment arrangements, including installment agreements and PPIAs, can be conveniently set up to make payments directly from your bank account. Let’s look at how this program compares to other IRS relief options.

PPIAs Vs Installment Agreements (IAs)

With a streamlined installment agreement, you get up to six years to pay off up to $50,000 in tax debt. If you need longer or owe more, you can still set up payments, but you need to provide a collection information statement. A full payment installment agreement is designed to pay the entire balance before the collection statute expiration date. Alternatively, paying the entire balance in full at once can prevent further collection actions.

Take a look at how PPIAs and IAs compare in different categories:

• Monthly payment – Based on your disposable income on a PPIA. Structured to pay off the tax debt in full for an IA – typically the tax debt divided by the term of the payment plan.

• Payment term – Both PPIAs and IAs can run until the collection expiration date at the longest.

• Monthly payments – The monthly payment on an IA must be enough to pay off the tax debt in full by the collection expiration date. Both PPIAs and IAs require scheduled payments to remain in compliance.

• Collection information statement – You don’t need to file a collection information statement for an IA if you owe less than $50,000, set up direct debit and have a history of compliance. You must file a financial statement for all other IAs and for all PPIAs.

• Ongoing requirements – With both options, you must stay compliant with filing and paying taxes. However, with a PPIA, the IRS can rescind the agreement if your finances improve.

• Settlement – There is a chance that you may not have to pay all of the taxes with a PPIA. In contrast, you always pay the full bill through an IA.

A payroll deduction installment agreement is another payment method available for both PPIAs and IAs, allowing you to make automatic scheduled payments directly from your paycheck.

PPIA Vs. Offer in Compromise (OIC)

An offer in compromise lets you settle your debt for less than owed. Here’s how it compares to a PPIA:

• Payments – PPIAs require monthly payments until the collection expiration date. OICs require a single lump sum payment or up to 24 monthly installments. The amount you pay under each program is based on the taxes owed and your financial disclosure.

• Settlement – You effectively get a settlement with both PPIAs and OICs. In both cases, you end up paying less than owed.

• Application – Both programs require a collection information statement, but the OIC uses a more detailed version. For example, individuals file Form 433-A for a PPIA but must file Form 433-A (OIC) if they want to apply for an offer. These forms serve as your financial disclosure, providing the IRS with details about your income, expenses, assets, and liabilities.

• Eligibility – The IRS determines eligibility for both programs by reviewing your financial disclosure to assess your ability to pay and the amount of taxes owed.

• Response time – The IRS often responds to PPIAs in just a month or so, but it often takes several months or up to a year to get a response for an OIC.

• Probationary period – With an OIC, if you don’t stay compliant with tax laws for the next five years, the IRS can rescind the agreement. Once a PPIA is over, the IRS cannot demand payment of the amount that was settled.

PPIA Vs. Currently Non Collectible Status

If you qualify for currently non-collectible status, you don’t have to make any payments. The IRS will suspend collection action against you during this period. However, the collection period may be extended if your financial situation changes. An IRS agent may review your case periodically to determine if payments should resume.

Contact Damiens Law for tax legal advice and guidance

The knowledgeable team at Damiens Law is here to assist you with resolving your tax debt. We can advise you on how to request a partial payment plan with the IRS and discuss other options.

If you would like more information on partial payment plans or alternatives, consider contacting a knowledgeable tax lawyer with Damiens Law by calling (601) 873-6510.

Contact us online or call (601) 873-6510 to schedule a free consultation.