Partial Payment Installment Agreements
Look at Requirements and Learn How a Tax Attorney Helps
Can’t afford the minimum monthly payments on a standard IRS payment plan? A partial payment installment agreement (PPIA) is a special payment plan that lets you make monthly payments while also settling for less than you owe. Set up monthly payments you can afford, and when the debt expires, the IRS forgives the remaining amount.
It’s a great option if you can’t pay the lump sum required for an offer in compromise, or if you need more time to make payments than offered by a standard installment agreement.
But qualifying can be tricky – an experienced tax attorney can help you negotiate with the IRS. Learn how our IRS payment plan services can help you.
Key Takeaways: Partial Payment Installment Agreements (PPIA)
- Settlement Strategy: A PPIA allows you to pay less than the full balance by making payments only until the 10-year CSED expires.
- Strict Reviews: The IRS will conduct a financial review every two years and can increase your payments if your income improves.
- Asset Equity: To qualify, you must generally prove you have no marketable assets or cannot access the equity in your home or property.
- Passport Protection: As of 2026, if your debt exceeds $66,000, a PPIA can prevent the IRS from certifying your debt for passport revocation.
- Required Forms: Applicants must submit Form 9465 along with a detailed Form 433-A or 433-B financial disclosure.
- Not Everyone Qualifies: Less than 2% of taxpayers in IRS installment agreements are in a PPIA. It requires proving a genuine inability to pay before the CSED, which is why working with a tax attorney helps.
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. In reality, interest and a small penalty would have continued to accrue on her account, and at the end of the term, those amounts would have been included in the settlement.
Benefits of PPIAs
A PPIA gives you these benefits:
- Pay off your taxes for less than what you owe.
- Prevent IRS collection efforts against you.
- Get relief from worrying about an unexpected bank levy, wage garnishment, loss of your home, or any other similar collection actions.
Disadvantages of PPIAs
The main drawbacks of a PPIA include the following:
- The arrangement is subject to change – if your finances improve, you may need to make bigger monthly payments. However, if your finances have gotten worse, you can qualify for lower monthly payments.
- The IRS will review your financial situation every two years, and during the review, you may be required to complete another financial disclosure.
- To get approved, you may be required to sell or borrow against your assets, but that’s not always required.
- The IRS may ask you to sign a waiver to extend the statute of limitations if it believes you may be able to pay in full very soon after the CSED. For example, say 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.
Generally, the benefits outweigh the drawbacks. A tax attorney can help you decide if this is the best option for you.
PPIAs vs. Offer in Compromise: A Comparison
Whether you’re considering a PPIA because the IRS rejected your OIC request or just want to compare the two options, here’s what you need to know.
| Partial Payment Agreement Vs Offer in Compromise | ||
|---|---|---|
| PPIA | Offer in Compromise | |
| How payments are made | Monthly payments until the debt expires | Lump sum or monthly payments for up to 24 months |
| What tax debt is forgiven? | Remaining balance when the debt expires | Everything over the settlement amount the IRS agrees to |
| Financial reviews | Every 2 years; payments can increase if your finances improve | Not required, but IRS can take back the settlement if you incur new tax debt or don’t file in the next 5 years |
| If finances improve… | IRS can increase payments or terminate | Agreement stays the same |
| Approval difficulty | Moderate to difficult | Difficult |
An experienced tax attorney will look at the whole situation and help you develop the best strategy possible.
What If the IRS Rejected My Offer? Should I Apply for a PPIA
Yes, you can often qualify for a PPIA even if you were rejected for an offer in compromise, but it depends on why you were rejected. Let a tax attorney review the situation and help you decide on your next move.
Don’t waste time and money applying for a program you don’t qualify for, but reach out for help quickly. If the IRS has recently rejected your OIC, they might ramp up collection efforts soon.
How to Qualify for a PPIA: What You Need to Know
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. But you should carefully see if you qualify – many taxpayers who set up regular installment agreements could have qualified for a PPIA.
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 the assets’ equity – the IRS will be aggressive on this. You need an attorney to explain why you need certain assets for business or just survival.
How to Apply for a Partial Payment Plan on Back Taxes
To apply for a partial pay installment agreement:
- File Form 9465 (Installment Agreement Request). It’s the same form you use to apply for all IRS payment plans.
- Submit a financial disclosure: Generally, you use Form 433-A if you are an individual or Form 433-B if you are representing a business. 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.
IRS Expense Standards: How to Get Approved for Exceptions and More
The above forms create a picture of your financial situation for the IRS. The IRS looks at your income, subtracts your expenses, and expects you to pay the rest toward your tax bill every month.
However, you need to be aware that the IRS doesn’t consider every expense to be valid – you might think you can’t afford to pay, but the IRS will say, “get rid of that private school tuition and use that money,” or even worse, “find a home with a lower cost of living”.
That doesn’t mean you should give up – it means you should know how the IRS’s expense standards work.
The IRS expense standards 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.
Here’s an example of how they work. The standard for a one-person household to spend on food per month is $497. If you say that you spend $600 on food, the IRS will only let you include $497 in your budget when determining how much you can afford to pay. But if there’s a reason you need to exceed the standard, an attorney can jump in and explain that you need to spend those extra funds due to a health condition with special dietary needs.
That’s just a small example. As the expenses get higher, an attorney’s negotiation skills get even more critical.
The PPIA Application Review 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. If the IRS rejects your offer, you may have the chance to appeal or apply for a different arrangement.
When you work with an attorney, your chances of approval are much higher.
Terms and Conditions of Partial Payment Installment Agreements
Your PPIA requires you to meet these conditions, or the IRS can rescind the agreement:
- Make your monthly payments as agreed upon every month.
- File your tax returns on time (if required to file).
- Not incur any new tax debt.
- Submit to financial reviews (usually every two years). The IRS may just check the income reported on your return or ask you to provide a new financial disclosure.
If your financial situation worsens and you have documentation to provide to the IRS reflecting this, your monthly payment could be reduced, but of course, if your situation improves, you may need to pay more.
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. Adjust your withholding to avoid getting a big refund.
Alternatives to Partial Payment Installment Agreements
Not sure if a PPIA is right for you? Here are the other main options:
- Offer in Compromise: settle for less than owed. Compare OICs vs other tax relief options.
- Installment agreement: monthly payments that pay off the full tax debt over time.
- Currently not collectible: a stop to collections if you can’t afford to pay anything.
FAQs: IRS Partial Payment Installment Agreements
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 the 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 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.
If you have defaulted on an installment agreement in the past, you may still qualify for a PPIA, but you will usually have to set up direct deposit with your plan.
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, which allows you to pay nothing until your finances improve.
What happens if my finances improve during a PPIA?
If your income or assets have increased, the IRS can raise your monthly payments or even terminate the agreement, requiring you to pay in full or switch to a standard installment agreement.
Can I get a PPIA if my OIC was rejected?
Yes, you may still qualify for a PPIA if your OIC wasn’t approved. In general, a PPIA is easier to qualify for and doesn’t require you to pay a lump sum upfront.
Does a PPIA show up on my credit report?
A PPIA will not show up on your credit report. However, the IRS may file a federal tax lien in the collections process and before granting you a PPIA. A lien doesn’t show up on your credit report but can impact your ability to get new lines of credit, should you need them.
Can the IRS file a tax lien if I’m in a PPIA?
Yes, the IRS could file a federal tax lien against you when approving a PPIA. Always talk to a tax professional if you’re in this situation.
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. 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.
Sources:
https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards