When & How to Request a Partial Payment Installment Agreement
With a Partial Payment Installment Agreement (PPIA), you make monthly payments to the IRS, but you end up paying less than you owe because some of your tax bill expires before the end of your payment agreement.
These agreements let you pay off your tax liability for less than you owe, without forcing you to make a large lump payment. But they can be tricky to qualify for. You must complete an application and send a full financial disclosure to the IRS. Then, depending on your situation, you may also have to sell some of your assets or agree to extend the expiration date.
To help you decide if a Partial Payment Installment Agreement is right for you, this guide breaks down the essentials and explains how to apply.
Who Should Apply for a Partial Payment Installment Agreement?
If any of the following apply, you may want to look into a Partial Payment Installment Agreement:
- You cannot afford monthly payments that will pay off your tax liability before the Collection Statute Expiration Date (CSED).
- You don't have any assets that you can liquidate to pay off your tax bill in full.
- You can't get a loan to pay off your tax bill in full.
- You have been rejected for the Offer in Compromise (OIC) program.
- You don't qualify for hardship or currently not collectible status.
Generally, the IRS only accepts these agreements if you don’t have enough assets to liquidate (there are exceptions) and you don’t have enough monthly disposable income to make payments on a regular installment agreement. In addition, the IRS must also believe that you are not going to earn enough money to cover your taxes owed in the upcoming years.
How Partial Payment Installment Agreements Work
With a regular installment agreement, your minimum monthly payments must be enough to pay off the taxes within six years (72 months). For instance, if you owe $7,200, the IRS will want you to pay at least $100 per month. Note that there are exceptions to this rule. In some cases, the IRS gives taxpayers seven years. In other cases, the agency may require a faster repayment plan.
If you cannot afford these payments, you may be able to make smaller payments through a Partial Payment Installment Agreement. When you make smaller payments, you take longer to pay off your tax liability, and as a result, you may not be able to pay off all of your tax bill before it expires. In other words, if you're accepted into this program, the IRS lets you make the smaller payments and allows some of your tax bill to expire.
Here's a quick example. Imagine that you owe $7,200 that expires in six years. You can afford to pay $50 per month. The IRS accepts this payment arrangement. Over the next six years, you pay $50 per month for a total of $3600. The remainder of your bill expires. You don't owe anything else.
Determining the Monthly Payment for a Partial Payment Installment Agreement
You must make a full financial disclosure to the IRS if you want to get approved for this program. Individuals should fill out 433-A (Collection Information Statement for Wage-Earners and Self-Employed Individuals) and businesses should submit 433-B (Collection Information Statement for Businesses).
These forms require detailed information about everything you own, how much you earn, your savings, your debts, and your expenses. The IRS looks closely at this information to determine your monthly payment. The agency wants to be sure that your monthly payment is truly the most you can afford to pay.
How to Apply for a Partial Payment Installment Agreement
A tax pro can help you apply for a Partial Payment Installment Agreement (PPIA). Or you can apply on your own using these steps:
- Complete Form 9465 (Installment Agreement Request) or apply for an installment agreement online.
- Complete Form 433-A or 433-B.
- Gather financial documents to support the details on these forms.
- Estimate what monthly payment you can afford.
- Send the above documents to the IRS.
- If you paper file, include a copy of your tax return with your application. (You don't need to include a tax return if you e-file.)
- Include the application fee which ranges from $107 to $225 depending on it you set up direct debit for your payments or not. If your income is below a certain level, the IRS may waive this fee.
- To be on the safe side, include your first monthly payment.
Then, just wait. The IRS usually responds within 30 days. If you don't hear back within 30 days, make your monthly payment as scheduled. This shows the IRS that you are serious.
PPIA and the Collection Statute Expiration Date
As explained above, with a PPIA, some of your tax liability expires and disappears, allowing you to pay off your tax bill for less than you owe. This happens on the Collection Statute Expiration Date (CSED). After this date, the IRS can no longer collect on the bill. The CSED is usually 10 years after the tax was assessed or the return was filed.
Should You Agree to Extend the Collection Statute?
In some cases, the IRS may require you to extend your CSED before approving your PPIA request. Typically, this happens when the IRS believes that you are going to receive extra money after the CSED.
For instance, imagine that your tax liability expires in two years but in three years, you're going to receive the principal of a trust. Or, imagine that your business has a property that it can't sell until six months after the CSED. In these situations, the IRS may require you to extend your CSED so that you can use these assets to pay off some of your tax liability.
There are some situations where the CSED gets automatically extended. In the following cases, the collection process is temporarily paused and the extra time is added onto the CSED:
- When you apply for an offer in compromise.
- When you request a Collection Due Process (CDP) hearing.
- When you request innocent spouse relief.
- When the tax court is reviewing your case.
- During the automatic stay of a bankruptcy case, plus six months.
Sometimes, extending the CSED is the right decision. It may help you get approved for a Partial Payment Installment Agreement, and it may stop the IRS from taking certain collection actions against you. But you need to tread carefully. Don't be bullied into making a decision that might not be in your best interest. Consult with a tax pro before allowing the IRS to extend the CSED.
Requirements for a Partial Payment Installment Agreement
You generally must meet the following requirements if you want to get approved for a Partial Payment Installment Agreement (PPIA):
- Owe over $10,000.
- Can afford monthly payments but cannot pay off the entire tax liability before the collection expiration date.
- Have filed all past tax returns.
- Are not in bankruptcy.
- Have not had an Offer in Compromise accepted.
- Have no assets or can’t access the equity in your assets.
If you cannot afford to pay at least $25 per month, you may want to apply for hardship status. With this program, the IRS marks your account as currently not collectible, stops collection actions, and revisits the situation every year or two to see if anything has changed.
Selling Assets for a Partial Payment Installment Agreement
Sometimes, the IRS may require you to sell some of your assets or take a loan against them before approving you for a Partial Payment Installment Agreement. The IRS is serious about collecting unpaid taxes, and if the agency thinks you have frivolous assets, it may not accept a payment plan until you liquidate or take out loans.
You may be able to avoid selling or borrowing against your assets if any of the following apply:
- Assets are not sellable.
- Selling assets would not cover taxes owed.
- Assets do not have sufficient collateral to obtain a loan.
- Assets are off-limits because your non-liable spouse does not want their part of the assets sold.
- Selling the assets would create financial hardship.
If the IRS is asking you to sell your assets, consult with a tax pro before making a decision. The IRS revenue officers are focused on getting the bill paid. They are not focused on your best interest. A tax professional can help you negotiate with the IRS while keeping your best interest in mind.
Get Help Applying for a Partial Payment Installment Agreement
A Partial Payment Installment Agreement can be a great option in the right situation. Wondering if it's the best option for you? Want to get help applying? Then, contact a tax pro today.
On TaxCure, you can search for tax pros based in your area who have experience with your specific situation. We are committed to ensuring you get the hands-on help you need.