What Is a Partial Pay Installment Agreement (and Do I Qualify)?

Many people find themselves in a situation where they owe $10,000 or more in back taxes to the IRS. This can be so overwhelming that they choose to ignore the problem, since they know they cannot pay the IRS such a huge amount. If you’re one of those people, take a deep breath. There may be manageable payment options that you don’t know about yet, and you may even pay less than the full amount that you owe—if you qualify.

With a partial payment installment agreement (PPIA), you make monthly payments to the IRS until the Collection Statute Expiration Date (CSED), at which point the remaining tax debt is forgiven and erased. The catch is that it can be challenging to qualify for this type of agreement, because you must prove to the Internal Revenue Service that you cannot afford to make payments that would satisfy the entire tax debt.

If you are capable of making monthly payments that would pay off the entire tax liability, then an Installment Agreement would be a better fit for your situation. Talking to a tax professional about your options can help you understand what kind of payment the IRS is most likely to accept from you, given your financial situation.

How Does a Partial Payment Installment Agreement Work?

With a standard Installment Agreement, the IRS offers you a way to make monthly payments over the course of 6 years (typically) to pay off the full amount of your tax debt. For example, if you owe $14,400, then each month you would pay the IRS $200 until your tax bill has been repaid.

However, say you were able to show the IRS that you cannot afford to pay $200 per month, but that you could afford $100 per month. They might agree to a partial payment installment agreement in order to collect as much as possible.

The Collection Statute Expiration Date is usually 10 years from when the tax was assessed or you filed your tax return. In this example, let’s say you have let the debt build up for four years, and now the IRS has six years left to collect. If the IRS accepts your partial payment installment agreement, you will pay $100 per month for six years, for a total payment of $7200. After the CSED, your unpaid balance is forgiven and you don’t owe anything else. The IRS will also discontinue collection actions (levies, seizures, etc.) as long as you are up-to-date on your PPIA payments.

Why would the IRS agree to this arrangement? In short, if they know it will be impossible for you to fully repay your tax debt before the CSED deadline without severe financial hardship, they’d rather take something than nothing.

How Do I Apply For a PPIA?

Here are the steps for applying for a PPIA:

• Complete Form 9465 Installment Agreement Request: This is the form you use to tell the IRS how much you can afford to pay monthly.
• Complete Form 433-A or 433-B Collection Information Statement: In this form you list your assets of value, including all your wages, bank account totals, investments, property, vehicles, and more.
• Gather supporting documentation: The paperwork proving all your assets and liabilities. You should also include the previous year’s tax return.
• Application fee: The application fee is based on how you send these documents to the IRS, but applying costs at least $100. The fee can be waived for low-income applicants.
• Send everything to the IRS.

The IRS will review your paperwork and may ask for more proof. They will look into every nook and cranny of your finances and assets, and may determine that it is reasonable to ask you sell an asset, like a car, and use that money to pay your tax liability.

What Happens After My Agreement Is Approved?

If they agree to the partial payment agreement, the IRS has the right to review your agreement every two years. They can ask you for updated financial information to see if you are able to make a higher payment. If you disagree, you will have to prove why you cannot support a higher monthly payment.

If you start missing payments and default on the agreement, the IRS will reinstate their collection actions. This can include wage garnishment, liens and levies, like asset seizure. This is why it is important to make sure that you are able to pay the monthly amount that you propose.

Who Qualifies for Partial Payment Installment Agreements?

There are a few requirements for who can qualify for a partial payment plan. This may be a good fit for you if:

• You owe the IRS $10,000 or more.
• You cannot afford a monthly payment that will pay off the taxes owed before the tax liability expires at the CSED.
• You don’t own enough assets that you can sell to pay off the entire debt.
• You have not had an Offer in Compromise
• You don’t qualify for a hardship or a currently not collectible
• You cannot take out a loan to pay off your tax debt.
• You have filed all required tax returns

In order to have your minimum monthly payments accepted by the IRS, you typically need to show that you truly do not have the assets or income to pay the entire debt.

RELATED: How to Get the IRS to Accept Your Offer in Compromise

What Happens After My Agreement Is Approved?

If they agree to the partial payment agreement, the IRS has the right to review your agreement every two years. They can ask you for updated financial information to see if you are able to make a higher payment. If you disagree, you will have to prove why you cannot support a higher monthly payment.

If you start missing payments and default on the agreement, the IRS will reinstate their collection actions. This can include wage garnishment, liens and levies, like asset seizure. Furthermore, you will also be expected to stay up to date with any new tax liabilities, including making quarterly estimated tax payments, filing your tax returns, and paying new taxes as they are due. This is why it is important to make sure that you are able to pay the monthly amount that you propose.

How a Tax Professional Like S.H. Block Can Help

It takes a lot of work to get the IRS to agree to settle for an amount less than you owe. With the skills of a tax attorney on your side, you can be sure that you are filling out paperwork correctly, listing all of your assets and liabilities correctly, and figuring out an acceptable monthly payment that is beneficial to both parties.

Moreover, tax resolution services like S.H. Block can help you make sure you don’t waste time chasing the wrong kind of debt relief. The IRS offers several different ways to reduce or eliminate your tax debt, all with different pros and cons. Someone with decades of experience in tax debt relief can give you valuable advice on what kind of agreement the IRS is most likely to accept from you.

S.H. Block has been helping taxpayers just like you for more than 50 years. Our firm will always advocate for the best solution for you, no matter what your financial situation. We can negotiate with the IRS on your behalf to find a solution to your tax debt that is affordable and manageable for you. We’re compassionate to your situation, since we know just how stressful and painful IRS collection efforts can be.

RELATED: Why Hire a Tax Attorney

Set Up a Free Consultation With S.H. Block Today

Are you interested in pursuing a partial payment installment agreement? Would you like to hear our professional opinion on what kind of payment plan would be the best for you and your finances? Tax debts can be overwhelming and stressful, but we can help you find a payment arrangement that will provide your best chances of success.

For a free consultation with one of our experienced tax pros, call us at (410) 872-8376 or fill out this form. Tell us the details of your problems with the IRS and we’ll let you know what options are in your best interest.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.