How To Request a Partial Payment Installment Agreement

When You Can't Pay Your Taxes in Full

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Here's the good news: Requesting a partial payment installment agreement with the Internal Revenue Service is easier and less time-consuming than requesting an offer in compromise. But, of course, it still requires some attention to detail and you have to know the rules. A partial payment installment agreement is a contract between you and the IRS. 

Entering into a partial payment installment agreement requires that the taxpayer must make regular monthly payments to the IRS, but he does not have to pay off the tax debt in full.

After the terms of the installment agreement are fulfilled, any balance remaining is forgiven. Partial payment installment agreements are one way to get out of tax debt.

Difficulty: Average

Time Required: 2 hours

Here's How:

  1. Consult with a tax professional who has experience in handling tax debts. You'll want to understand your options and you may need help negotiating the best possible monthly payment.
  2. The tax professional should be familiar with the laws governing IRS collection of tax debts, how the IRS evaluates installment agreements, and what all the options are for resolving tax debt problems. "Taxpayers should be looking for a tax professional with significant experience in IRS collection matters," according to enrolled agent David Bauman.
  3. Find out how much you owe in unpaid taxes. Call the IRS or get copies of your tax returns to verify the total amount you owe. It will include your original tax due plus penalties and interest.
  1. Fill out Form 9465, Installment Agreement Request. Your tax professional will help you calculate the monthly payment amount to propose to the IRS. You'll need to know your outstanding tax debt balance, the remaining statute of limitation on collecting that debt, and the reasonable collection potential over the remaining statutory period. This is a rather complex equation, but an experienced tax professional can help you figure out the best payment amount.
  1. Fill out Form 433-A, Collection Information Statement. This form is used for partial-payment installment agreements and for offers in compromise. Both programs use the same basic information so this is a good opportunity to find out which tax debt strategy is best for you.
  2. Attach three months' of backup documentation for all income and expenses that you've reported on Form 433-A.
  3. Write a letter stating your request for a partial payment installment agreement.
  4. Submit your written request along with Form 9465 and Form 433-A to the IRS Revenue Officer handling your case, to the Automated Collection System unit, or to your nearest IRS Service Center.

The IRS will respond to your request in about 30 days. It might also request information about any assets you own that might possibly be liquidated to pay off your tax debt instead. You may also be required to borrow against any equity you have in assets. 

Tips:

Be sure to make your payments each and every month. You can pay by check, money order, credit card, EFTPS, IRS Direct Pay, or by automatic withdrawal from your checking account. I recommend using EFTPS, Direct Pay or automatic withdrawal. Checks mailed to the IRS Service Center sometimes get lost.

Using electronic payment options will reduce the chance of clerical errors, and Direct Pay in particular is very easy to use. A drop-down menu allows you to choose what type of payment you're making – in this case a payment on an installment agreement – then enter in some identifying information from any one of your tax returns. Enter your bank account information and you're done. 

You must have filed all your tax returns before the IRS can approve your partial payment installment, and you must be current on your income tax withholding or estimated tax payments. You will need to file any back taxes you might before requesting an installment agreement for the current amount due. The IRS can re-evaluate the amount of your monthly payments every two years.

What You Need:

  • Copies of your tax returns.
  • A good idea of how much you can afford to pay each month.
  • Your checkbook or a voided check if you are setting up automatic withdrawals.
  • Registration with EFTPS if you want to use the IRS bill pay system.