How To Request a Partial Payment Installment Agreement With the IRS
Options are available if you can't pay your taxes in full
First, the good news: The Internal Revenue Service offers a variety of options to taxpayers who can't immediately pay their taxes in full. A partial payment installment agreement (PPIA) is one of them.
Requesting a PPIA with the IRS isn't difficult. It's 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.
Entering into a partial payment installment agreement requires that you must make regular monthly payments to the IRS but you don't have to pay off the entire tax debt. Any balance remaining after the term of the installment agreement is forgiven. A PPIA is a contract between you and the IRS.
Determine If You Qualify
Of course, the IRS has some rules for qualifying for a PPIA. You must owe the IRS at least $10,000 including interest and penalties. You can't be in bankruptcy nor can you have ever had an offer in compromise accepted by the IRS.
Any assets you own will play a pivotal role in whether you're approved. You must be unable to liquidate them for some reason, or perhaps their equity isn't sufficient to cover your IRS debt if you were to liquidate them. Nor is the equity sufficient for you to borrow money using them as collateral.
Finally, selling your assets would create a financial hardship or your spouse jointly owns these assets and is unwilling to liquidate them. She can't also liable for the tax debt in question.
Don't Try to Go It Alone
The PPIA process isn't prohibitively challenging but you should still consider consulting with a tax professional who has experience in handling tax debts. It's important that you understand all your options and you might need help negotiating the best possible monthly payment with the IRS.
The tax professional you choose should be familiar with the laws governing IRS collection of tax debts and how the IRS evaluates installment agreements. "Taxpayers should be looking for a tax professional with significant experience in IRS collection matters," according to enrolled agent David Bauman.
Determine How Much You Owe
Make sure you pin down exactly how much you owe in unpaid taxes before you approach the IRS. You can call the IRS or get copies of your tax returns to verify the total amount but brace yourself. It will include not only your original tax due but any penalties and interest that have accumulated as well.
Completing Form 9465
Fill out Form 9465, the Installment Agreement Request. Your tax professional can help you calculate a reasonable and acceptable monthly payment to propose to the IRS. It's up to you to tell the IRS how much you can pay and this form helps you do that. The IRS won't review your request then tell you how much it expects you to pay each month. This is negotiation.
In addition to your outstanding tax debt balance, you'll also need to know the remaining statute of limitation on collecting that debt and the reasonable collection potential over the remaining statutory period. It's a rather complex equation but an experienced tax professional can help you figure it out.
Completing Form 433-A
Form 433-A is the Collection Information Statement. It's used for both 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.
You'll have to attach three months' worth of backup documentation for all income and expenses that you've reported on this form.
Reach Out to the IRS
Write a letter to the IRS stating your request for a partial payment installment agreement and submit your written request along with Form 9465 and Form 433-A. Send it 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 within about 30 days. It might also request additional information about any assets you own that you could possibly liquidate to pay off your tax debt. You might be required to borrow against any equity you have in assets if possible.
Be sure to make your payments each and every month if the IRS approves your request for a PPIA. You can pay by check, money order, credit card, EFTPS, IRS Direct Pay, or by automatic withdrawal from your checking account.
It's usually safest to use EFTPS, Direct Pay, or to pay automatic withdrawal. Checks mailed to the IRS Service Center can sometimes get lost. Using electronic payment options will reduce the chance of clerical errors.
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 some information from any one of your previously filed tax returns to confirm your identity. 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 agreement, and you must be current on your income tax withholding or estimated tax payments. You'll need to pay any other back taxes you might owe before requesting an installment agreement for the current amount due.
The IRS can re-evaluate the amount of your monthly payments every two years.