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 these options. Requesting a PPIA with the IRS is easier and less time-consuming than requesting an offer in compromise, but it still requires attention to detail and you have to know the rules.
How a Partial Payment Agreement Works
A PPIA is a contract between you and the IRS. Entering into a partial payment installment agreement requires that you must make regular monthly payments to the IRS over a period of time, but you won't have to pay off your entire tax debt. Any balance that remains at the close of the term of the installment agreement is forgiven.
The repayment period for a PPIA can be longer than other IRS installment agreement options.
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 have to pay any other back taxes you might owe before requesting a PPIA for the current amount due, and you'll have to file all future returns on time and promptly pay any taxes due on those returns.
The IRS will still file a Notice of Lien against you for the amount you owe so it has an option to collect from you if you default on the terms of your agreement.
The IRS can re-evaluate the amount of your monthly payments every two years.
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 to become eligible for this option, but this figure includes interest and penalties in addition to your original tax debt. You can't be in bankruptcy, nor can you ever have 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.
Other exceptions for the forced sale of assets include that selling them would create a financial hardship, or that your spouse jointly owns these assets and is unwilling to liquidate them. Your spouse can't also be liable for the tax debt in question in this case.
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 with negotiating the best possible monthly payment with the IRS.
The tax professional you choose should know about the laws governing IRS collection of tax debts and how the IRS evaluates installment agreements.
Determine How Much You Owe
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 or transcripts online to verify the total amount, but brace yourself. Remember, this total will include not only your original tax due, but any penalties and interest that have accumulated on unpaid balance 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 amount to propose to the IRS. It's up to you to tell the IRS how much you can afford to 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. The amount is open to negotiation.
In addition to your outstanding tax debt balance, you'll also need to know the remaining statute of limitation the IRS has on collecting that debt, as well as the reasonable collection potential over that 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 that'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 for you to find out which tax debt strategy is best for you.
You must attach three months backup documentation for all income and expenses that you report on this form, and submit it together with Form 9465.
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 Forms 9465 and 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 this is possible.
Make Your Payments
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 by automatic withdrawal. Checks mailed to the IRS Service Center can sometimes get lost. Using electronic payment options will reduce the chance of clerical errors, and you should receive immediate confirmation that the IRS has received your payment.
Direct Pay 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.