Overview

Partial Payment Installment Agreements (PPIAs) provide a formal way to resolve tax debt when paying the full amount would create an undue financial hardship. Unlike a standard installment agreement, which expects full repayment over time, a PPIA recognizes that the IRS may only be able to collect a portion of the balance given a taxpayer’s income, allowable expenses, and available assets.

In my 15+ years working as a CPA and tax educator, I’ve seen PPIAs approved for a range of taxpayers — from retirees on fixed incomes to small-business owners with temporary cash-flow shortages. The IRS treats these applications carefully: it wants reliable financial documentation and a realistic plan for partial repayment. The agency also continues to assess the taxpayer’s collectibility during the life of the arrangement.

Authoritative sources

Eligibility in plain language

To qualify for a PPIA, you must show the IRS that:

  • You cannot reasonably pay the balance in full now or through a standard installment agreement.
  • You are current with filing requirements (or have an agreed plan to file outstanding returns).
  • You provide a complete Collection Information Statement (usually Form 433-F; small-business filers may use Form 433-A or 433-B where applicable) and supporting documents that verify income, expenses, assets, and liabilities.
  • Your financial statement shows that after allowable expenses, you have no realistic way to pay more than the reduced monthly amount the IRS determines as the “reasonably collectible” amount.

How the IRS evaluates collectibility

The IRS determines what it can reasonably collect by measuring ‘‘reasonably collectible’’ income and assets. Key components include:

  • Income vs. allowable expenses: The IRS uses the Collection Financial Standards (transportation, food, housing, medical, etc.) plus allowable out-of-pocket expenses to set a baseline for necessary living costs (see IRS Collection Financial Standards).
  • Disposable monthly income: The IRS calculates income after allowable expenses. If disposable income is effectively zero or negative, the IRS may accept a low monthly payment.
  • Equity in assets: The IRS reviews bank accounts, investments, vehicles (considering equity), second homes, and business assets. If assets can be converted to cash to pay the liability within the collection statute, the IRS expects that to happen before granting a PPIA.
  • Statute of limitations: The IRS cannot collect after the collection statute expiration (normally 10 years from the assessment date). The remaining time on the statute affects how the IRS structures a PPIA; it will rarely accept a payment plan that extends beyond the collection period.

Required forms and documentation

  • Form 433-F (Collection Information Statement): This is the primary form for individuals. It details monthly income and expenses and requires account balances, asset lists, and proof of recurring expenses. See: https://www.irs.gov/forms-pubs/about-form-433-f
  • Pay stubs, bank statements, and accounts receivable (for self-employed): Supporting documentation to verify income and cash flow.
  • Proof of recurring expenses: mortgage/rent statements, utility bills, medical bills, child support orders, insurance premiums.
  • Documentation of assets and debts: vehicle registrations, statements for brokerage accounts, deeds, loan statements.

Practical checklist to be eligible

  1. File all required returns — the IRS requires you to be current on filing before approving most collection alternatives.
  2. Complete Form 433-F fully and gather supporting documentation.
  3. Be ready to explain one-time or unusual expenses (medical bills, recent job loss) with proofs such as invoices or termination letters.
  4. Show there are no non-exempt assets that could be sold to satisfy the tax debt within a reasonable time.
  5. Understand that interest and penalties continue to accrue during the PPIA.

How the monthly payment is set

The IRS calculates a monthly payment amount equal to the taxpayer’s reasonably collectible income (disposable income after allowable expenses). If equity in assets is significant, the IRS may include a lump-sum expectation or shorter payment period. The key is that payments must be consistent with the financial statement you provided and should reflect realistic, verifiable numbers.

Timelines and reviews

  • Typical processing time: 30–90 days when documentation is complete; missing items delay decisions. In my practice, clear, well-documented submissions shorten review time significantly.
  • Periodic review: The IRS can periodically re-examine your financial condition. Significant positive changes in income or assets can trigger a request for more payments or conversion to a full-pay installment agreement.
  • Term: A PPIA commonly lasts until the collection statute expires (usually 10 years from assessment) unless the taxpayer’s situation improves and the IRS requires larger payments.

Common mistakes and how to avoid them

  • Incomplete documentation: Leaving blanks on Form 433-F or failing to attach pay stubs/bank statements is the most frequent cause of denial. Double-check and include labeled attachments.
  • Overstating expenses: The IRS uses Collection Financial Standards and will question excessive discretionary spending.
  • Ignoring asset liquidation: Failing to disclose saleable assets (e.g., a second vehicle or brokerage account) can lead to later enforcement actions and cancellation of the agreement.
  • Believing a PPIA removes interest/penalties: It does not — interest and penalties continue to accrue on unpaid balances.

What happens if you’re denied or default

  • Denial: If denied, the IRS typically explains why and lists missing items or reasons. You can appeal the decision or negotiate alternative collection options such as Offers in Compromise (OIC) or Currently Not Collectible (CNC) status.
  • Default: Missing payments or failing to stay current with tax filing can terminate the PPIA and lead to enforced collection (levies, liens). Always respond promptly to IRS notices and request a modification if your ability to pay changes.

Alternatives to PPIA

  • Offer in Compromise (OIC): For taxpayers whose liability is greater than what the IRS could collect over the collection period, an OIC may settle the debt for less than full balance. The OIC application uses similar financial information; see: https://www.irs.gov/businesses/small-businesses-self-employed/offer-in-compromise
  • Currently Not Collectible (CNC): If the taxpayer has no ability to pay any monthly amount, the IRS may place the account in CNC status temporarily, halting active collection while the statute ages down.
  • Streamlined installment agreements: If you can pay the balance within the collection statute and meet the IRS’s streamlined thresholds, a standard installment agreement may be simpler. See our guide on applying online: How to Apply for an Online Installment Agreement with the IRS.

Practical tips from a CPA

  • Be honest and conservative: Understating income or overstating expenses may get you past the initial review but often causes problems at later review points.
  • Keep records: Maintain copies of your Form 433-F, bank statements, and all correspondence with the IRS.
  • Consider professional help: A CPA, enrolled agent, or tax attorney knows how the IRS applies Collection Financial Standards and can present a tighter, realistic financial package.

Two brief examples from practice

1) Retired couple: A retired couple with a $15,000 liability, fixed Social Security income, and limited savings submitted a documented Form 433-F and bank statements showing high medical costs. The IRS approved a small monthly payment that matched their disposable income and left the liability to be managed until the collection statute expired.

2) Small-business owner: A sole proprietor with seasonal income showed negative disposable income during the off-season and modest equity in a work vehicle. After documenting accounts receivable and business expenses, the IRS allowed a PPIA with a moderate monthly payment during peak months and a lower payment off-season.

How to apply — step-by-step

  1. Get current on all tax returns.
  2. Complete Form 433-F (or Form 433-A/B for certain filers) and collect supporting documents.
  3. Contact the IRS Collections department (or use your assigned revenue officer) and submit your packet. If you’re working with a practitioner, ensure they have a power of attorney (Form 2848).
  4. Respond to follow-up requests quickly. Provide clear, labeled documents.
  5. If approved, pay via direct debit, payroll deduction, or other methods and keep copies of each payment and correspondence.

Frequently asked questions

Q: Will interest stop while on a PPIA?
A: No. Interest and penalties generally continue to accrue on unpaid tax balances unless otherwise specified by statute.

Q: How long does a PPIA last?
A: Typically until the collection statute expires (usually 10 years from assessment), unless the IRS revises the agreement because of improved collectibility.

Q: Can the IRS file a lien during a PPIA?
A: Yes. The IRS may file or maintain a Notice of Federal Tax Lien to protect the government’s interest.

Related FinHelp resources

Final checklist before you submit

  • All required tax returns filed and up to date.
  • Completed and signed Form 433-F.
  • Pay stubs and bank statements for at least 3 months.
  • Documentation for recurring expenses and unusual large costs.
  • A clean narrative explaining the hardship and why assets cannot be used.

Professional disclaimer

This article is educational only and not tax advice. Rules and thresholds change; consult a licensed tax professional for guidance tailored to your situation. For official IRS rules, visit the IRS Payment Plans page: https://www.irs.gov/payments/payment-plans-installment-agreements

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(Article author: CPA and financial educator, 15+ years advising taxpayers on collection alternatives.)