How the IRS evaluates your finances when you request an installment plan

When you apply for an IRS installment agreement, the agency conducts a focused financial review to decide what monthly payment is “reasonable.” That review combines a taxpayer‑supplied Collection Information Statement and supporting documents with the IRS’s allowable living expense guidelines and asset‑liquidity rules to reach a payment decision (IRS — Getting an Installment Agreement: https://www.irs.gov/individuals/getting-an-installment-agreement).

The core elements the IRS examines

  • Income: recent paystubs, year‑to‑date income, and most recent tax returns to verify ongoing ability to pay.
  • Allowable living expenses: the IRS compares claimed household expenses to its Collection Financial Standards (housing, utilities, food, transportation, healthcare, etc.) rather than accepting every expense as submitted (IRS — Allowable Living Expenses: https://www.irs.gov/payments/allowable-living-expenses).
  • Assets and liquidity: bank and investment statements to see whether available cash or easily converted assets could be used to reduce the monthly payment or shorten the term.
  • Debts and liabilities: outstanding loans, mortgages, and other legally enforceable debts that affect cash flow.

Typical documentation to provide

  • Completed Collection Information Statement (e.g., Form 433‑F) or other IRS form requested during collection.
  • Two to three recent paystubs or proof of self‑employment income.
  • Recent bank statements for all accounts.
  • Documentation of recurring debts (loan statements, mortgage statements, child support orders).
  • Proof of extraordinary but necessary expenses (medical bills, recent emergency repairs).

How the IRS uses that information

  1. Verify income and match it to living expenses to calculate disposable monthly income.
  2. Apply Collection Financial Standards as a benchmark for allowable expenses; expenses above the standard need documentation and justification.
  3. Review assets to determine if a taxpayer should be able to pay more or propose a lump‑sum offer instead of a longer plan.
  4. Decide whether a full‑payment installment agreement, a partial‑payment installment agreement, or another resolution (like an Offer in Compromise) is appropriate.

For more on how the IRS calculates monthly payment ability, see this practical guide: “How the IRS Calculates Monthly Payment Ability for Installments” (FinHelp): https://finhelp.io/glossary/how-the-irs-calculates-monthly-payment-ability-for-installments/.

Common IRS outcomes and programs

  • Streamlined installment agreements and online payment options are available for many taxpayers who meet specific conditions; these reduce paperwork and speed approval. Read more about streamlined requirements here: Streamlined Installment Agreements: Requirements and Limits (FinHelp): https://finhelp.io/glossary/streamlined-installment-agreements-requirements-and-limits/.
  • If your financial picture shows very limited ability to pay, the IRS may consider a partial‑payment installment agreement or place the account in Currently Not Collectible status.

Practical tips from practice

In my practice I’ve seen two actions that improve results: 1) prepare a realistic budget before you submit forms so your payment proposal matches documented cash flow, and 2) include supporting documents for any expense that exceeds IRS standards (e.g., ongoing medical costs). When taxpayers overstate or poorly document expenses, the IRS typically requests additional proof or proposes a higher payment.

  • Offer a payment you can sustain—there’s more risk in default than in proposing a conservative plan and asking to modify it later.
  • Use direct debit when possible; it often reduces fees and improves approval odds.

For step‑by‑step application tips, see: How to Apply for an Online Installment Agreement: Tips and Pitfalls (FinHelp): https://finhelp.io/glossary/how-to-apply-for-an-online-installment-agreement-tips-and-pitfalls/.

Common mistakes to avoid

  • Submitting incomplete bank statements or missing paystubs.
  • Listing nonrecurring or discretionary costs as regular monthly expenses without documentation.
  • Failing to update the IRS when income or expenses change after the agreement is in place.

When to get professional help

If your case includes fluctuating self‑employment income, complex assets, or a balance that could make an Offer in Compromise plausible, consult a tax professional or enrolled agent. A practitioner can help package the Collection Information Statement and evidence so the IRS evaluates your situation accurately.

Sources and disclaimer

This entry summarizes IRS guidance on installment agreements and allowable living expenses (IRS — Getting an Installment Agreement and IRS — Allowable Living Expenses). It also links to FinHelp articles with practical application guidance. This content is educational and not personalized tax advice—consult a qualified tax professional for your specific situation.

Authoritative references