How to Qualify for a Partial Payment Installment Agreement

Quick overview

A Partial Payment Installment Agreement (PPIA) is an IRS program that lets eligible taxpayers make reduced monthly payments based on their verified inability to pay more. Unlike a standard installment agreement that expects payment of the full balance (plus interest and penalties) over time, a PPIA accepts smaller payments that may not fully cover accruing interest and penalties — the IRS will continue to collect until the 10-year collection statute of limitations ends or the balance is paid in full. (IRS guidance: https://www.irs.gov/payments/partial-payment-installment-agreements)

In my 15 years advising clients, I’ve seen PPIAs provide breathing room for people facing medical bills, business downturns, or temporary income loss. But the IRS requires careful documentation and proof that you truly cannot pay more.

Who typically qualifies?

• Individuals and sole proprietors who have filed all required tax returns and owe taxes that they cannot pay in full.
• Small business owners may qualify, but the IRS will scrutinize business cash flow and assets separately.
• Taxpayers who can demonstrate that paying the full IRS-calculated collectible monthly amount would create a financial hardship.

Eligibility is not automatic. The IRS expects complete and truthful financial information. If the IRS determines you can pay more (by selling assets or redirecting funds), it will either increase payments or refuse a PPIA.

Key IRS rules to know (current as of 2025)

• The IRS uses a 10-year collection statute of limitations from the date of assessment; a PPIA will generally remain in effect only for that period unless you pay the debt sooner. (See Publication 594: The IRS Collection Process: https://www.irs.gov/pub/irs-pdf/p594.pdf)
• Interest and penalties continue to accrue unless otherwise noted; smaller monthly payments may not keep up with interest, so the balance can grow.
• You must be current with all federal tax filings and estimated tax payments for future periods.
• The IRS usually requires a complete Collection Information Statement — most commonly Form 433‑F for individuals and businesses — plus any supporting bank statements and proof of expenses. (Form guidance: https://www.irs.gov/forms-pubs/about-form-433-f)
• Form 9465 (Request for Installment Agreement) is often used to request installment terms, but a PPIA request will be paired with Form 433‑series financial statements. (Form guidance: https://www.irs.gov/forms-pubs/about-form-9465)

Step-by-step: How to apply and improve your chances

1. Gather documents first

• Last 2–3 years of federal tax returns
• Recent pay stubs and business profit-and-loss statements
• Two to three months of bank statements
• Proof of fixed expenses: rent/mortgage, utilities, insurance, medical bills, childcare
• Statements for assets: vehicles, real property, retirement accounts (note: retirement accounts may be collectible in some cases)

1. Use the right forms

• Individuals: Form 433‑F (Collection Information Statement) or, where requested, Form 433‑A (older individual form).
• Businesses: Form 433‑B or Form 433‑F, depending on the IRS office’s request.
• Installment request: Form 9465 online or by mail; for PPIA you will attach the Collection Information Statement. See the IRS PPIA overview: https://www.irs.gov/payments/partial-payment-installment-agreements

1. Calculate a defensible monthly offer

• The IRS will compare your disposable income and collectible assets against national and local expense standards. Don’t guess: show actual bills and explain any unusual expenses (e.g., ongoing medical care).
• If you are self‑employed, project reasonable household cash flow after necessary business expenses.

1. Submit the request

• You can request online for some cases; many PPIAs require manual review and correspondence with the IRS collection officer. If you apply online, you may be routed to make additional submissions.

1. Expect follow-up and negotiation

• The IRS may ask for additional documentation, request bank statements directly, or ask you to liquidate nonexempt assets. Respond promptly.

How the IRS decides payment amount

The IRS uses the Collection Financial Standards and your Collection Information Statement to determine a monthly collectible amount. Key components:

• Monthly income after taxes and standard living allowances
• Reasonable living expenses (IRS has national and local standards for some expense categories)
• Value of nonexempt assets (equity in vehicles, second homes, investment accounts)
• Business operating expenses when applicable

If the IRS concludes you have equity that can be used to pay your tax bill, it may require higher monthly payments or say the agreement is not appropriate.

Documents and forms you’ll likely need

• Form 433‑F (Collection Information Statement) — primary form for PPIA financial disclosures: https://www.irs.gov/forms-pubs/about-form-433-f
• Form 9465 (Request for Installment Agreement) — used to request installment arrangements: https://www.irs.gov/forms-pubs/about-form-9465
• Recent pay stubs, bank statements, proof of monthly expenses, business financial statements

Note: The IRS may still request the older Form 433‑A (OIC) or Form 433‑B in specific situations, but Form 433‑F is the current standard for most collection cases.

How PPIA differs from other options

• Offer in Compromise (OIC): An OIC can settle the full tax liability for less than the full amount, but it has stricter eligibility standards and up‑front fees; use the IRS OIC pre‑qualifier before applying. See the difference here: Installment Agreements vs. Offers in Compromise: Which is Right for You? (internal link)
• Full Installment Agreement: Requires payment of the IRS-calculated collectible amount and typically ends when the balance is paid in full; PPIA accepts lower monthly payments.
• Currently Not Collectible (CNC): CNC suspends collection activity when you have no ability to pay; PPIA keeps a payment plan in place but at reduced levels.

For more on negotiating terms and long-term management, see our related guides: How to Negotiate a Partial Payment Installment Agreement and How to Set Up and Manage Partial Payment Installment Agreements.

Pros and cons (practical view)

Pros:

• Immediate cash‑flow relief: smaller monthly payments can prevent severe hardship.
• Avoids enforced collection actions if you comply (levies, seizures) while agreement is active.
• Keeps the case in an administrable status until the statute of limitations expires.

Cons:

• Interest and penalties generally continue to accrue; the balance can grow.
• You may be required to liquidate assets if the IRS finds collectible equity.
• The agreement is reviewed periodically — the IRS can increase payments if your financial picture improves.

Common mistakes to avoid

• Submitting incomplete documentation: incomplete bank statements or missing pay stubs slow approval.
• Underreporting income or hiding assets: the IRS requests proof and will deny or terminate agreements for fraud.
• Assuming interest stops: interest and many penalties keep accruing unless paid.
• Missing future filings and payments: falling behind on current tax returns or deposits can void the agreement.

Real-world example (anonymized)

A sole proprietor I worked with owed $28,000 after a poor season. Using precise P&L statements, two months of bank records, and documented medical expenses, we demonstrated limited disposable income. The IRS approved a PPIA at $225/month; after two years, a higher‑income year allowed the taxpayer to renegotiate for a higher payment to shrink interest costs.

After approval: compliance and review

• Make every payment on time. Many PPIAs require direct debit — this reduces defaults and often helps with approval.
• Keep filing current and pay future tax liabilities when due.
• Notify the IRS of material changes: increased income, asset sales, or changes in household size.
• Expect periodic reviews: if your income rises, the IRS can demand larger payments.

When to consider other options

• If you can legitimately settle the debt for less, explore an Offer in Compromise (OIC). See our guide on Offers in Compromise. (internal link: https://finhelp.io/glossary/offer-in-compromise-oic/)
• If you have no realistic ability to pay now or in the foreseeable future, CNC status may be more appropriate.

Professional tips to improve approval odds

• Be organized: deliver a clear, labeled packet of documents.
• Explain one‑time vs. ongoing expenses: the IRS treats temporary costs differently than recurring obligations.
• Consider professional representation: a CPA, enrolled agent, or tax attorney familiar with collection practice can streamline the process and avoid common pitfalls.

Sources and further reading

• IRS — Partial Payment Installment Agreements: https://www.irs.gov/payments/partial-payment-installment-agreements
• IRS — Publication 594, The IRS Collection Process: https://www.irs.gov/pub/irs-pdf/p594.pdf
• IRS — About Form 433‑F: https://www.irs.gov/forms-pubs/about-form-433-f
• IRS — About Form 9465: https://www.irs.gov/forms-pubs/about-form-9465

Disclaimer

This article is educational and does not substitute for personalized tax or legal advice. In my practice as a financial advisor, I use PPIAs selectively — they can help stabilize finances but require strict compliance. If you have a substantial tax issue, consult a qualified tax professional or attorney.