Overview

A Partial-Payment Installment Agreement (PPIA) is for taxpayers who cannot reasonably pay their full federal tax liability but can make smaller monthly payments. The IRS will only approve a PPIA after it determines the taxpayer’s Reasonable Collection Potential (RCP) — the total amount it expects to collect through asset liquidation and monthly payments. Interest and penalties generally continue to accrue while a PPIA is in place (IRS). IRS—Individual Installment Agreements

What the IRS reviews

  • Income and sources: pay stubs, self-employment records, unemployment, Social Security, and other income. The IRS looks for stable, recurring income it can expect to be paid toward the debt.
  • Allowable living expenses: the IRS compares claimed expenses to national and local standards and will accept reasonable, documented out-of-pocket costs for housing, utilities, food, transportation, medical costs, and childcare.
  • Assets and equity: bank accounts, retirement accounts (with restrictions), vehicles, real estate, and other nonexempt assets. The IRS may require liquidation of nonexempt assets or put a lien in place.
  • Filing and payment compliance: current filing of tax returns and compliance with future filings and payments are required for approval.
  • Collection history and liens/levies: prior collection actions, existing liens, and levies affect negotiation leverage and options.

(For more on how the IRS values collection potential, see our guide on Calculating Reasonably Collectible Amounts for Installment Agreements.)

Documents to prepare

  • Form 9465 (Installment Agreement Request) — used to request an installment plan. (Online agreements may use the IRS Online Payment Agreement portal.)
  • Collection Information Statement: Form 433-F (simpler) or Form 433-A/433-B for more complex situations. These show assets, income, and expenses.
  • Recent pay stubs, bank statements (60–90 days), statements for investment or retirement accounts, mortgage/lease statements, and bills for recurring expenses.
  • Proof of hardship if applicable (e.g., medical bills, unemployment paperwork).

How the IRS calculates payment ability

The IRS typically calculates RCP by estimating realizable value from nonexempt assets plus a monthly disposable income amount multiplied over the remaining collection statute (or a reasonable collection period). That calculation, combined with allowable expenses based on IRS standards, determines an amount the IRS considers collectible. See also our post on Eligibility rules for Partial Payment Installment Agreements.

Negotiation strategies that work (from practice)

  • Be organized: submit complete forms and documentation at first contact. Incomplete submissions slow approval.
  • Propose realistic payments: offer an amount you can sustain; the IRS compares your offer to their RCP. I’ve found that direct-debit proposals are viewed favorably because they reduce default risk.
  • Use detailed, verifiable records: bank statements and bills are stronger than summary estimates.
  • Consider phased approaches: if liquidation of an asset is realistic, propose a plan that combines a one-time asset sale with reduced monthly payments.
  • Keep communication timely: respond to IRS requests within the stated deadlines to prevent automatic denials or levies.

Common mistakes and pitfalls

  • Under-documenting expenses: unsupported line-item expenses will likely be disallowed.
  • Overestimating hardship: the IRS applies national standards; personal hardship claims must be backed by paperwork.
  • Forgetting ongoing obligations: interest and penalties usually continue; missing payments can terminate the agreement and result in collection actions.

Alternatives to a PPIA

  • Offer in Compromise (OIC): may be a better fit if your RCP is substantially lower than your assessed tax and you can show doubt as to collectibility. (IRS—Offer in Compromise: https://www.irs.gov/payments/offer-in-compromise)
  • Currently Not Collectible (CNC): temporary relief when the taxpayer’s expenses exceed income, but this status can be reviewed and lifted.
  • Streamlined installment agreements: available when balances and eligibility meet IRS thresholds — faster to set up but require full payment over time. See our guide on Preparing a Streamlined Installment Agreement Application.

After approval: what to expect

  • You must remain filing- and payment-compliant for future tax returns.
  • The IRS may periodically review financial circumstances and adjust or terminate the PPIA if your ability to pay improves.
  • A Notice of Federal Tax Lien may remain on file until the debt is fully satisfied or otherwise resolved.

When to get professional help

If your case involves substantial assets, business income, complex allowable expenses, or a history of collection actions, a tax professional or enrolled agent can prepare the Collection Information Statement and negotiate on your behalf. In my 15 years advising taxpayers, clients who provide full documentation upfront tend to get faster, more favorable outcomes.

Sources and disclaimer

Authoritative resources: IRS — Individual Installment Agreements (https://www.irs.gov/payments/individual-installment-agreements); IRS — Understanding Your IRS Account (https://www.irs.gov/help/ita/understanding-your-irs-account); IRS — Offer in Compromise (https://www.irs.gov/payments/offer-in-compromise).

This article is educational and does not constitute legal or tax advice. For a personalized assessment of your tax situation, consult a qualified tax professional or enrolled agent.