Pros and Cons of Partial-Payment Installment Agreements

Overview

Partial-Payment Installment Agreements (PPIAs) are a collection tool the IRS uses when a taxpayer cannot reasonably pay the full tax debt before the Collection Statute Expiration Date (CSED). Instead of requiring full payment, the IRS accepts a lower monthly amount that reflects the taxpayer’s current financial capacity. The unpaid balance remains outstanding and typically continues to accrue interest and penalties while the IRS retains the right to collect until the CSED is reached (IRS: Installment Agreements; Collection Statute Expiration Date).

In my practice helping taxpayers negotiate with the IRS, I’ve seen PPIAs provide meaningful short-term relief for people who genuinely cannot pay the full balance but who also have a path to gradual repayment. However, they are not a forgiveness program; they are a temporary accommodation that shifts cash-flow pressure at the cost of ongoing accrual and possible future collection actions.

Sources: IRS — Installment Agreements (https://www.irs.gov/payments/online-payment-agreement-application); IRS — Collection Statute Expiration Date (https://www.irs.gov/businesses/small-businesses-self-employed/collection-statute-expiration-date-csed); IRS — Collection Financial Standards (https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards).

Pros (Why a PPIA can help)

• Immediate cash-flow relief: A PPIA lets taxpayers reduce monthly outlays to a level they can sustain, which can stop levies and give breathing room to address other critical expenses.
• Avoid more severe collection actions (short-term): When properly negotiated and maintained, a PPIA typically prevents immediate enforcement such as levies while the agreement is active and in good standing.
• Faster, lower-cost option than bankruptcy or litigation: For many taxpayers, negotiating a PPIA is cheaper and faster than pursuing bankruptcy or other court-based remedies.
• Preserves certain future options: A PPIA can be combined later with other remedies (for example, converting to Currently Not Collectible or pursuing an Offer in Compromise) depending on changed circumstances.

Real-world perspective: I helped a sole proprietor who owed $22,000 and had irregular monthly receipts. By documenting expenses and agreeing to a modest monthly amount, the owner avoided a bank levy and kept the business operating while making meaningful progress against the debt.

Cons and important risks

• Interest and penalties continue: The unpaid tax balance continues to accrue statutory interest and usually failure-to-pay penalties during the PPIA term. Interest compounds daily and the total cost can be substantial over time (IRS: interest and penalties).
• The balance stays collectible until CSED: The IRS can continue collection activity up to the CSED, which generally is 10 years from assessment unless extended. A PPIA does not remove that exposure; it simply schedules payments (IRS: CSED).
• Potential liens and credit effects: The IRS may file or keep a Notice of Federal Tax Lien in place, which can affect your ability to borrow or sell property. Resolving a lien often requires full payment, withdrawal, or other remedies.
• Risk of default: If you miss payments or fail to stay current with future tax filings and deposits, the IRS can terminate the agreement and resume collection actions. Default can lead to levies and return-to-collection status — see our guide on Defaulting on an Installment Agreement: Consequences and Fixes.
• Not available online for many taxpayers: Unlike a standard online installment agreement, many PPIAs require a more detailed financial review and cannot be set up via the IRS online payment tool.

Eligibility and how the IRS evaluates a PPIA

To be considered for a PPIA, you generally must:

• Be current on filing requirements (all required tax returns filed).
• Provide a complete and accurate financial disclosure to the IRS — typically via collection forms such as Form 433-F, Form 433-A (OIC) or business equivalents, depending on the case. The IRS will evaluate income, allowable expenses (per the IRS Collection Financial Standards), assets, and equity.
• Demonstrate that you cannot pay the full balance before the CSED using any reasonable means.

The IRS relies on standardized Collection Financial Standards to judge allowable living expenses and uses that data to calculate a proposed reasonable monthly payment (IRS: Collection Financial Standards). If your documented monthly disposable income is low enough that full payment before CSED is not feasible, the IRS may accept a PPIA with a monthly payment the agency considers sustainable.

How to request a PPIA and what to expect

1. Gather documentation: recent pay stubs, bank statements, proof of monthly bills, a current budget, and copies of all required tax returns.
2. Submit full financial disclosure: Complete the appropriate Form 433-series (for individuals, businesses, or OIC situations) and any required IRS worksheets.
3. Negotiate with the IRS Collection Caseworker: Expect questions and documentation requests. The IRS may propose a monthly payment based on your disposable income.
4. Agree to the terms and maintain compliance: If approved, you must make the agreed payments on time and stay current with future filing and payment obligations.

For a step-by-step walkthrough of the application process see our internal guide: How to Request a Partial Payment Installment Agreement (PPIA).

Note: Some taxpayers attempt to use Form 9465 (Installment Agreement Request) for general installment agreements, but PPIAs typically require the financial collection forms and direct negotiation with IRS collections rather than the simplified online route. See our guidance on How to Calculate a Realistic Monthly Payment for an Installment Agreement for preparing realistic numbers before you negotiate.

Practical strategies and professional tips

• Be fully transparent: The IRS evaluates your full financial picture. Hiding assets or income typically leads to denial or later default and potential penalties.
• Use IRS standards to your advantage: Compare your expenses against IRS Collection Financial Standards and document any special necessary expenses (medical, business losses) that exceed those standards.
• Prioritize compliance: Keep filing returns on time and pay current taxes while under the agreement. Falling behind on future liabilities is the most common path to a PPIA’s termination.
• Consider conversion options: If your financial situation worsens, discuss converting to Currently Not Collectible (CNC) status; if it improves, you may be able to increase payments or pursue an Offer in Compromise.
• Document everything: Retain records of communications, payment receipts, and any IRS notices. If the IRS changes the terms, get confirmation in writing.

From experience: a client who documented recurring, necessary medical expenses (beyond IRS standards) persuaded the revenue officer to accept a lower monthly payment — documentation matters.

Common mistakes and misconceptions

• Thinking a PPIA forgives the debt: It does not. The unpaid balance remains and continues to accrue charges.
• Assuming interest stops: Interest and most penalties continue to accrue during the PPIA term.
• Proposing unrealistic payments: Overly optimistic monthly offers that you cannot sustain often end in default and harsher collection steps.
• Skipping professional help when needed: A tax professional or authorized representative can improve documentation and negotiation outcomes, especially for complex financial situations.

Frequently asked questions

Q: How long will a PPIA last?
A: The term generally runs until the Collection Statute Expiration Date (CSED), which is usually 10 years from the date of assessment unless extended. The actual duration depends on how much you can pay each month.

Q: Will the IRS file a lien under a PPIA?
A: The IRS may file or continue a Notice of Federal Tax Lien. Whether one exists depends on the collection stage and the IRS’s assessment of risk.

Q: Can I change my monthly payment later?
A: Yes. If your financial circumstances change materially, you can request a review and possible modification. Keep detailed proof of the change.

Q: Is a PPIA better than an Offer in Compromise?
A: Not necessarily. A PPIA is appropriate when the taxpayer can pay something and the unpaid balance is collectible before CSED. An Offer in Compromise may be better if you can show that the tax debt is uncollectible in full and you meet stricter requirements (IRS: Offer in Compromise).

When to choose a PPIA — quick decision guide

• Choose a PPIA if you can make consistent monthly payments but cannot pay in full before the CSED, and you want to avoid immediate enforcement actions.
• Consider an Offer in Compromise if your total ability to pay (including asset liquidation) is so low that the IRS is likely to accept compromise for less than the full amount.
• Explore Currently Not Collectible status if you have no realistic ability to pay and need temporary relief.

Additional resources

• IRS — Online Payment Agreement & Installment Options: https://www.irs.gov/payments/online-payment-agreement-application
• IRS — Collection Financial Standards: https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards
• See our internal guides: How to Calculate a Realistic Monthly Payment for an Installment Agreement, How to Request a Partial Payment Installment Agreement (PPIA), and Defaulting on an Installment Agreement: Consequences and Fixes.

Professional disclaimer

This article is educational and based on current IRS rules and my professional experience as of 2025. It is not individualized tax or legal advice. Tax rules change and outcomes depend on the facts of each case; consult a qualified tax professional or attorney before acting on your specific situation.