Most IRS payment plans are designed to pay your balance in full, with penalties and interest, before the IRS's time to collect runs out. But what if your budget simply cannot do that? A partial payment installment agreement, often called a PPIA, is a payment plan where you pay what you can reasonably afford each month, and any balance still owed when the collection period ends can expire.
That sounds generous, and in the right case it can be. It also comes with more paperwork, closer scrutiny and regular check-ins than any other kind of plan. This guide explains the trade.
The law that allows it
Internal Revenue Code section 6159(a) lets the IRS enter into a written installment agreement if the agreement will "facilitate full or partial collection" of a tax liability. Those words "or partial" are what make a PPIA possible. The IRS's procedures for these agreements are in the Internal Revenue Manual (IRM 5.14.2).
Why the collection deadline matters
The IRS generally has 10 years from the date a tax is assessed to collect it. That deadline comes from Internal Revenue Code section 6502, and the IRS calls the end date the Collection Statute Expiration Date, or CSED. Each tax year can have its own CSED.
A regular payment plan must pay the full balance by the CSED. For example, the Simple Payment Plan (formerly called a streamlined installment agreement) requires full payment, including accruals, by the CSED (IRM 5.14.5.2). A PPIA is the plan the IRS uses when full payment by the CSED is not possible, but you still have some ability to pay (IRM 5.14.2).
One detail surprises people. While you are making payments under an installment agreement, the collection clock keeps running. The collection period is suspended while your request is pending, for 30 days after a rejection or termination, and during an appeal, but not while the agreement is in effect (Internal Revenue Code section 6331(k)(3) and (i)(5); IRM 5.14.1.2). That is why a balance can actually reach its CSED while you are still in a PPIA.
Who is a good fit
A PPIA may make sense if:
- Your monthly income after necessary living expenses leaves some money, but not enough to pay the full balance before the CSED.
- You do not have significant equity in assets that could pay the debt, or you have already dealt with that equity.
- You are current on filing all required returns and on your current year taxes (IRM 5.14.1.4.2).
If you cannot afford any payment at all, look at currently not collectible status instead. If you could pay a lump sum that is less than what the IRS could collect over time, compare an offer in compromise. Our guide on choosing between an offer and a payment plan walks through that decision.
What the IRS will require
A full financial statement
A PPIA always requires a complete Collection Information Statement (IRM 5.14.2). For individuals, that is usually Form 433-A, and for businesses, Form 433-B. Some wage earners working with the IRS by phone use Form 433-H (IRM 5.19.1.6.4). Expect to document your income, your bank accounts, your vehicles, your home, your retirement accounts and your monthly expenses.
Only necessary expenses
The IRS allows only necessary living expenses in a PPIA (IRM 5.14.2). When it reviews a financial statement, it applies its allowable living expense standards (IRM 5.14.1.4). That is different from the "Six-Year Rule" used for some larger full-pay plans, where the IRS allows all reasonable expenses if the debt will be paid within six years and within the CSED (IRM 5.14.1.4.1). That rule does not help you if you cannot full pay.
Dealing with equity
Before granting a PPIA, the IRS must address any equity you have in assets (IRM 5.14.2). In plain terms, if you own something that could be sold or borrowed against to pay down the debt, the IRS will want to discuss it before agreeing to accept less than the full balance over time. This is often the hardest part of the negotiation, and it is where preparation pays off.
Compliance
Like every installment agreement, a PPIA requires that all required returns be filed and that you be current on estimated tax payments, withholding or federal tax deposits (IRM 5.14.1.4.2). If you have unfiled years, read why you should file before asking for a plan.
Reviews every two years
Internal Revenue Code section 6159(d) requires the IRS to review partial payment agreements at least once every two years. In practice, the IRS may send a CP 522 financial review notice asking for updated financial information (IRM 5.19.1.6.5).
Take these reviews seriously. If your income has gone up, the IRS may ask for a higher payment. If you ignore a request for updated financial information, section 6159(b) allows the IRS to modify or terminate the agreement, after giving you at least 30 days' notice with an explanation. See what happens when a plan goes into default.
Other things to expect
- Penalties and interest keep growing. They continue to accrue on the unpaid balance during any installment agreement (IRM 5.14.1.1.1).
- Refunds are applied to the debt. Future federal refunds are applied to your balance during the agreement and do not replace your monthly payment (IRM 5.14.1.4.2).
- A lien decision is likely. Agreements outside the Simple Payment Plan and guaranteed agreement generally require the IRS to make a Notice of Federal Tax Lien determination (IRM 5.14.1.4.3). See payment plans and tax liens.
- CSED extensions are limited. The IRM restricts when the IRS can ask you to extend the collection deadline as part of a PPIA (IRM 5.14.2).
- User fees apply. A PPIA is an installment agreement, so the standard setup fees apply. See what a payment plan costs.
Levy protection
Asking for a PPIA gives you the same protection as asking for any installment agreement. Internal Revenue Code section 6331(k)(2) bars a levy while your request is pending, for 30 days after a rejection (and during an appeal filed within that time), while the agreement is in effect, and for 30 days after a termination (and during a timely appeal). If the IRS rejects your request, you can appeal. See your appeal rights after a rejection.
PPIA compared with other options
| Option | Pays full balance? | Financial statement? |
|---|---|---|
| Simple Payment Plan ($50,000 or less) | Yes, by the CSED | No (IRM 5.14.5.2) |
| Larger full-pay plan | Yes, by the CSED | Often yes (IRM 5.14.1.4; IRM 5.19.1.6.4) |
| Partial payment installment agreement | No, remaining balance can expire at the CSED | Yes, always (IRM 5.14.2) |
Not sure which bucket you are in? Start with which payment plan you qualify for, or run your numbers through the payment plan calculator.
Getting help
A PPIA is a negotiation over your budget and your assets, and the details of your financial statement drive the result. If you are considering one, talk to a tax attorney before you submit your numbers. You can reach our office through GetIRSHelp.com or at (813) 229-7100.
Frequently asked questions
What is a partial payment installment agreement?
It is an IRS payment plan where you pay what you can reasonably afford each month, even though those payments will not pay the full balance before the Collection Statute Expiration Date. Internal Revenue Code section 6159(a) allows agreements that facilitate full or partial collection.
Does the unpaid balance really go away?
Any balance still owed when the collection period ends can expire at the CSED. The IRS generally has 10 years from assessment to collect under section 6502, and that clock keeps running while the agreement is in effect.
Do I need to give the IRS a financial statement?
Yes. A partial payment installment agreement always requires a complete Collection Information Statement, and the IRS allows only necessary living expenses (IRM 5.14.2).
How often will the IRS review my agreement?
Section 6159(d) requires a review at least every two years. The IRS may send a CP 522 notice asking for updated financial information, and your payment can go up if your finances improve.
Will the IRS make me sell assets first?
The IRS must address equity in your assets before granting a partial payment agreement (IRM 5.14.2). That can mean discussing whether an asset could be sold or borrowed against to pay down the debt.
This guide is general information, not legal advice. Tax law changes and every case turns on its own facts.