Partial payment installment agreement: pay what you can afford

Under IRC 6159, the IRS can accept an installment agreement that "provides for partial collection." You pay a monthly amount based on your ability to pay — income minus allowable expenses — and the payments continue until the collection statute expiration date (CSED). Whatever remains unpaid when the CSED arrives is no longer collectible. Interest and penalties keep accruing on the balance throughout.

It's different from an Offer in Compromise: there's no application fee or lump sum, but you pay for longer and the IRS can raise the payment if your income goes up. It's also different from Currently Not Collectible status, which applies when you can't pay anything at all.

You generally need:

• All required returns filed and current-year taxes paid or withheld.
• A completed Collection Information Statement (Form 433-A or 433-F) with documentation.
• A monthly ability to pay that won't satisfy the balance before the CSED.
• To have addressed asset equity. The IRS expects you to consider using equity in real estate, vehicles, retirement accounts or investments — selling, borrowing against or paying from them — before it approves partial payment, though it won't require this if it would cause hardship or isn't feasible.

The IRS Internal Revenue Manual section on PPIAs describes the equity review in detail. Check how much time is left on your collection statute with your account transcript and our collection statute guide.

The IRS starts with your gross monthly income and subtracts allowable expenses: the National Standards for food, clothing and similar items, out-of-pocket health care, county housing and utility limits, transportation, current taxes, health insurance and other necessary items. The remainder is your monthly payment. Build an estimate with the IRS living expenses worksheet, then see how long it would take with the tax debt payoff calculator. If the payoff runs past the CSED, a PPIA is the likely result.

• Lien filing: the IRS generally files a Notice of Federal Tax Lien, especially on larger balances.
• Periodic reviews: expect a new financial review roughly every two years; higher income can raise the payment.
• Collection statute extensions: in some cases the IRS may ask you to extend the CSED, particularly when equity can't be used now. Read any waiver carefully.
• Default risk: missing payments or not filing future returns can terminate the agreement.
• Ongoing interest: the balance can grow even while you pay.

If your ability to pay is steady and modest, a PPIA keeps you in compliance with a predictable payment. If paying even a small amount would cause hardship, Currently Not Collectible status may fit better. If you have little equity and low disposable income relative to the balance, an Offer in Compromise may resolve the debt sooner and for less — compare them with the repayment vs settlement calculator.

A partial payment installment agreement (PPIA) isn't set-and-forget. Because the IRS is accepting less than full payment, it generally reviews PPIAs every two years and can ask for updated financial information. If your income rises or your expenses fall, the monthly payment may increase. The IRS may also expect you to use available equity — for example, by borrowing against a home or retirement account — before approving a PPIA, and a federal tax lien is commonly filed. The trade-off is that whatever remains unpaid when the collection statute expires is no longer collectible. Compared with an Offer in Compromise, a PPIA has no application fee or lump-sum requirement and no five-year compliance period after it ends, but it lasts longer and keeps the lien in place. It often fits people whose ability to pay is real but small relative to a large balance.

1. Pull your account transcripts to confirm balances and CSED dates.
2. Complete Form 433-F (or 433-A if a revenue officer requests it) with three months of bank statements, pay stubs and bills.
3. Propose a monthly amount based on your allowable expenses.
4. Submit with Form 9465 or by calling the number on your notice; for revenue officer cases, send it to the officer.
5. If the IRS proposes a higher payment, you can ask to see its calculation and appeal through the Collection Appeals Program.