IRS Partial Payment Installment Agreement Guide
Understanding Partial Payment Installment Agreements
A Partial Payment Installment Agreement is an installment agreement where the monthly payment amount will not fully pay the liability before the Collection Statute Expiration Date expires. The Collection Statute Expiration Date is generally 10 years from the date of assessment.
The remaining balance becomes unenforceable when the CSED expires, though the IRS does not affirmatively forgive or discharge the debt. The IRS creates these agreements through a reasonable collection potential analysis, examining your income, expenses, and assets to determine what you can realistically afford to pay.
The IRS must agree that your financial information is accurate, that your expense claims are justified, and that your proposed payment aligns with their calculation methodology. The IRS conducts periodic financial reviews of these agreements, typically every two years, and may request updated financial information at that time.
Eligibility and Applicability
This guide applies to you if the IRS has assessed a tax debt you cannot pay in full, you have received a notice of intent to levy or similar collection notice, your monthly income minus necessary living expenses leaves little or no room for full repayment, or the IRS has suggested a partial payment arrangement. You want to understand what financial information the IRS will examine.
This guide does not apply if
- You can afford to pay your full tax debt within 120 days
- You have not yet received any IRS collection notice
- Your tax debt is being handled in bankruptcy court
- You are negotiating an Offer in Compromise
- Your debt involves criminal tax fraud charges
- You are disputing whether you owe the tax
Key Factors the IRS Evaluates
The IRS prioritizes your financial documentation over your payment proposal. Your actual income and documented necessary expenses determine whether a partial payment arrangement is possible and how much you must pay monthly.
The IRS uses Collection Financial Standards to establish maximum allowable amounts for necessary living expenses. These standards encompass national standards for food, clothing, household supplies, personal care products, and miscellaneous expenses. Taxpayers are allowed a specific amount based on family size, as per the published standards. Expenses beyond the standards or for items not covered by them must be justified as necessary for health, welfare, or the production of income.
Critical documentation requirements
- The IRS requests bank statements, pay stubs, mortgage documents, and proof of
expense claims
- Submitting accurate, well-documented financials upfront demonstrates credibility
- Inconsistencies between allegations and supporting documents cause rejection or
reduction of proposals
Required Actions
1. Review the IRS Collection Alternatives guidance to understand whether a partial payment arrangement, standard installment agreement, or Offer in Compromise makes more sense for your situation.
2. Gather three months of recent pay stubs and proof of all income sources. Include 1099 forms, self-employment records, rental income, child support received, pension statements, or any other regular payment.
3. Document your actual monthly expenses with receipts or statements to ensure accuracy and completeness. Create a list of essential expenses: rent or mortgage, utilities, groceries, transportation, insurance, childcare, minimum debt payments, and medical costs.
4. Research the IRS Collection Financial Standards for your state and county. The IRS maintains published allowance charts for living expenses by location.
5. Complete Form 433-A for wage earners or Form 433-F for simplified financial disclosure, or Form 433-B for self-employed taxpayers, fully and accurately. These forms calculate
your reasonable collection potential.
6. Submit financial information via mail, fax, or online portals. Include copies of every document that supports your financial statement before the IRS requests them. Bank statements, pay stubs, mortgage statements, insurance bills, and childcare invoices remove doubt and accelerate approval.
7. The IRS calculates the monthly payment amount based on your financial disclosure. The calculation considers income, necessary living expenses per Collection Financial
Standards, and assets. You must demonstrate you cannot pay more than the proposed amount.
8. Payments continue until the Collection Statute Expiration Date expires. Certain events suspend the running of the statute, including bankruptcy proceedings, Collection Due
Process requests, pending Offers in Compromise, and other specified circumstances.
9. Obtain written confirmation of the installment agreement, specifying the monthly payment amount, payment due date, and agreement terms. The agreement acknowledges that payments will continue until the Collection Statute Expiration Date, at which point collection becomes time-barred.
10. Set up automatic monthly payments through IRS Direct Debit or another traceable method. Missed payments can cause default.
11. The IRS conducts periodic financial reviews, typically every two years, and requests updated financial information at that time. You must respond to IRS requests for updated information.
12. Continue filing all current-year tax returns on time and pay current taxes in full. Partial payment arrangements only address past-year debt.
13. Verify your Collection Statute Expiration Date by requesting an account transcript. Once the CSED expires, the balance becomes legally unenforceable.
Common Errors to Avoid
- Overstating expenses without supporting documentation causes problems. The IRS will
request proof for any expense amount higher than the published standards.
Unsupported claims result in the IRS limiting deductions to standard amounts.
- Failing to disclose income sources creates verification issues. The IRS cross-checks
income through wage transcripts and automated systems.
- Treating the arrangement as permanent while ignoring current-year tax obligations
causes failure. These agreements only cover past debt. You must remain current on new filings and payments.
- Accepting verbal agreements without written confirmation of payment amounts can lead
to disputes later. It is essential to have signed documentation that states the monthly payment and agreement terms.
- Submitting financial information without supporting documents is of no value to the IRS.
Without bank statements, utility bills, mortgage statements, and pay stubs, the IRS will limit expense deductions to standard amounts.
- Failing to respond to IRS requests for updated financial information during mandatory
review periods can result in default. Under federal law, the IRS may terminate an installment agreement if you provide inaccurate or incomplete information when required or fail to pay any installment when due.
Consequences of Inaction
The IRS will continue to levy bank accounts and garnish wages without a payment plan in place.
Subject to exemptions, the IRS may take your wages without a negotiated payment structure.
The debt will continue to grow with interest and penalties until you reach an agreement. The IRS will attempt collection until the Collection Statute Expiration Date expires, which can exceed 10 years due to statutory suspensions.
When to Seek Professional Help
Professional assistance is helpful when your financial statement shows a negative cash flow or zero remaining balance after expenses. This situation needs a professional to analyze it according to Internal Revenue Service standards to see if your expense claims are valid, if penalties and interest are accurate, or if a partial payment plan or other payment option is more suitable during the collection period.
You should seek help if the IRS proposes a monthly payment that exceeds what your financial review applicable payment methods, and request recalculation consistent with the Internal
Revenue Code and your rights as a liable taxpayer.
Professional guidance becomes essential if you have a history of past failures to file an income tax return or have unfiled returns for the current year. Streamlined installment agreements,
Online Payment Agreement options, and other resolution paths cannot proceed until all required returns are filed. Unresolved filings often trigger additional collection actions.
Consider professional help if your income is self-employed, variable, or includes irregular bonuses. The IRS calculates income differently for self-employed taxpayers, and errors in averaging earnings reported on an income tax return can lead to inflated proposed obligations under a payment agreement.
Representation becomes critical if the IRS issues a termination letter or reassessment notice during the term of your agreement. This signals renewed collection actions, potential involvement by a revenue officer, and the need for an immediate response to protect your
Taxpayer Rights and Your Rights as a Taxpayer before enforcement resumes.
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