EA Part 3 Installment Agreements and Currently Not Collectible Status

When Taxpayers Cannot Pay in Full

Not every taxpayer who owes the IRS can pay the balance in one payment — or at all. The tax code provides structured alternatives that allow taxpayers to resolve liabilities over time or defer collection during periods of genuine hardship. For EA Part 3, candidates must know the different types of installment agreements, the dollar thresholds and timeframes that define each type, and the conditions under which Currently Not Collectible status applies.

Types of Installment Agreements

Guaranteed Installment Agreement

A guaranteed installment agreement is available to taxpayers who meet all of the following conditions:

• The total tax owed is $10,000 or less (excluding penalties and interest)
• The taxpayer has not entered into an installment agreement within the prior 5 years
• The taxpayer has filed all required returns and is otherwise in compliance
• The taxpayer agrees to pay within 3 years

When these conditions are met, the IRS is legally required to accept an installment agreement. The IRS cannot reject the request or impose additional conditions. This is the most taxpayer-favorable type of installment agreement on the Part 3 exam.

Streamlined Installment Agreement

The streamlined installment agreement requires no financial disclosure and no IRS financial analysis. Conditions:

• Total assessed balance (tax, penalties, and interest) is $50,000 or less
• The liability will be paid within 72 months (6 years)
• The taxpayer is in full compliance with filing requirements

Taxpayers who owe between $25,000 and $50,000 must agree to a direct debit installment agreement (DDIA) — automatic payments from a bank account — to qualify for the streamlined process.

Because no financial statements are required, streamlined agreements are the most common type of installment agreement the IRS processes and are typically approved quickly through online or phone requests.

Non-Streamlined Installment Agreement

When the balance exceeds $50,000, or when a taxpayer cannot pay within 72 months, the IRS requires a full financial disclosure. The taxpayer must submit Form 433-A (for individuals) or Form 433-B (for businesses), which detail income, expenses, assets, and liabilities.

The IRS uses this information to determine the appropriate monthly payment — typically the taxpayer's monthly disposable income after allowable living expenses calculated using IRS National and Local Standards.

Non-streamlined agreements require IRS managerial approval and may include conditions such as filing federal tax deposits on time, refraining from incurring additional tax debt, and providing updated financial information annually.

Partial Payment Installment Agreement (PPIA)

A Partial Payment Installment Agreement allows a taxpayer to make monthly payments based on their ability to pay when those payments will not fully pay the liability before the CSED expires. Unlike a full-pay installment agreement, a PPIA is structured knowing that the balance will not be fully satisfied.

Key PPIA features:

• Requires full financial disclosure (Form 433-A or 433-B)
• The IRS reviews the agreement every two years and may increase payments if the taxpayer's financial situation improves
• The CSED continues to run (it is not tolled by a PPIA — unlike an OIC)
• At CSED expiration, any remaining balance is uncollectible

PPIA is an alternative to OIC for taxpayers who do not qualify for an OIC but cannot fully pay. The distinction between a PPIA (CSED keeps running) and an OIC (CSED is tolled) is a frequently tested fact on Part 3.

Currently Not Collectible (CNC) Status

What CNC Means

Currently Not Collectible (CNC) status — also called hardship status — is a temporary designation the IRS assigns when a taxpayer's allowable living expenses equal or exceed their monthly income, leaving no ability to make payments. CNC is not forgiveness of the debt; the liability remains. Collection activity is suspended.

During CNC status:

• The IRS will not levy wages, bank accounts, or other property
• Penalties and interest continue to accrue
• The CSED continues to run
• The IRS will file or maintain a Notice of Federal Tax Lien to protect the government's interest

How CNC Is Established

The taxpayer (or their representative) submits financial information — typically on Form 433-A or through a phone interview — demonstrating that monthly allowable expenses meet or exceed monthly income. The IRS determines what qualifies as an allowable expense using the same National and Local Standards used for installment agreements and OIC calculations.

IRS Review of CNC Status

The IRS periodically reviews CNC accounts. If the taxpayer's income increases — which the IRS may detect through income tax return filings — the account may be taken out of CNC status and the taxpayer contacted to establish a payment arrangement.

Financial Disclosure Forms

Part 3 candidates should know which form applies in which context:

Form	Used For
Form 433-A	Collection Information Statement for individuals; used for non-streamlined IAs, PPIAs, and OIC (DATC/ETA)
Form 433-B	Collection Information Statement for businesses
Form 433-F	Simplified collection information statement; used by IRS telephone and field collection for routine cases
Form 433-A (OIC)	Specific version of Form 433-A used with Offer in Compromise submissions

Effect on the CSED: A Summary

This chart helps consolidate one of the most testable CSED relationships:

Collection Alternative	CSED Tolled?
Guaranteed IA	No
Streamlined IA	No
Non-streamlined IA	No
PPIA	No
OIC (pending + 30 days)	Yes
CDP hearing (pending + 30 days)	Yes
CNC status	No
Bankruptcy	Yes
Taxpayer outside U.S. (6+ months)	Yes

Compliance Requirements for All IAs

Regardless of type, the IRS may default and terminate an installment agreement if the taxpayer:

• Fails to make a scheduled payment
• Fails to file a required return or pay a new liability
• Provides inaccurate financial information
• Has a material change in financial condition (applicable to non-streamlined agreements)

Before terminating an agreement, the IRS must send a notice giving the taxpayer 30 days to correct the default before the agreement is formally terminated.

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