How to File Form 433-A
What You Need to Know About Form 433-A
Form 433-A is a tax form that collects information about your finances, including any debts and assets you have. The Internal Revenue Service (IRS) uses this form to determine whether you're able to satisfy an outstanding tax liability.
If you're applying for an offer in compromise, which is a settlement with the IRS to pay less than the total amount owed, then you'll be asked to fill out this form.
Form 433-A is called Collection Information Statement for Wage Earners and Self-Employed Individuals. It requires personal information, employment information, and an accounting of your personal assets, business assets, and monthly household budget.
This form is eight pages long, and the IRS requires you to use it to document your financial situation when you ask for an offer in compromise. The IRS then uses the information to determine your "reasonable collection potential" on your tax debts.
An offer in compromise is a way to settle your tax debt for less than the amount that you owe, which is agreeable to the IRS if you meet certain requirements. The decision will be based on your unique circumstances, including your income, your expenses, how much equity you have in various assets, and how much of the debt the IRS thinks you are reasonably able to pay.
Who Uses Form 433-A?
The people who may need to complete Form 433-A include:
- An individual who owes income tax on Form 1040
- A person responsible for a Trust Fund Recovery Penalty
- Someone who is personally responsible for a partnership liability
- An individual owner of a limited liability company (LLC) that is a disregarded entity
- Someone who is self-employed, such as an independent contractor or sole proprietor
Where to Get a Form 433-A
You can download Form 433-A from the IRS website.
How to Fill Out and Read Form 433-A
Form 433-A is quite long and detailed. Take a look at the type of information you'll be asked to submit when filling it out.
Section 1: Personal Information
This section requests information about you and your household. For example, are you married? Do you own your own a home or do you rent? Who else lives with you? You'll also need to provide your address, date of birth, Social Security number, and contact information.
Section 2: Employment Information
Section 3: Personal Asset Information
In this section, you must summarize your assets, such as bank accounts and investments.
For bank accounts, provide the name and address of your bank branch, along with account numbers and current balances. Include information on all checking, savings, and money market accounts that you hold, including mobile accounts such as PayPal. You must also provide information on cash you have on hand that is not in a bank account.
Provide information about stocks, bonds, mutual funds, and any other investment assets you might own. Include time deposits, certificates of deposit, IRAs, Keogh plans, 401k plans, and annuities.
Detail any credit that is available to you. Report the name, address, credit limit, and current balance on all your credit cards, department store charge cards, and unsecured lines of credit. Do not report car loans and mortgages here.
Provide information about the cash value of your whole life or universal life insurance policies. Term life insurance policies do not accumulate cash value, so you do not have to report these.
List the make, model, and model year information for each vehicle you own along with mileage, loan balance, lender, purchase date, and the amount of your monthly payment. Vehicles include all types of cars, trucks, vans, recreational vehicles, trailers, motorcycles, and boats, whether they are purchased or leased.
It is a good idea to print out a report showing the fair market value of your vehicles. Explain what condition your car is in and its approximate market value. The Kelley Blue Book is a good source.
List all your personal assets including furniture, artwork, and jewelry.
Provide information about your house and other real estate you own in the real estate section including information about all mortgages and home equity lines of credit. Consider including either an appraisal of the actual properties or a report from a real estate agent showing sales of comparable homes. The IRS sometimes requests a full appraisal.
It is a good idea to detail the condition of the properties, too. If you recently tried to refinance your mortgage or obtain a home equity line of credit and received a rejection letter from lenders, this will show that lenders are unwilling to extend you additional credit at the present time.
Section 4: Self-Employed Information
Sections 4, 5, and 6 apply only if you own your own business. You do not have to be incorporated or to have entered into any other business structure such as a partnership. You must complete these sections even if you are a sole proprietor.
Section 5: Business Asset Information
List any assets that are held in the name of your business such as computers, tools, equipment, or even real estate.
Section 6: Business Income and Expense Information
Detail your business's gross revenue and receipts and itemize your business expenses.
Section 7: Monthly Household Income and Expense Information
In this section, you'll describe your monthly household income and estimate your expenses. Keep Social Security stubs, pension or annuity statements, copies of child support or alimony checks, or a statement of rental income and expenses for three months in advance in preparation for completing this section.
Consider preparing three budgets, each using different criteria.
Budget No. 1: Actual Income and Expenses: This represents your total income and total expenses per month. Tracking your expenses using Quicken, Quickbooks, or using a spreadsheet helps with budgeting. Take the average of the last three months of income and expenses and report them in the appropriate categories.
The crucial piece of information you are looking for is the difference between your total income and your total living expenses. If you have a positive number, you have disposable income for the month. You can use that disposable income figure to determine whether you can qualify for a monthly installment agreement instead of an offer in compromise.
Budget No. 2: Income and Expenses Using Some IRS Limits: This budget eliminates some of your expenses. The IRS will generally disallow any expense that is not directly related to the health, welfare, and sustenance of you and your family so detail any unusual but necessary expenses. A good example of this would be annual fees paid to renew an occupational license.
Unless an expense is directly related to your job, career, or sustenance, it is unlikely that the IRS will allow the expense. For example, cable television, private school, and credit card payments will not be considered in your allowable budget.
The items included in the monthly budget are listed in the Form 433-A footnotes and instructions for guidance. They include food, clothing, housekeeping supplies, personal care products, rent, mortgage payment, property taxes, renter's insurance, homeowner's insurance, HOA dues, electric and gas utilities, telephone utilities, water, fuel oil, and trash collection.
Car loan payments, lease payments, auto insurance, registration and license fees, maintenance, repair, gasoline, parking, tolls, or bus fare are also allowable as is other secured debt such as loans secured by a 401k or certificate of deposit.
Life insurance premiums, health insurance premiums, co-payments for doctors and medicines, hospitalization, and other medical and health care expenses can be included.
Taxes for federal income tax withholding, Social Security and Medicare payroll taxes, estimated tax payments, state income tax withholding, and local income tax withholding are all allowable expenses.
Child support, alimony, and other court-ordered payments are allowable.
Budget No. 3: Income and Expenses Using IRS Collection Financial Standards: The IRS has developed a set of national and local expense standards for food and clothing, housing and utilities, and transportation. Collectively, these expense guidelines are called the Collection Financial Standards.
Allowable monthly expenses for food, housing, and transportation are limited to the lower of your actual expense or the appropriate Collection Financial Standard. You will need your actual expenses as collected in Budget No. 1 to compare.
Food and clothing expenses are limited by national standards for allowable living expenses. Residents of Alaska and Hawaii have higher allowable food and clothing expenses. The national standard is broken down by the number of people in a family and monthly gross income.
Housing expenses are limited by local standards for housing expenses. The standard is broken down by the number of people in a family and the county where the family resides.
Transportation expenses are limited by regional standards and is broken down by the number of cars in a family.
Section 8: Calculate Your Minimum Offer Amount
It will probably seem as though you have extra money under the IRS budget compared to your actual budget. Budget No. 3 generally becomes the foundation for calculating your reasonable collection potential on the worksheet for Form 433-A that appears in Section 8.
Section 9: Other Information
This is where you will enter all additional information. The IRS will want to know whether you are a beneficiary in someone's will, trust, or insurance policy. Notify them if you filed for bankruptcy in the last 10 years, and if so, what the outcome was.
Also, disclose whether you are involved in any lawsuits, have sold or transferred any assets for which you did not receive full compensation, and if you own any real estate outside the United States.
Both car loans and mortgages relate to your offer in compromise in several important ways. First, the IRS generally does not want you to have to sell your car or home in order to pay off your tax debt. It prefers that you keep your home and car and find other ways to pay your taxes, such as taking out a home equity line of credit.
The IRS will look at the fair market value of your house and compare it to your outstanding mortgage balance to determine if there is equity there that you can tap. The IRS will also discount the value of your house, cars, and other vehicles to their "quick sale" value.
This value is equal to 80% of the property's current fair market value. Some taxpayers will find that they are "upside-down" on their loans using this formula, because the loan balance exceeds the quick sale value of their car, truck, or real estate.
The IRS might ask a taxpayer to sell a second or third car or to sell a house with substantial equity before an offer in compromise will be approved. These matters are generally open for negotiation between the IRS and the taxpayer. Just be aware that the IRS is looking to collect as much money as possible given your unique financial situation.
Offers in compromise and the accompanying paperwork are complicated. Consider consulting a tax professional to have your forms reviewed prior to submission to the IRS.
Where to Mail Form 433-A
The address to which you'll mail your completed Form 433-A and offer in compromise will vary depending on where you live.
If you live in one of the following states, you'll mail your application to Memphis IRS Center COIC Unit, P.O. Box 30803, AMC, Memphis, TN, 38130-0803:
- New Mexico
If you live in one of the following places, mail your application to Brookhaven IRS Center COIC Unit, P.O. Box 9007, Holtsville, NY, 11742-9007:
- Washington, D.C.
- North Carolina
- North Dakota
- New Hampshire
- New Jersey
- New York
- Puerto Rico
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
- A foreign address
Requirements for Filing Form 433-A
You must sign Form 433-A before mailing it, and have your spouse sign it, too, if you're married.
You must also attach to Form 433-A any of the following documentation that applies to your situation:
- Copy of your most recent pay stub from each employer
- Copy of the most recent statement for each investment and retirement account
- Copy of the most recent statement from all other income sources
- Bank statements for the last three months
- Most recent statement from each lender showing payments, balances, and payoff amounts
- List of Notes Receivable if applicable
- Verification of any delinquent state or local taxes
- A copy of Form 2048 authorizing power of attorney, if you want an attorney or CPA to represent you
- A signed and completed Form 656
- Form 433-A is required for individuals and self-employed people who are seeking an offer in compromise with the IRS.
- An offer in compromise is a settlement with the IRS to pay them less than what you owe.
- The IRS uses Form 433-A to collect financial information which they use to decide whether and how much you can afford to pay.