Preparing Form 433-A
Form 433-A is a personal financial statement that must be prepared and submitted with your initial Offer in Compromise application. This is an official form the IRS uses to analyze your income, expenses and assets. Ultimately, the IRS uses the information to determine whether you have the ability to full pay your balances through a calculated combination of disposable monthly income and equity in assets. If your Form 433-A indicates that full payment is not an option, you may qualify for settlement through the Offer in Compromise program.
Sections 1 and 2: Personal Information and Employment Information
Section 1: The first section of Form 433-A requests basic personal information for you and your family. If you’re married, you must provide this information for both you and your spouse.
Section 2: In this section, provide employer information for you and your spouse. If you’re self-employed, write “Self” in Section 2, line 4a and indicate the length of time you have been self-employed. You will provide the rest of your self-employment information on a different section of Form 433-A.
Section 3: Other Financial Information
The purpose of this section is to disclose information concerning legal proceedings and potential changes in income.
Line 6: If you’re party to any lawsuit, either as a plaintiff or defendant, list the docket details on this line. Do not include any proceedings that have not been filed with the court, even if you intend on filing a suit.
Line 8: Line 8 asks if you expect any increase or decrease in income. In general, it is best not to list any expected increases unless you are certain of the increase. Examples of appropriate increases to include may be the result of new income contracts, notice of court awards or written notice of a salary increase. The IRS may consider your expected increase when calculating your Offer amount, so do not include any amounts that are speculative.
Section 4: Personal Asset Information
Section 4 is extensive and requests information for all personal cash and equity property you own. This includes bank account, credit card and real estate information, as well as life insurance policy information.
Line 11: Report cash you currently have on hand on this line. As the amount of cash you have can fluctuate on a daily basis, report the average amount you normally have on hand.
Lines 12a and 12b: Use these lines to list any checking or savings account you own. If you own more accounts than two accounts, list any additional accounts on a separate sheet of paper and attach it to your Form 433-A. You must provide bank statements to the IRS for all accounts you own. In general, it’s best to list the ending balance shown on the most recent bank statement you provide on Form 433-A so the IRS can verify your Form entries match your supporting documents.
Lines 13a through 13d: Use these lines to report any investments you own, such as stocks, bonds and retirement accounts. Include 401k accounts even if you are not fully vested in the plan.
Lines 14a and 14b: List any credit cards you have with available credit on these lines.
Lines 15a through 15g: Life insurance policies with cash value are reported on Line 15. However, do not include any term life policy information. The IRS is only interested in whole life policies you may have. Whole life policies have cash value and you may have the ability to borrow against the value, while term life policies have no cash value or borrowing options.
Line 16: Report any assets you transferred, gave or sold to any individual or business for less than full value within the past 10 years. The IRS asks for this information to determine if you’ve dumped assets recently to avoid having liquid equity available to repay your debt.
Lines 17a through 17c: Report any real estate you own here. If you do not own any real estate, you must list the address where you live, as well as the name and address of your landlord.
Lines 18a through 18: List any transportation assets you have on these lines. Include vehicles, motorcycles, watercrafts, trailers and campers in this category. If any of these items are secured by a loan, list the note details in this section, including your monthly payment and balance information. You must also include the fair market value for each item. You can find fair market values for free on websites such as Kelley Blue Book (kbb.com) or NADA Guides (nada.com)
Line 19a and 19b: List the type and value of any personal effects you own. Personal effects include furniture, household goods, collectibles and jewelry. When you record the value of your effects, list the estimated liquidation value. An easy way to think of the liquidation value of these items is to estimate what the items would sell in a quick-sell venue, such as a yard sale or auction. Do not list the original purchase price as the value. The IRS does not generally request that you liquidate your personal effects unless you have a lot of luxury effects. The IRS also allows a personal exemption amount of $7,900 for the value of items in this category.
Monthly Income and Expense Statement
This statement is located on page 4 of Form 433-A. In this section, you must list your monthly income and expenses from all sources. If you’re self-employed as a sole proprietor, you must complete pages 5 and 6 of Form 433-A prior to completing the income statement on page 4.
Income: In the income section, report gross wages – the amount you earn before taxes and other deductions are subtracted from your pay. Use the guide in the footnotes below the statement to calculate your monthly gross income based on your pay period. If you receive rental income or are self-employed, report your net income. Your net income equals revenue you receive minus operating expenses.
Expenses: In the expense section, report your regular monthly expenses. Include taxes and other deductions withheld from your pay in the expense section. For several categories, the IRS has collection standards, which are standard amounts the IRS allows for expenses such as food, housing, transportation and out-of-pocket health care costs. For an Offer in Compromise, the IRS generally only allows the standard amounts for these categories. Collection standards can be found on the irs.gov website.
Self-Employed Section: Pages 5 and 6
If you’re self-employed, you must provide basically the same type of information for your business activities that you report for yourself personally. This includes business asset information, such as equipment, revenue streams and accounts receivable information. You must also report the number of employees you have and your payroll frequency.
Submitting Form 433-A
Once you finish preparing Form 433-A, you must compile any documents available to support your entries. Common documents include recent bank statements and paystubs, recent billing statements for expenses, and monthly statements and payoff balance information for any loan accounts.