Form 433B : Chapter 10 – Killer IRS Advice On Preparing
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Key Items To Make Sure Of on your Form 433b
Each numbered section must have a response. If the answer is zero, put zero. If the question is not applicable to your situation, then put N/A for not applicable. Just make sure all items are answered. If you don’t know the answer, then find it! If you can’t then estimate it to the best of your ability.
Do not round off all your answers. The IRS doesn’t want you to guess or even estimate your income and expenses. They expect you to gather source documents to arrive at the numbers you use. You can use this to your advantage, by putting together a group of months that support the lowest monthly payment you want to make.
Purpose of this form- The IRS uses it to see what income is available to make monthly payments for a business agreement, or to be added to the form 433A to increase income . They also use it to see what assets you have and how they can get to it if they need or want to seize it! You will use this form to show them that you don’t have much to give them and why they should accept a low dollar payment plan or an offer in compromise.
Use this form to show income from a business that is not on a W-2, such as shown on a 1099. If your income is on a K-1 and you have expenses against that income (not already included on the K-1), then use this form to deduct those expenses. Always check back to your 1040 income tax return. Sometimes you have business expenses included on a schedule c, form 2106, office-in-home, etc. that you want to make sure is included on the 433B. If the form doesn’t show where to include the expense, just attach a separate sheet of paper.Instructions, The Joe Mastriano, CPA WayEach item is numbered. They are numbers 1-39. Each numbered item must have a response. Use N/A for “not applicable”, zero, or none, as appropriate. Read each numbered item carefully. You will be painting a picture of your ability to pay your tax liability.
1. Name, address, etc. If same as residence, put that address.
2. Employer ID #, if you have one even if you don’t currently have employees. Otherwise put N/A on line 2a. Line 2b is for the type of entity. This can be a sole proprietor incorrectly referred to as a dba (doing business as). Corporations have dba’s too! If you just get paid on a 1099 and don’t really operate a separate business, check other and write “none.” Don’t worry if you are paid on a 1099, or even if you don’t file a 1099 for you income, when it should be correctly reported on a W-2. They need to have the correct picture of your income reporting. Let the collection person tell you how it should be filed. They actually enjoy helping people get into compliance with the correct report filing. I’ve never seen a collection employee use this against the tax payer as one of the reasons for denying an installment agreement. It is rare that they report it to the audit division, in my experience, especially if you start correcting the reporting and tax paying error immediately.
3. Put your name as the contact name or spouse or child. Use whoever will be speaking to the IRS for you. Don’t put your power of attorney, if you assigned one on form 2848 (not 4828), if they are not actively representing you. Otherwise the IRS will call that person. Funny that they ask for an email even though there are no IRS collection employees that contact taxpayers or representatives by email.
4. Always indicate the owner or majority shareholder, even if they delegate the actual banking functions to another employee. Until you’ve resolved who is liable for the trust fund, it’s best not to mention other employees.
5. Same principle as #4. Limit this to owners and someone with signature authority on the bank account. You can resolve missing information later.
6. Be careful here. If you are in a “hostile” situation and feel they will immediately go after your accounts receivable you can leave some out or indicate that you need more time to complete the form. Don’t sign the 433B. If you do, put a comment near your signature that the form is not complete. I’m not suggesting that you do this, but I don’t know anyone that was charged with breaking the law for leaving out their A/R and signing the form. As to contracts awarded but not stated, it is my opinion that an A/R or notes receivable is money actually owed to you, so I always have my clients list accounts from people/businesses that actually owe money on the day that the 433B is signed and dated. This is one sensitive area where people who were trying to represent themselves made the decision to hire me. An experienced professional can keep the IRS at bay and at the same time not get you or the representative in trouble. There’s an art to striking a good balance between collecting A/R and stopping IRS collection action. Good luck. Use page 6 if needed, or attach a separate schedule. Many revenue officers get mad if you leave out the A/R, so expect them to accuse you of hiding them. Of course that is what you are doing when you leave it out (some people just forget or are sloppy preparers of forms), so don’t leave it out unless you are very scared and think that you can collect it within a few weeks. In most cases, if you cooperate with the IRS, especially as I am suggesting in this guide, it is unlikely that they will levy your A/R. Please believe this. Levies come when you miss a deadline the collection person gives you or if you continue to file late returns and make late payments. It is rare for an IRS collection employee to give you a deadline and then issue a levy before the deadline. However, a levy may have been issued prior to your conversation in which you were given a deadline! So always ask “Are there any levies pending now?” Tell them you want to make sure nothing happens before the deadline.
7. Just answer based on what you know, and guess on the amount you don’t know and can’t look up. If you are filing an offer in compromise, or even a payment plan, the bankruptcy question is very important. They must make sure the bankruptcy was dismissed (turned down) or discharged (the plan was accepted and completed) before the IRS can continue your collection case.
8. List your vehicles titled in the company name. Those titled in your personal name get listed on the 433A. If a sole proprietor and you have vehicles used >50% for business list it here. Some IRS collection employees may want it here for <50% use. Don’t sweat this, it’s not that important.
9. Same as #8. for leased vehicles.
10. List real estate titled in the company name. Real estate titled in your individual name is put on 433A. It doesn’t matter if it is used solely in your business. A word of caution here. Let’s say that you have a corporation or LLC and have a vehicle or real estate used 100% for business, but titled in the personal name. It is not a business owned asset! Even though you put it on the corporate return and depreciate it, it is still a personal asset for IRS collection purposes. Do not be intimidated. This comes into play mainly if you are liquidating your corporation. Personal assets can only be seized to offset personal liabilities. That is IRS liabilities on your IMF account under your social security number. Mostly made up of form 1040 personal income tax and trust fund tax.
11. Same as #8 . Be careful to list your payment and final dates throughout this form.
12. Does the company have investments? Personal investments go on the 433A
13. List the company’s separate accounts. I would show the balance after all outstanding checks are cleared. Otherwise the IRS wants this money. It will also increase the offer amount if doing an offer. This is another area often argued by a representative. If you want the IRS to use a lower amount, you will need to show that you always have people who don’t cash their checks right away. You then show that if they cashed their checks each month, the balance will always be lower.
14. List other accounts you have. Remember you will be asked to give this money to the IRS before they even consider the monthly payment plan. So if you want to keep the interest and penalties down, then liquidate your accounts and pay them off. On the other hand, if you feel that you won’t be able to pay the monthly amount they will request, then cash in some of your accounts and don’t list them. If they ask about it, you can say (if you actually did) that it went toward your basic living expenses. Again, this is a big negotiation area. Don’t get greedy here. Obviously an account that has a lot more money than what could pay your living expenses should be used partially for that, and the rest to pay toward your tax liability. Don’t try to hide things from the IRS. Once you agree that you owe the money (with any pending adjustments that will be made later), it’s best to pay them off as soon as possible. Make sure your record of account for each liability period is cleared, and be done with the collection division of the IRS! The only reason to try to “hold back” is to use money to pay the monthly amount that the IRS wants you to pay. This is just in case you are short each month. For example…. You feel that the most you can pay is $700. per month. The IRS says you should pay $1,000. This is an extra $300. per month or $3,600 per year. Instead of fighting, going to the manager, filing an appeal, contacting the taxpayer advocate, etc., it’s a lot easier to have back up money to use to make up the monthly difference. You can always turn down the overtime work, or taking on extra clients, till after the payment plan is approved.
I have clients with a company that no longer could allow them to work as much or be paid as much as in the past. They got letters from their employers to say that they could not provide them the level of employment that they did in the past so their salary will be less from now on. These were lucky people. Their agreements or offers were accepted for less or their payment plans were approved with lower payment amounts. Once accepted, some of them even went on to make more money!
15. I always felt that it was best to keep as little money on hand as possible.
16. If you have available credit, the IRS may expect you to tap this source. Not a bad idea. The interest rates will usually be less than the IRS’s interest plus penalty rates.
17. Fill in the period you are using. If showing one month of income and expenses below, put the monthly period here. If you are using more than one month, cross out the words “gross monthly” and “actual monthly” below, and write in the period. For example….3 months or 1 year. When you finish line 39, you will subtract line 39 from line 26 and divide it by the number of months in the period you are using. Then carry that amount to form 433A if you are submitting that. This difference should be the income minus expenses you have available each month.
18-39. Instead of trying to fit your whole income statement here, you can just write “see attached”. Remember to make sure your bank statements and receipts reflect this, or you will have a lot of explaining to do later. Better to explain now and steer the IRS to your way of thinking.
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