Determining Your Ability to Pay Outstanding Taxes

When a taxpayer is found to have paid fewer taxes than required by law, the IRS seeks to collect the amount of unpaid monies plus any additional penalties. However, in certain circumstances such as when a taxpayer is financially unable to pay the full amount owed, the IRS will agree to an offer in compromise (using Form 656), in which a taxpayer settles their debt with the IRS for a lower amount than they actually owe.

Also known as the “Collection Information Statement for Wage Earners and Self-Employed Individuals,” tax Form 433-A is used by the IRS to determine an individual’s budget and ability to pay an outstanding tax liability. The IRS uses the information provided on this form to calculate the amount they are willing to accept based on your situation. Usually, this means the greatest amount you can pay without creating financial hardship.

Form 433-A includes information on:

  • Personal and/or business bank accounts, even if they are empty.
  • Investments.
  • Available credit, such as from a MasterCard or Visa credit card.
  • Real estate holdings, including properties you own or lease, the amounts of monthly payments, and amounts owed.
  • Personal vehicles including owned and/or leased cars, trucks, RVs, boats, and others.
  • Business assets like machinery, equipment, or other supplies not covered in the personal assets sections.
  • Personal assets like valuable family heirlooms, jewelry, artwork, coin collections, etc.
  • Personal and business income
  • Living expenses, including food, clothing, housekeeping supplies, and more.

You may need to use Form 433-A if you are:

  • Self-employed
  • Responsible for a Trust Fund Recovery Penalty
  • Personally responsible for a partnership liability
  • The owner of an LLC that’s considered a disregarded entity, meaning you and your LLC are considered to be the same entity for tax purposes, but not for liability purposes.

The form must be filled out differently depending on whether you are a wage-earner or self-employed. It’s important to make sure the form is filled out completely and correctly when you submit it to the IRS so you can avoid delays in the resolution of your account, especially considering the fact that interest and penalties continue to accumulate during the process. An incorrect form could also mean that the IRS doesn’t get an accurate picture of your financial situation, leading them to believe you’re able to pay an amount and on a schedule that is not economically viable.

For more information on properly filling out and filing Form 433-A, offers in compromise, or to speak with Steven Klitzner, contact Florida Tax Solvers today.

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