Tax debt is nothing to brush off, especially when you owe an outrageous amount. If you can’t afford your tax debt, the IRS has to decide if – and how – you’ll be able to pay. This post will tell you how the IRS uses Form 433-A to determine if an agreement is in your future.
When you apply for a payment plan such an installment agreement, Offer in Compromise, or Currently Not Collectible status, The IRS asks you for a financial statement with Form 433-A. This form provides information about your total income and assets. The IRS uses this information to determine your ability to pay.
What the IRS considers for your payment ability
- Any assets that you can take a loan against (e.g. home),
- Any asset such as your car, boat, or house that you can sell to pay the tax debt, and
- Property that is yours but is held by someone else, such as funds in bank accounts, retirement accounts, etc.
Information to include on Form 433-A
- Your checking, savings, online (e.g. PayPal) financial accounts
- Your stored value cards (e.g. payroll card, child benefit card)
- Stock, bonds, mutual funds, and other investments
- Available credit on credit cards
- Your gross monthly wages and/or salaries without deductions, or net business income
- Any real estate, vehicles, and personal assets
- Current market value of your assets
If you’re self-employed, you must disclose your business bank accounts and business assets with the IRS.
Allowable Living Expenses
Though the IRS has to leave you enough money to live (per the allowable living expenses), the agency will review your specific financial needs. There is a place on Form 433-A for you to include necessary total living expenses, including:
- Food, clothing and miscellaneous
- Housing and utilities
- Vehicle ownership and operation
- Public transportation
- Health insurance
- Out-of-pocket health care costs
- Court ordered payments
- Current year taxes
- Secured debts
- Other expenses such as student loans, unsecured debts, and tuition fee.
Fresh Start Program
Based on your financial statement, the IRS determines your ability to pay and decides whether to approve your application for a payment plan or not. Under the Fresh Start Program, the IRS may not ask for a financial statement if you owe $50,000 or less in tax debt and apply for an Installment Agreement. For tax debts that are greater than $50,000, and to request a tax debt reduction, you will need to provide the IRS with a financial statement (Form 433-F).
If you’re unsure if you qualify for any IRS debt repayment programs or forgiveness programs, our licensed tax professionals can review your specific situation to see if you qualify. We work with the IRS on your behalf, so you don’t have to navigate the complex tax laws alone.