Form 433-A & 433-F: How the IRS Decides Your Ability to Pay
December 10, 2019
Tax debt is nothing to brush off, especially when you owe an outrageous amount. If you can’t afford your tax debt, the IRS must decide if – and how – you’ll be able to pay. What does the IRS use to make that decision? You guessed it – tax forms. In this case, the IRS uses forms like Form 433-A or Form 433-F to determine if an agreement is in your future.
How to Start Tackling Your Tax Debt
The first step toward federal tax debt relief is to contact the IRS. This can be as simple as picking up the phone to give them a call, just be prepared for wait times. You can also use a tax debt relief company to contact the IRS on your behalf. Although you can deal with your tax debt on your own, hiring a professional service can help you reach a better resolution quicker, easier, and with less stress.
Whether you go DIY or professional with your tax relief help, the IRS agent who ends up working on your case will determine what the next steps look like for you. While the IRS will need to investigate your payment ability next, how they do that will vary depending on your situation.
What the IRS Considers for Your Payment Ability
To figure out how much you can reasonably pay your owed federal income tax, the IRS must have certain financial information about you. This includes:
- Any assets that you can take a loan against (e.g. house, other property, etc.)
- Any asset such as your car, boat, or house that you can sell to pay the tax debt
- Property that is yours but is held by someone else, including funds in bank accounts, retirement accounts, and trust funds
To gather this information, the IRS will ask you to send them a form, which could be Form 433-A, 433-B, or 433-F.
How Do You Know Which Form to Use?
It’s a headache that the IRS has so many different forms that all seem to serve the same purpose. The good news is that you don’t really need to deduce which form you’ll need. At the end of the day, the IRS will determine the form they require from you.
However, it’s always good to be knowledgeable about the form you’re filling out and why. Let’s look at these three forms and note the differences between them.
IRS Form 433-A is used for both those who are self-employed and those who earn wages. If your IRS case is assigned to a Revenue Officer, they’ll likely require you complete Form 433-A.
You may deal with a Revenue Officer if you have more $250,000 in tax debt owed, you’ve mixed business and personal expenses, or you have payroll tax debt. However, Revenue Officers can still be assigned to cases without any of those characteristics.
Form 433-A is six pages long and requires a good amount of information. The information you’ll need to provide includes:
- Your name, social security number, driver’s license number, and date of birth
- Your employment information
- Any impending lawsuits, trust funds, or life insurance policies
- Any personal assets (e.g., vehicles, bank accounts, real estate)
- Business assets and gross monthly business income or expenses for those who are self-employed
- Paycheck stubs, bank statements, and credit card statements
- Monthly 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 for monthly living expenses. 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 fees
Variation with a Purpose: Form 433-A (OIC)
If you’re interested in applying for an Offer in Compromise (OIC), you’ll need to complete Form 433-A (OIC). This form is included in the IRS Form 656 Booklet, which is used to submit a personal Offer in Compromise to the IRS. It requires much of the same detailed information as Form 433-A, but is geared specifically to get information for the IRS to consider an OIC.
If your business owes taxes to the IRS, then you’ll need Form 433-B. Form 433-B is also generally required if your case has been assigned to a Revenue Officer.
Much like Form 433-A, Form 433-B is six pages long and requires detailed accounts of your finances. The business information you’ll need to provide on Form 433-B includes:
- Your business’s name, date of establishment, type, number of employees, internet sales, and contact information
- Key individuals in the business (partners, board members, or major shareholders) and their phone numbers and social security numbers
- Any impending lawsuits, debts owed, or bankruptcy proceedings
- Business bank accounts, available credit, vehicles, total cash in banks, and other assets and liabilities
- Business’s total monthly income and expenses
If you don’t own a business that has federal tax debt, you won’t need to worry about Form 433-B.
Form 433-F is the most commonly seen collection information statement. The IRS usually uses 433-F to determine eligibility for payment plans or Currently Non-Collectible status. If your case is assigned to the IRS Automated Collection Service, you’ll likely be required to fill out Form 433-F.
Form 433-F is a simplified version of Form 433-A, with only two pages. There are fewer questions to answer. The information you’ll need to provide on Form 433-F includes:
- Contact information and social security number
- Bank accounts, lines of credit, and mutual funds
- Real estate and other assets (e.g., cars, boats)
- Credit cards owned and amount owed
- Business information if you own a business
- Employment information and non-wage household total income
- Monthly living expenses
Quick Reference Guide
No matter which form the IRS needs from you, one thing’s for sure: they’ll need some serious documentation to support the financial information you provide. Although there is certain information they can verify internally using your previous tax returns, it’s still in your best interest to have proof of all the financial information you provided. Even if the IRS doesn’t request those documents, you’ll be ahead of the game if you have everything ready to go.
Fresh Start Initiative
Based on your financial statement given through any of the forms above, 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 one of the financial statements detailed above.
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.
Don’t go at it alone.
How to Make IRS Payments for Your Taxes
September 26, 2019
It’s 2019, but the IRS won’t accept your Bitcoins, 3-D printed money, or Venmo. When you owe after filing tax returns or have back taxes to deal with, you to have to make IRS payments with actual money, but how?
The IRS ensures there are multiple ways to pay them back. While you can go through the hassle of making an appointment at your local Tax Assistance Center to pay in cold hard cash, there are easier ways to pay up without having to leave the house.
Electronic payments are the most popular and preferred payment method, used for 89 percent of returns in 2018. But if you’re a taxpayer who prefers to pay offline, you’ve got choices, too.
Review these payment options to figure out how to make IRS payments that work for your financial situation.
The 4 Easiest Ways to Make IRS Payments
1. IRS Direct Pay
For making payments to the IRS as an average taxpayer, one simple method is IRS Direct Pay.
IRS Direct Pay can be used for filing individual tax bills or making estimated tax payments directly from your checking or savings account to the IRS. This feature has the added advantage of being free of charge.
To use Direct Pay, you need to have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN).
While you can use IRS Direct Pay to make an online payment on your regular web browser, you can also use Direct Pay on the IRS2Go app on your mobile device. You can find the free IRS2Go mobile app on Google Play, the App Store, or Amazon.
If you request it, you will get a confirmation notification via email as soon as you make a payment using Direct Pay. The bank account information you provide is not stored in the IRS systems.
Direct Pay does have some limitations. It is only available Monday through Saturday from midnight to 11:45 p.m. ET and Sunday from 7 a.m. to 11:45 p.m. ET.
The system for Direct Pay does not save your information, so you’ll have to re-enter everything if you return to make another payment. You also cannot make more than two payments within a 24-hour period.
2. Electronic Federal Tax Payment System (EFTPS)
Another secure payment method offered by the government is the Electronic Federal Tax Payment System (EFTPS). Both businesses and individual taxpayers can use EFTPS to pay their taxes.
You must have a secure Internet browser with 128-bit encryption to access the EFTPS website. To log on and enroll, you must have the following three items:
- EIN or SSN
- EFTPS Personal Identification Number
- Internet Password
Once you enroll, the EFTPS system will save your information so it’s easier to make payments in the future.
For payroll taxes, businesses must use EFTPS for deposits. Otherwise, you could be penalized.
EFTPS is highly suggested for large payments. Using EFTPS, you can make income tax payments, employment tax payments, and estimated and excise tax payments.
This payment method is free to use, and you’ll receive confirmation emails with every transaction you make. Another similarity to Direct Pay is that you can cancel or edit payments up to two business days before the scheduled payment date.
The site is available 24/7 and can be accessed via computer or smartphone. Additionally, you can schedule payments for up to 365 days in advance.
3. Payment by Check or Money Order
Not a fan of paying online? You can pay via mail with a check, money order, or cashier’s check made payable to the U.S. Treasury.
Make sure to include the following information on your check, money order, or cashier’s check:
- Your name
- Social Security number
- Daytime phone number
- Tax year
- Tax form or tax notice number
You’ll want to send this form of payment along with a completed Form 1040-V. Don’t staple or paperclip the check or money order to this form.
Be sure to mail both the form and payment method to the address that corresponds to your state listed on Form 1040-V.
4. Payment by Credit or Debit Card
To process payments made by debit or credit cards, the IRS uses standard service providers and business/commercial card networks. The three payment processors they use are PayUSATax, Pay1040.com, and Official Payments.
The provider will charge a fee, which varies based on the service provider used. This processing fee may also be tax-deductible depending on your situation. No part of the service fee goes to the IRS.
Keep in mind that you usually can’t cancel payments made by debit or credit card.
Not all tax forms are payable this way and some higher tax debts may require some extra coordination with your provider. However, it’s an easy way to settle your tax debt and gain some quick peace of mind.
What to Do If You Can’t Make Your IRS Payment
If you aren’t able pay the IRS for any reason, you’re not out of options.
You may be able to qualify for an IRS installment agreement. This payment plan would allow you to make regular payments that are more affordable for you than your entire balance at once.
Depending on your circumstances, you also could be eligible for an Offer in Compromise, which could let you settle your tax debt with the IRS for less than you owe.
To figure out what options you qualify for, contact us. One of our tax professionals can help you find the best tax debt relief solution for your situation.
How Virtual Money Can Cause Real Tax Damage: What to Know About Bitcoin Taxes
October 10, 2018
Bitcoins: they’re so hot right now. You’ve heard all about this type of cryptocurrency (or virtual money) investment. People are raving about how much Bitcoin value has grown since its start. They can’t stop talking about how this interesting cryptocurrency phenomenon could be changing our economic landscape. Amidst all the sensationalized information about Bitcoin, there’s one thing that has gone unspoken for too long: Bitcoin taxes. Here’s what you need to know about these wild digital coins and what implications they could have for your taxes.
What is a bitcoin?
Bitcoins are a virtual currency, which means there are no physical bitcoins. You can use bitcoins to pay for goods or services or to hold as an investment. Bitcoins operate on a peer-to-peer exchange system. This involves using computers to track and log details of every transaction. Like any cryptocurrency, bitcoins are not issued or backed by any banks or governments, so transactions allow users to remain anonymous. Even though it’s not legal tender per se, Bitcoin has seen huge surges of popularity and sparked the creation of other forms of cryptocurrency.
How much is a bitcoin worth?
When bitcoins first came out in 2009, they were worth next to nothing. The first price increase happened in 2010 when bitcoins jumped from $0.0008 to $0.08 for a single bitcoin. Since then, its price and trading history have been very volatile. Most recently, it has seen a high of $17,900 per bitcoin in Dec. 2017, which was followed by a quick, dramatic decrease to $5,900 in Feb. 2018. Upon publishing this blog post, bitcoins are at about $6,500. The current price can be found here.
So why does the IRS care about bitcoins?
Bitcoin’s burst in popularity has lead to an explosion of billions of dollars in wealth. And the federal government is concerned that they’re not getting their cut. So in 2014 after a huge Bitcoin value hike, the IRS announced that they view bitcoins as property, which means that any tax rules that apply to property transactions also apply to transactions involving Bitcoins.
Interestingly enough, only 802 tax returns of the 132 million filed electronically in 2016 reported cryptocurrency income. So there are many people dabbling in bitcoin who are not reporting these transactions to the IRS. The federal government is not pleased and is determined to regain any Bitcoin taxes.
Why should I care about Bitcoin taxes?
In 2017, the IRS went after Coinbase, Inc., a large “digital wallet” company that allows users to buy, sell, and transfer Bitcoin. The court ruled that the IRS could gather data on all 14,355 Coinbase, Inc. customers. Since only 802 electronically filed tax returns in 2016 reported cryptocurrency, the majority of those 14,355 customers didn’t report their bitcoins. With this data in hand, the IRS will be following up with any Coinbase customers.
What could happen if I haven’t paid taxes on my bitcoins?
If you were a Coinbase customer and you haven’t paid taxes on your bitcoins, you should expect a letter in the mail from the IRS (if you haven’t gotten one already). This letter could be a notice of deficiency, to inform you that you haven’t paid enough on your taxes because of your bitcoins.
The IRS wants what they’re due. Besides looking to regain any Bitcoin taxes, they are also trying to find intent to prove tax evasion in people who didn’t report their bitcoins. And if they find you guilty of tax evasion, you could end up in jail. And while Bitcoin may be trendy right now, prison stripes are never cool. So make sure you pay back the IRS what they’re owed and continue to correctly report your bitcoins and other cryptocurrencies.
The moral of the Bitcoin taxes story
Just because your money is virtual doesn’t mean it’s free from taxes – or from the eyes of the IRS. The federal government wants more compliance but may run into issues taxing all bitcoin gains since lots of trading is done on overseas exchanges. Still, reporting on your cryptocurrency isn’t optional. There may not be the same regulation around reporting on bitcoins as there is around reporting stock sales, but it’s still the same concept. It’s still income and as such, the IRS needs to know about it.
If Bitcoin taxes have you scratching your head, you can always consult a tax professional who has experience with cryptocurrency to help you figure out the next steps.
The Top 5 Ways to Pay IRS Tax Debt in Full
July 20, 2018
Taxes are a sure thing if you live in the U.S. And when you owe Uncle Sam money, it can make a ding on your finances – and everyday life. That’s why if you owe, you must pay IRS tax debt ASAP.
Thankfully, the IRS offers several programs and services that help taxpayers that owe them money. The method you choose will depend on your specific situation with the IRS. Knowing what to do isn’t always easy. First, analyze your situation and organize all of your financial documents. From there, you can determine if one of these payment methods applies to your situation.
The top 5 methods to find a way to pay IRS tax debt:
1. Repay the full tax debt amount
The fastest and most efficient way to repay the debt you owe to the IRS is to pay the complete amount you owe. This is not an option for many who owe the IRS, which is why the IRS provides other programs and services to make paying your debt possible. Speak with a tax professional to see which IRS payment agreements you may qualify for.
2. Sell your assets (before the IRS takes them)
You may have to say goodbye to your yacht or untouchable sports car if you owe the IRS. By selling assets, you can apply the funds to pay IRS tax debt. Do this as soon as possible before the IRS issues a lien. A lien will make it more difficult to sell your property if you wait too long.
3. Withdrawal from your investment accounts
Do you have any investment accounts like a pension or 401k? If so, you could make an early withdrawal to pay off your debt. If you opt for this route, make sure you pay taxes on the withdrawn money or you could owe the IRS all over again.
4. Dip into property equity
Depending on the housing market, it may be difficult to take out a home equity loan or to refinance. If it makes sense for your situation and the market climate, applying home equity funds can be a viable method for paying your tax debt.
5. Use a credit card or bank loans
Using credit cards or bank loans may seem like merely trading one debt for another. However, the interest rate on credit cards and bank loans tend to be less than IRS interest and penalties.
Don’t wait until the letters pile up
When the IRS sends you a notice to demand federal payment, it’s time to kick it into gear. The IRS wants you to fully pay the debt within 10 days of the notification. This is doable via any of the five methods above to repay your tax liability. If you’re unable to use these resources or have a tax debt amount that you know you can’t pay, a tax professional can negotiate with the IRS on your behalf to reach an agreement. Don’t wait until your next notice letter hits the mailbox to pay IRS tax debt in full!