To assess your financial situation, the IRS asks you for a financial statement Form 433-F. Using this, the agency determines your ability to pay. If you owe 50,000 or more in taxes and choose an Installment Agreement, apply for tax debt reduction or for Currently Not Collectible status, the IRS will ask you to submit Form 433-F.
A financial statement includes details from your:
- Checking account, savings account, online accounts (PayPal), IRAs, 401(k) plans, profit sharing plans, etc.
- Real estate such as home, vacation property, timeshares, vacant land and other real estate.
- Other assets such as cars, boats, recreational vehicles, whole life policies, etc.
- Credit cards
- Business information
- Employment information
- Non-wage household income, and
- Monthly necessary living expenses
Pros of Financial Disclosure
If you apply for tax debt reduction (Offer in Compromise or Partial Payment Installment Agreement) and you do not have sufficient income and assets, sharing your financial information will help you to prove to the IRS that you cannot afford to pay your full tax debt.
Sharing your financial information also proves advantageous if you apply for Currently Not Collectible (CNC). If you do not have any income sources or assets to pay off any amount of your tax debt, the IRS will have no option but to suspend all collection activity.
Cons of Financial Disclosure
Providing a financial statement can be disadvantageous if you wish to pay your tax debt in installments. If the IRS finds that you have sufficient income and assets to pay your tax debt in full, they may not accept your request for an Installment Agreement.
The IRS endeavors to collect back taxes as quickly as possible. At the same time, taxpayers may want to pay their back taxes over an extended period. Sharing financial information puts the IRS at an advantage where they can instruct the taxpayer to pay more in monthly installments or even pay the entire debt in one payment.
By considering your ability to pay, and the payment plan you wish to qualify for, you can determine the practicality of completing a financial statement. Careful planning can ensure that you resolve your tax debt in a way that benefits you the most.