IRS Form 433-A: Instructions & Purpose of this Information Statement
IRS Form 433-A, which is formally entitled “Collection Information Statement for Wage Earners and Self-Employed Individuals,” is an IRS document that is required in some situations where an individual owes Federal income tax that he or she cannot pay in full. By filling out Form 433-A, and sometimes Form 433-B, the IRS obtains detailed, current financial information about an individual. The may use it to determine if there is sufficient income to support a monthly payment with an Installment Agreement, what assets are available to be levied, or if an Offer in Compromise should be accepted. The IRS may require individuals who work a traditional job, as well as self-employed individuals, to complete Form 433-A. Generally, if an individual has non-w2 income, business assets, liabilities and expenses, then they must fill out Form 433-B. In certain situations, the IRS may even require 433-F. Generally, if you fill out form 433-A (and 433B) you can just transfer the information to 433-F.
Completing Form 433-A
All individuals must complete the first four sections of Form 433-A, whether they are traditionally employed or self-employed. If a husband and wife jointly owe the unpaid taxes, both spouses must complete the form.
Section 1: Personal Information
Section 1 requires an individual to provide personal information such as address, social security number, date of birth, and driver’s license number. This information advises the IRS of basic contact and identifying information regarding the individual.
Section 2: Employment Information
Section 2 asks for employment information about the taxpayer and his or her spouse. This information allows the IRS to assess an individual’s current household income.
Section 3: Other Financial Information
Section 3 requires that an individual provide other financial information, including documentation where requested. For instance, Section 3 asks if the individual is party to a lawsuit, or if the individual is the beneficiary of a trust, estate, or life insurance policy. The purpose of Section 3 is to help the IRS find out whether the individual has any source of assets or future income with which to pay the outstanding tax debt.
Section 4: Personal Asset Information for All Individuals
Section 4 requires an individual to provide the IRS with detailed information about any personal assets, such as vehicles, real estate, bank accounts and investments. Section 4 also requires taxpayers to complete a monthly income and expense statement, which sets up a side-by-side comparison of your income and living expenses for the IRS to evaluate. Finally, the taxpayer must sign at the end of Section 4, and certify under the penalties of perjury that the information provided in the form is true. If the tax is owed jointly, both husband and wife must sign the form.
Form 433-A requires that individuals provide documentation of certain income, assets, and expenses for the three months prior to completing the form. Examples of required documentation include paycheck stubs, invoices and other records for self-employed individuals, bank statement, investment account statements, loan account statements, credit card statements, bills documenting monthly living expenses, and a copy of the previous year’s income tax return.
Sections 5 and 6: Business Information and Sole Proprietorship Information
An individual need only complete Sections 5 and 6 of Form 433-A if he or she is self-employed. Section 5 requests detailed information about the taxpayer’s business, including the balances of business bank accounts, outstanding accounts receivable, and other business assets. Section 6 requires an individual to give an accounting of gross monthly business income and expenses, in order to illustrate the current financial status of the business and measure its profits, if any.
Using IRS Form 433-A
The first step for resolving an unpaid federal income tax bill is to contact the IRS, who is likely to require the completion of IRS Form 433-A. Whether an individual is requesting a payment plan for your unpaid tax debt, or asking for a temporary delay in paying your debt, the IRS will need the information reported on Form 433-A in order to evaluate the request and make a decision.
An installment agreement divides a person’s tax debt into smaller, more manageable payments. Typically, the installment agreement requires equal monthly payments that will allow a tax debt to be paid in full within the period of time during which the IRS still can collect the debt. The IRS generally has ten years in which to collect a tax debt.
In some cases, an individual cannot pay the tax debt in full within the IRS collection time frame, but can pay some of the debt owed. The IRS may permit an individual in this situation to enter into a partial payment installment agreement, which will satisfy at least a portion of the outstanding tax debt.
The IRS will determine whether an individual qualifies for an installment agreement or partial payment installment agreement based on the information contained within Form 433-A. The amount of an individual’s monthly installment payments depends upon the amount of the tax debt and the individual’s ability to repay that debt within the IRS collection period.
If an individual is completely unable to make payments of any time toward an unpaid federal tax debt, the IRS may grant a temporary delay in the collection process. During this period of delay, the IRS will add interest and penalties to the outstanding tax debt, and the ten-year collection period also will be extended by the same period of time as the delay in collection. In order to determine whether an individual is entitled to a temporary delay in debt collection, as well as the length of that delay, the IRS considers all of the information that the individual provides on Form 433-A.
Another option for taxpayers who cannot pay their tax liability in full, or through a traditional installment agreement, is the offer in compromise. Under federal law, the IRS has the authority to compromise a tax debt, or to collect an amount that is less than the full balance due in certain situations. The IRS can grant a taxpayer’s request for an offer in compromise by permitting the taxpayer to enter into one of the following payment arrangements:
- a partial lump sum payment, or five or fewer installment payments
- a short term periodic payment, to be paid over a period as long as 24 months, or
- a deferred periodic payment, to be paid within the ten-year collection period.
For example, the IRS can compromise an unpaid tax bill if there is a doubt as to the collectibility of the entire bill. The IRS also can compromise a tax debt in order to promote effective tax administration, in that the taxpayer has demonstrated an economic hardship or other special circumstances that renders the taxpayer unable to pay the entire bill. If a taxpayer is basing a request for an offer in compromise on one of these reasons, then the IRS requires the taxpayer to complete Form 433-A. The information provided on this form allows the IRS to make a decision as to the taxpayer’s request for an offer in compromise, and to determine the repayment arrangements available to the taxpayer pursuant to an approved offer in compromise.
In summary, IRS Form 433-A is a necessary tool for taxpayers who find themselves with federal tax debts that they are unable to pay when due. The IRS will require taxpayers to complete IRS Form 433-A (sometimes 433-F) when requesting an installment payment agreement, a temporary delay in the IRS collection process, or an offer in compromise in certain circumstances. By using the financial information provided on Form 433-A, the IRS can determine the appropriate remedy for the taxpayer who is experiencing difficulty in satisfying a tax liability.