IRS Form 433-A Explained – 2023 Updates
IRS Form 433-A Explained - 2023 Updates
The IRS tax form 433-A is a piece of documentation that allows the IRS to determine the amounts a taxpayer can afford to pay when they file their tax return.
TABLE OF CONTENTS
Key Takeaways:
- The IRS Form 433-A is a Collection Information Statement for Wage Earners and Self-Employed Individuals that is used by wage-earning employees or self-employed taxpayers to help them determine their outstanding tax liability and their ability to pay.
- Individuals are considered self-employed and must fill out Form 433-A if they are the sole member of a business that carries on a trade or service as an independent contractor or sole proprietor.
- The regular tax form 433-A is the long version of the form that allows the IRS to determine how much of a person’s tax liability they can reasonably afford to pay. Form 433-A OIC is the version of the Collection Information Statement that is used to specifically request an offer in compromise.
- The seven sections of form 433-A include personal information, employment information for wage earners, other financial information, personal asset information, monthly income and expenses, business information, and sole proprietorship information.
What Is IRS Form 433-A?
The IRS Form 433-A is a Collection Information Statement for Wage Earners and Self-Employed Individuals that is used by wage-earning employees or self-employed taxpayers to help them determine their outstanding tax liability and their ability to pay.
The type of information that can be collected within this form includes a taxpayer’s financial status, assets, and accumulated debts they may owe. Using the information listed on Form 433-A, the IRS determines whether the taxpayer can reasonably satisfy their tax liability.
Purpose Of IRS Form 433-A
The purpose of IRS form 433-A is to determine the “reasonable collection potential” on an individual’s tax debts when they apply for an offer in compromise. The form is six pages long and asks detailed financial questions to help evaluate a settlement amount that still allows the taxpayer to afford their required living expenses.
What Information Is Included On IRS Form 433-A
Some of the information that must be listed on IRS Form 433-A to help determine the worker’s ability to pay their tax liability includes:
- Personal Information
- Employment Information
- Personal Asset Accounting
- Business Asset Accounting
- Monthly Household Budget
Who Is Responsible For Filling Out IRS Form 433-A?
The taxpayers who may need to complete the 433-A tax form include:
- Individuals who owe income tax on IRS Form 1040
- Individuals who are responsible for a Trust Fund Recovery Penalty
- Individuals who are personally responsible for a partnership liability
- Individual owners of a limited liability company that is considered a disregarded entity
- Individuals who are self-employed or earn self-employment income.
Which Individuals Are Considered 'Self-Employed?'
Individuals are considered self-employed if they are the sole member of a business that carries on a trade or service as an independent contractor or sole proprietor. These individuals will need to fill out IRS Form 433-A when they file their tax returns.
Types of IRS Form 433-A
There are two main types of IRS Form 433-A that have slightly different uses by the IRS in determining tax liability:
1. Tax Form 433-A
The regular version of IRS Form 433-A is a long-form example of the Collection Information Statement. This version of the form allows the IRS to determine how much of a person’s tax liability they can reasonably afford to pay. This version of the form is much longer than Form 433-A OIC.
2. Tax Form 433-A OIC
The tax form 433-A OIC is the version of the Collection Information Statement that is used to specifically request an offer in compromise. While this version of the form collects similar information to the regular tax form 433-A, the OIC-specific version is shorter.
What Is An Offer in Compromise?
An offer in compromise (OIC) is a form of tax relief in which the IRS agrees to settle an eligible person’s tax debt for less than what was initially owed. In order to qualify for an OIC, the taxpayer must be unable to pay the full amount of their tax debt, and they must meet certain eligibility requirements, such as having filed all required tax returns and having made all required estimated tax payments.
IRS Form 433-A Main Sections
An offer in compromise (OIC) is a form of tax relief in which the IRS agrees to settle an eligible person’s tax debt for less than what was initially owed. In order to qualify for an OIC, the taxpayer must be unable to pay the full amount of their tax debt, and they must meet certain eligibility requirements, such as having filed all required tax returns and having made all required estimated tax payments.
Section 1: Personal Information
Within the first section of IRS form 433-A, taxpayers must fill in information about themselves and their household. Some of the details that must be included are their marital status, whether they own their home or rent, who lives with them, their home address, date of birth, contact information, and Social Security number.
Section 2: Employment Information
The second section of Form 433-A is where, if you are a wage earner, you must list the name of your employer as well as your occupation. Married taxpayers must also provide this employment information about their spouse within section two.
Section 3: Other Financial Information
In this section, taxpayers must list any other relevant financial information, such as if they are a beneficiary of someone’s insurance policy, trust, or will. This section is also where they will list if, within the past 10 years, they have filed for bankruptcy, and if so, what the outcome was. Furthermore, if the taxpayer has been involved in any lawsuits, owns real estate in a foreign country, or transferred assets for which they did not receive full compensation, this information will be listed in section 3.
Section 4: Personal Asset Information
The third section of IRS form 433-A requires the taxpayer to summarize all of their personal assets.
Bank Accounts
Be sure to include the name of your bank, the address of your local bank branch, your account numbers, and the current balances of your accounts. Within the bank account section, taxpayers should also include information about how much money is in their checking, savings, and money market accounts, such as PayPal, Venmo, CashApp, and Cryptocurrency. Taxpayers must also provide information about any cash they have stored that is not currently in a bank account.
Investment Assets
The types of investment assets that must be listed within this section of IRS form 433-A include bonds, stocks, mutual funds, annuities, time deposits, IRAs, and 401ks.
Credit
Section 3 of form 433-A is where taxpayers must also report any credit that is available to them, including the name, address, credit limit, and current credit card balances and unsecured lines of credit they have.
This does not include mortgages and car loans.
Life Insurance
Section 3 also requires taxpayers to report the cash value of their whole life or universal life insurance policies. If they have a term life insurance policy, this will not have to be reported, as that type of life insurance plan will not accumulate cash value.
Vehicles
Taxpayers must list information about all vehicles they own, including the make, model, model year, mileage, loan balance, purchase date, lender, and monthly payment amount. The types of vehicles that can be listed here include all trucks, cars, vans, trailers, motorcycles, and boats. This includes vehicles that are either leased or purchased.
Keeping a record of the fair market value of the vehicles and what the approximate market value may be based on the condition of the vehicles can also be helpful when it comes time to fill out IRS form 433-A.
Real Estate Property
Taxpayers must list all information about their house and real estate properties, including the mortgages, home equity lines of credit, and potentially the appraisal of the properties. Keeping details of the condition of the property is also helpful.
Other Personal Assets
Lastly, section 3 allows taxpayers to list all of their other personal assets, such as artwork, jewelry, and furniture.
Section 5: Monthly Income and Expenses
Section 5 allows taxpayers to describe their monthly household income and related living expenses. Supporting information for this section can be found on Social Security stubs, copies of alimony or child support checks, and annuity or pension statements.
Section 6: Business Information
Self-employed individuals must complete sections 6 and 7 of IRS form 433-A. Taxpayers do not need to have a partnership or be incorporated into another business structure. As long as they are a business owner or sole proprietor, they must fill out this section.
This section will also include assets that are held under the name of the business, such as equipment, tools, computers, or real estate.
Section 7: Sole Proprietorship Information
Under section 7, self-employed individuals that work under a sole proprietorship entity must detail the business’s gross revenue and receipts. Additionally, they must itemize their business expenses.
For more information about the IRS tax forms you must complete when you file your taxes this year, consult a tax professional at Ideal Tax for guidance throughout the tax filing process.
