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Steps for Completing IRS Offer in Compromise Form 433-A, OIC
To apply for an Offer in Compromise, there are forms that must be completed and remitted to the IRS for review and processing. Along with these forms are a series of documents which must be submitted with this form 433-A, OIC to substantiate the information you provided on these forms.
If you are applying as an Individual you will need to complete Form 433-A, OIC. This form has a series of sections which must be completed and without supplemental pages, comes to around eight pages total.
We do suggest obtaining the help of a Certified Tax Resolution Specialist to assist you in completing this form as it must be done correctly in order for your Offer to be reviewed and processed. Failure to complete this form in its entirety could cause your Offer to be returned or rejected.
What Is an Offer in Compromise?
If you owe a large debt to the IRS or State, and it is unlikely that you will ever be able to pay the debt in full, you may be eligible for an Offer in Compromise. Essentially, an Offer in Compromise is an agreement where you agree to pay a reduced sum, and the IRS or State waives the remainder of your debt. There are three types of Offers in Compromise.
- Doubt as to Liability. This is when there is doubt as to whether the tax total that was assessed is correct. If there is any doubt that an error was made, you may be able to reach a compromise.
- Doubt as to Collectability. This is when there is doubt as to whether the full amount of the debt could ever effectively be collected. The IRS or State will consider extreme financial hardship and may agree to settle for an amount that is much less than the full debt.
- Effective Administration. You may qualify if you have the ability to pay all the back taxes, but due to exceptional circumstances, paying the full amount of taxes would result in economic hardship. Most of the time, this involves some type of life changing medical tragedy than requires you to retain all savings and assets just to stay alive.
If you think you may be able to reach this compromise with the IRS, you must start by getting into and remaining in compliance with all tax returns and estimated payments.
What Is IRS Form 433-A?
Form 433-A, OIC is the IRS’ version of a collection information statement. This form must be completed if you are an individual wage earner or self-employed. In addition to this form a 656 must also be completed as that is your actual terms of the Offer. The Form 433-A, Collection Information Statement for Wage Earners, informs the IRS of your income, expenses, and assets. In addition, it provides them information pertaining to members of your household, employer, and banking information.
Steps for Completing Form 433-A
As mentioned, this is an eight-page form and is broken down into ten sections. Each section provides its own information. If you come upon a section that is not applicable to you, you must mark it as N/A to avoid the IRS asking you questions later in the process. Here is what you’ll need to provide:
Section 1: Personal and Household Information. This section is your basic information, which includes name, address, contact information, spouse, and dependents.
Section 2: Employment Information if you have an Employer. Here the IRS needs to know your employer information as well as your spouse. You will need to pay attention to how you are paid as the monthly amount will vary depending on weekly versus bi-weekly. This shows the IRS your monthly income.
Section 3: Personal Asset Information. Personal asset information includes bank accounts, investments, retirement accounts, life insurance policies, real property, vehicles, and other valuable items, such as artwork or jewelry. If you have more information than will fit in that section, be sure to provide an attachment as any missing information will cause the Offer to be returned. In addition, remember you will need to provide documentation for all the accounts you enter in this section.
Section 4: Self-Employed Information. This section only applies if you are self-employed. Here list your business information, average payroll and other basic information.
Section 5: Business Asset Information. This section only applies if you are self-employed. Here you will list your business assets, such as bank accounts, virtual currency, notes receivable and accounts receivable.
Section 6: Business Income and Expense Information. This section only applies if you are self-employed. Here you will list any income and expenses related to the business. Note: the form states if you provide a profit and loss you would only need to enter the monthly income and expenses on the last line, versus all the same information over again.
Section 7: Monthly Household Income and Expense Information. This section takes some time to complete and, in the end, gives you a monthly disposable income amount. When listing income, be sure to include your spouse and any other members of your household who are contributing to the income. You will need to provide income statements, such as paystubs, Social Security Income statements, proof of distributions, child support received, etc.
The expenses need to be itemized by each category. For example, housing and utilities you must provide a mortgage statement, property taxes, home insurance, dues, fees, and all utilities you pay from electric to trash to cell phone. In addition, you will want to review the IRS National Standard guidelines to ensure you are not over reporting on some of these categories. If you do over report, the Offer Examiner may not accept your amount and instead use the IRS amount which could cause your Offer amount to increase. As with income, you must provide documents to support every expense.
Section 8: Your Minimum Offer Amount. This section shows what amount you are offering to pay the IRS to settle your tax debt. Once this information is complete, it will assist you in completing the other Form, 656, we mentioned previously.
Section 9: Other Information. This section is just as it states, other information that doesn’t fit into a neat little section all its own. This asks you about lawsuits, bankruptcy, litigation, beneficiary information, etc. Be sure to complete this section completely.
Section 10: Signatures. Both you and your spouse, if applicable, must sign and date the document.
As mentioned, you will be submitting many documents to support your Offer and the reason why you are asking the IRS to compromise your tax debt. Some documents can include:
- Copies of your paystubs and earning statements.
- Copies of tax returns that were recently filed within the last 60 days.
- Copies of bank statements and business bank statements, if self-employed.
- Copies of mortgage statements, vehicle statements showing monthly payments, loan payoff amounts and current balances due.
- List of Notes Receivable, again only if self-employed.
- Proof of payment plan with the State, if back taxes are owed.
- The list goes on…
Once the Form 433-A, OIC and 656 are complete, forward to the IRS with the application payment of $205 along with the 20% down payment, if applicable. Be sure to send your application and supporting documents in a way you can track it, such as USPS Certified Mail, UPS or FedEx. Also, don’t forget to make a copy of our Offer in the event you need to re-send.
If you chose to pay your Offer in a lump sum, if accepted, you will have five months to pay your Offer amount in full. If you chose the deferred payment option, you must begin to pay your Offer in 24 equal payments starting with the first payment being sent with your Offer. Lastly, if your Offer has not received a determination within two years, then it is automatically accepted by the IRS. So, don’t forget to make that final payment within five months.
Who Can Help?
As filing an Offer in Compromise is a detailed and, can be, confusing process, it’s best to hire a professional. A Certified Tax Resolution Specialist is experienced in dealing with the IRS and knows the best way to obtain a positive result. If you are eligible for an Offer, it’s time to seriously think about hiring someone to help to ensure a successful outcome.