There are circumstances under which the IRS must collect information to determine whether a taxpayer can honor their commitment to a potential payment plan or installment agreement. The IRS usually determines this through a collection information statement (CIS), also known as Form 433. This is an in-depth look at your finances to determine eligibility for certain payment plans, as well as the reasonability for a partial payment plan, or an offer in compromise.
These circumstances are not universal. While the IRS expects every indebted taxpayer to pay their outstanding tax liability, you can pay off your debt without an in-depth look at your finances. Streamlined installment agreements under a total tax debt value of $50,000 allow taxpayers to pay off their debt without filing a CIS, provided they agree to a Direct Debit Installment Agreement (automated payments) or a Payroll Deduction Installment Agreement (withheld wages).
However, defaulting on a payment plan in the last year can lead to the IRS requiring you to verify your ability to pay via a CIS, even if your tax debt total is low. As convenient as it would be to take a taxpayer on their word, there are a few requirements you may have to fulfill before you can begin paying off your taxes – and depending on your debt and financial situation, your best course of action may differ. A collection information statement will help the IRS better determine whether you’re eligible for a payment plan.
What Is a Collection Information Statement?
There are multiple different kinds of Form 433. Form 433-A, or a collection information statement for wage earners and self-employed individuals, exists to help individuals figure out their best chance at eliminating their tax liability through a long-term payment plan or installment agreement with the IRS. It is likely the most in-depth version of Form 433. The step-by-step process for filling out Form 433-A is relatively straightforward. The IRS provides guidance on the matter through Publication 1854. In short:
- Wage-earners must fill out Sections 1, 2, 3, 4, and 5.
- Self-employed individuals must fill out Sections 1, 3, 4, 5, 6, and 7.
- Wage-earners with self-employed side income must fill out Sections 1 through 7.
- Section 1: Personal and Household Information
- This is where you provide basic personal details, from your full name to your marital status and claimed dependents.
- Section 2: Employment Information for Wage Earners
- In this section, you provide details about your employer and your pay period, as well as your spouse’s employment information if applicable.
- Section 3: Other Financial Information
- Includes periods lived abroad, whether you are a trustee or fiduciary in some capacity, and whether you have filed bankruptcy, or are currently facing litigation.
- Section 4: Personal Asset Information for All Individuals
- Includes cash, investments, real property, and vehicles.
- Section 5: Monthly Income and Expenses
- Includes income such as wages, child support, alimony, rental income, and dividends, as well as expenses ranging from debts to healthcare costs, vehicle operating costs, housing, food, and clothing.
- Sections 6 and 7: Business and Sole Proprietorship Information
- If you are self-employed or are earning self-employed income on the side.
- Section 1: Personal and Household Information
When Is Form 433 Necessary?
There are multiple situations wherein the IRS may require a taxpayer to fill out Form 433-A. The most common is income tax debt. If you owe taxes on your Form 1040, Form 433-A will help determine eligibility for a payment plan, outside of a streamlined installment agreement where you agree to grant the IRS authorization to automatically withdraw monthly payments from your bank account. Form 433-A may also be necessary if:
- You are personally responsible for a partnership liability.
- You are an individual owner of a limited liability company listed as a disregarded entity on your tax return.
- You are responsible for managing payroll taxes for employees, failed to do so, and must pay a trust fund recovery penalty.
- You are self-employed or have self-employed income.
If you are considering an offer in compromise, you will have to fill out Form 433-A (OIC). This collection information statement is specific to taxpayers filling out Form 656, Offer in Compromise. An offer in compromise is an alternative installment agreement whereby a taxpayer can ask for a reduced tax debt on the basis that they cannot reasonably pay off their current debt, in their current financial state.
These are not easy to qualify for, and the IRS can take multiple months to deliberate your offer, and ultimately reject it. You cannot send in another offer until the current one has been approved or rejected. Offers in compromise should only be considered if any other installment plan is unfeasible and under the advisement and guidance of a tax professional. For more information, see the IRS’s Form 656 Booklet.
Form 433-A vs. Form 433-F
Form 433-A is a fully detailed and in-depth look at your financial situation, current assets and liabilities, income, expenses, and employment or business information. It may be required to determine eligibility for certain installment agreements, determining viability after defaulting on an agreement, or for arguing as currently non-collectible (in dire financial situations).
Form 433-A is also required for filing an offer in compromise. Form 433-F, on the other hand, is an expedited version of the Collection Information Statement. It is only about two pages instead of six and calls for much less information. The IRS may ask you to fill out a Form 433-F when requesting an installment agreement for a lower tax debt, without agreeing to a direct debit installment agreement.
Other Types of Form 433
Aside from Forms 433-A and 433-F, there are a number of other Forms 433 you may come across when working with the IRS to resolve your tax situation. Knowing the difference between these forms can come in handy:
- Form 433-H: Collection information statement for wage earners making an installment agreement request to resolve a tax debt of more than $50,000 in value, or a tax debt that cannot be paid within 72 months. It is a double form, in the sense that it both acts as a financial information collection statement and as an installment agreement request.
- Form 433-D: Used for other installment agreements, in conjunction with Form 9465 (Installment Agreement Request).
- Form 433-B: Collection of information statements for business entities, such as corporations and partnerships.
- Form 433-B (OIC): Corporations and LLCs can settle for an offer in compromise, too. In such cases, they use this form.
If you need help figuring out which Form 433 applies to your specific tax case, consider calling a tax professional for advice. Between dozens of forms and hundreds of notices and letters, working with the IRS to resolve your tax issue can get confusing.