IRS Form 433-F (Part 2)

Episode 39:  In this episode, Timalyn continues her discussion of the importance of IRS Form 433-F when negotiating with the IRS.  You may want to review Episode 38, which is Part 1 of the discussion.  It’ll help you to better understand today’s episode.

To listen to Episode 38, click here.

What Is IRS Form 433-F?

This is the Collection Information Statement.  This is the form the IRS uses to collect a wide range of financial information including your income, debts, expenses and assets.  When you’re attempting to negotiate with the IRS, you’re asking them to understand that you are unable to pay the full amount of your tax debt, at this time.  They obviously want the full picture about your financial situation, so the information you enter onto this form is the starting point. 

If you’re working with a tax professional to represent you in a tax debt negotiation, but they haven’t discussed the Form 433-F, it’s probably a red flag.  For tax professionals who aren’t using this form with your clients, you may be doing them a disservice.

In Episode 9, Timalyn explained the 3 Phases of Tax Relief.  These are the investigation, compliance and negotiation.  IRS Form 433-F substantiates what you can actually afford to pay and why.  It’s not uncommon for your and the IRS to have differing opinions on this answer. 

Today, Timalyn explains the detailed information you need to input on the form.  Again, if you haven’t already listened to Episode 38, this might be a good time to listen to that brief episode.  She’ll also discuss what you will need to substantiate as proof.  Finally, she’ll help you to know if you’ve completed the form properly.  Basically, “Is it right?”

In Episode 38, Timalyn discussed why you’ll need to use this form if you’re requesting an installment agreement, because you’re unable to pay the tax debt within 72-months or before the Collection Statute Expiration Date (“CSED”).  This includes whether you owe $25,000, but can’t pay it off within 72-months, or if you more than $50,000 but you could pay some of the tax debt.

Understanding the Detailed Information

The IRS wants to know you bank account(s) information.  This helps to prove your cash flow.  If your name is attached to an account, you’ll need to list it. 

Do you have lines of credit?  If so you’ll need to list this information.  This includes your actively used credit cards and the credit card numbers.  They want to see what you’re purchasing.  Are you using these cards for necessities or is it for discretionary items, like steak dinners, concerts and vacations? 

The IRS will want to know about your assets.  You’ll need to submit the account numbers for retirement accounts including 401(k), IRA, Pensions and brokerage accounts.  It would also include the VIN for any vehicles (i.e. cars, motorcycles, boats, etc.) you may own.  They’ll look at what you owe verses how much equity you have in those vehicles.  There’s a possibility that the IRS could require you to sell a vehicle to pay your tax debt.  

Timalyn advises you not to try to lie about your vehicles/assets.  The IRS will eventually find out about them.  This is especially true if you’ve posted pictures of it/them on your social media.  It’s best to be upfront and honest.

In one situation, a client has several vehicles and assumed the IRS would see how much he was paying on the loans, so that would obviously reduce his available cash flow to pay the tax debt.  In reality, the IRS looked at the situation differently.  As Timalyn explains, she had already advised him of what would happen, and it turns out she was right.  Friends, listen to your tax professional.  She/he has been through this, many times.  They’ve studied it.  And most importantly, you’re paying for their advice in the first place.

You’ll also need to provide any loan numbers and balances.  The IRS wants to see what you owe and actually, when you incurred that debt. 

There’s more information you’ll need to include, but the above should give you an idea of the types of information. 

Substantiating the Debt

You’ve listed the assets on Form 433-F.  Now, you need to list the expenses associated with the assets.  As Timalyn explains, if you have a vehicle, you’ll need to supply at least the last 3 months of insurance payments.  You may pay your premium on a semi-annual or annual basis.  No problem, you’ll simply divide the payment by 6 or 12 to get a monthly expense amount.  Any payment information should also match your bank account records. 

You’ll need to substantiate all liabilities.  For instance, you’ll need to show credit card and/or loan payments.

If you own or rent a home/condo/apartment, you’ll need to supply a copy of the mortgage or lease agreement.  This is all about proving the debt you’re claiming to owe and the payments you’re making toward those debts. 

Pay Careful Attention to Your Expenses

Expenses are handled differently from debt obligations.  For this reason, you should consider working with a tax professional, who is familiar with tax debt negotiation. 

Certain expenses can be compared to what are called the National Standards or Local Standards.  Timalyn explained what National Standards are and how they can be used to your advantage in Episode 9.  The IRS sets certain levels of acceptable expenses based on various areas of the country.  It’s possible you can list the national standard defined amount, even if you don’t actually pay that much. 

A word of caution, you should consult with a tax professional on this point.  The IRS will find out, if you’re trying to make false representations on IRS Form 433-F. 

By using the limits allowed in the Standards, this can help to substantiate and ultimately lower the amount you’re able to pay as part of your IRS Installment Agreement.  The fact is, you’re using the IRS guidelines to do it. 

Understanding Your Cash Flow

Timalyn explains that any income you receive will need to be substantiated.  This includes non-taxable income, such as social security retirement benefits. This will be factored in as income, even if it may not be taxable. 

If you work a W-2 job, you’ll need to provide all pay stubs for the last 3 months and yes, this must match your bank account information.

Alimony payments will need to be included on IRS Form 433-F.  This is true even if it was ordered as part of a divorce prior to the Tax Cuts and Jobs Act.  You’ll also need to show any child support payments. 

Don’t Go It Alone

If you’re going to negotiate with the IRS, don’t go at it alone.  Even if you don’t hire a tax professional to actually represent you, you should schedule a meeting with one to at least get advice for how you should handle it. Having an experienced tax professional on your side could save you much more than what it cost you to hire them in the first place.

If you’re a tax professional and you would like to become better skilled at helping your own clients, consider signing up for Timalyn’s Tax Pro Journey.  It’s a private podcast, including an article subscription and a private group community. 

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 39, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.  

Remember, Timalyn Bowens is America’s Favorite EA and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback, or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

 

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.