Information to Determine Possible Payment Arrangements
Form 433 is the base form the taxpayer uses to explain their living expenses to the IRS. It is also the base form IRS Revenue Officers use to determine how large or small a monthly payment a taxpayer can pay. There are different versions of it for different situations. There is a business form, a self-employment version, a wage-earner version, and, of course, Spanish versions, as no one is immune from paying income taxes in the United States. Those federal tax liens and federal tax levies were just a step to get to this point and to keep the taxpayer on target. As long as the taxpayer files any late returns, files all future returns on time, makes sure he or she does has enough withholding and tax credits to cover future taxes and makes arrangements to square away any debt with the IRS, the levies will never again be acted upon.
The form is easy to complete if a taxpayer knows where to start and is willing to lay everything on the line. Dishonesty in completing the form is not only breaking the law, but can hurt the taxpayer more than assist it. The difficulty most taxpayers have with this form is they just do not organize their finances, or the paperwork documenting them, in the same way
Compiling Monthly Expenses
Once the income side of the Form 433 is completed, the taxpayer needs to summarize all of its living expenses.
Looking at a Form 433 on the page with the household or business income and outgo, the list near the bottom of the page requests receipts for monthly recurring expenses. These expenses included, but are not necessarily limited to (in addition to what was provided in the asset section as relates to car payments and mortgage payments):
- Utility Bills
- Out-Of-Pocket Medical Bills In Excess Of $60.00 Per Household Member
- Fuel Bills (Gasoline)
- Car Maintenance and Repair Expenses
- Grocery Receipts (if available and they exceed the standard allowance for the family size)
- Clothing Receipts
- Household and Personal Items
- Health Insurance (if not paid with pre-tax dollars on a W-2
- Court Ordered Payments (such as child support)
- Taxes (including federal and state withholding, amounts paid for FICA and Medicare, payments being made on outstanding prior-year tax balances)
Determining Allowable Expenses
The above sounds simple and, in many cases, is simple. However, several items come into play. If the taxpayer does not have actual receipts, they are allowed an amount for food, toiletries, clothing and household items combined. They are allowed this amount even if they do have receipts and the receipts are lower than the allowed amount.
Actual amounts for taxes, court-ordered payments, documented out-of-pocket medical expenses and health insurance are allowed. Conversely, if the taxpayer’s housing costs more than the standard allowable living expense, the IRS formula caps the expense at the allowance. The same applies to automobile payments. However, in rare circumstances a higher expense might be allowed. For instance, a disabled person may require housekeeping assistance that causes his or her housing expenses to exceed the allowance. Explaining this to the IRS and requesting them to allow a higher amount is an option. While the IRS is not obligated to honor such request, asking for it is reasonable and they may honor the request.
Payments on unsecured credit (as most credit cards are) are generally not taken into consideration. If a taxpayer feels they should be, he or she should attached an explanation stating why they should be taken into consideration.
Payments on boats and the like, unless used in the production of income are not taken into consideration.
It is always best for a taxpayer to document the expenses in as much detail as possible.
Income Less Expenses, What’s Left?
Theoretically, what’s left goes to the IRS. The income less the expenses allowed is what the IRS is willing to accept on a 10-year payment plan (or the remaining life of the statute) and then consider the matter settled, even if not all the taxes, penalty and interest have been paid. In looking at a taxpayer’s assets, the Revenue Officer may suggest that a taxpayer refinance its property and turn the cash-out proceeds over to the IRS in payment of its tax obligations.
Any taxpayer getting to this point should consult a tax professional, especially if the taxpayer feels it cannot do this without getting into further trouble with the IRS down the road. A tax professional, CPA or tax attorney specializing in IRS collections can see pitfalls that need to be remedied before a final payment arrangement is made.
Jeannine Silkey - With over 40 years work experience, Jeannine Silkey has a wealth of practical information for the small business owner. Keeping it simple, ...
Join the Conversation