How to assist your clients in completing optimum financial information statements, offers in compromise and installment payment agreements

By Deborah J. Weber

The Internal Revenue Service has two Financial Information Statements and one Collection Information Statement. The Form 433-A is the Financial Information Statement for Individuals and the Form 433-B is the Financial Information Statement for Businesses. The Form 433-F is the Collection Information Statement and is shorter and less detailed the Forms 433 A and B.

A completed financial information statement is required by the Internal Revenue Service before entering into most installment payment agreements and all offers in compromise. The appropriate forms should be completed by the taxpayer as soon as possible and reviewed by practitioner before making recommendations regarding resolution of a collection matter.

Completed financial information statements must fully and accurately disclose all assets, income and expenses and are signed under penalty of perjury. If a practitioner has any reason to believe that a Financial Information Statement is incomplete or inaccurate, it should not be submitted to the Internal Revenue Service and said practitioner should question taxpayer regarding the information contained thereon.

While the practitioner must always require that the taxpayer fully and accurately disclose the existence of all assets, income and expenses, it is nevertheless the practitioner’s duty to zealously defend his or her client by presenting the financial information in a light most favorable to the taxpayer. Presentation of the taxpayer’s collection case begins with the preparation of Forms 433-A and 433-B Financial Information Statements.

The first 3 pages of the Form 433-A and the first 5 pages of the Form 433-B require a complete detailed listing of all assets. As such, the form should fully disclose the fair market value of all assets offset by any outstanding mortgages or other security interest (listed separately). If the taxpayer is claiming an exemption as to a particular asset, the asset should still be listed on the Financial Information Statement with an explanation regarding the exemption claimed.

In addition to assets and liabilities, all income must be disclosed as well as either the actual or allowable expenses of the taxpayer. It is the practitioner’s responsibility to assist his or her client in gathering and organizing his or her financial data to come up with average monthly amounts for all expenses.

Furthermore, the practitioner should assist the taxpayer in being aware of and listing all expenses and constructing the presentation of said expenses such that they will fall into the category of necessary expenses. This is particularly important in relation to an offer in compromise, where only necessary expenses will be allowed.

There have been several recent changes to the Forms 433-A and B occurring in February of 2008. A summary of those changes are as follows:

New business information questions.

Both forms now include questions regarding business websites, limited liability companies and federal tax deposits.

Federal government contracts.

Questions were added to address federal government contractors. Federal government contract numbers and contract information are requested under the Accounts/Notes Receivable section.

Asset information.

The format of both Form 433-A and Form 433-B was changed to allow more space for detailed information regarding assets, including the location of assets and leased property ownership information.

Stored value cards.

Bank account sections now request information regarding stored value cards, such as payroll cards, government benefit cards, prepaid debit cards and telephone cards. Taxpayers who do not have their paychecks deposited into a bank account, but receive their wages on a payroll card, should include that asset under Personal Bank Accounts.

E-commerce.

New sections were added to both forms for web-based business and online merchant account information, including third party processors and merchant account providers that a business employs to accept credit card payments.
Taxpayer living outside the U.S.

A question has been added to Form 433-A to identify taxpayers that have resided outside the United States for periods of six months or longer.

Investments.

The investment section of Form 433-A requires information from the individual on all corporations, partnerships, limited liability companies and other business entities in which he or she is an officer, director, owner, member or otherwise has a financial interest.

Self-employed taxpayers.

Form 433-A provides additional sections for business assets. Wage earners will complete pages 1-4. Self-employed individuals will complete pages 1-6.

Self-employment, income and expenses.

The Form 433-A includes a separate section for sole proprietor income and expenses. If the taxpayer is not a wage earner or sole proprietor filing Schedule C, the taxpayer will complete Form 433-B.

Net income for business.

The explanation of net income for business has been expanded to address duplicated and paper deductions when using Schedule C. Schedule C includes deductions for paper expenses such as depreciation and depletion. It may also include duplicated expenses.

For example, expenses for the business use of a home may be deducted on Schedule C and included in the housing and utility allowance on Form 433-A. If a taxpayer uses Schedule C to determine net income from business, deductions for duplicated and paper expenses must be added back into the net income figure.

Allowable living expenses.

On Form 433-A, the expense items on the monthly income and expense statement have been revised to reflect the changes to the allowable living expenses. These are separate line items for vehicle ownership cost and vehicle operating cost, as well as health insurance and out of pocket health care costs.