IRS Form 433-B Explained - 2023 Updates
If an organization cannot afford to pay its tax debt, the IRS might request the submission of IRS Form 433-B to help determine what it can reasonably afford to pay based on its financial situation.
TABLE OF CONTENTS
- IRS Form 433-B, or a Collection Information Statement, is a form that must be completed by businesses so the IRS can determine how the outstanding tax liability can be resolved.
- If a business cannot afford to pay its tax bill, the IRS may approve a form of tax relief such as a temporary delay in collection, an offer in compromise, or an installment agreement.
- The seven sections of IRS Form 433-B include business information, business asset information, business income information, business expense information, calculating your minimum offer amount, other information, and signatures.
What Is IRS Form 433-B?
IRS Form 433-B, or a Collection Information Statement for Businesses, is a form that must be completed by companies so the IRS can determine how the outstanding tax liability can be resolved. This form is often used during a situation in which a business owes federal tax payments but cannot afford to pay the total debt. By filling out this form, the IRS can view the provided documentation about the business’s financial situation and determine the reasonable tax resolution option.
What Types Of Business Entities Must Fill Out IRS Form 433-B?
The types of business entities that must fill out IRS Form 433-B include:
- Exempt Organizations
- Limited Liability Companies (LLC) that are classified as a corporation
- Other LLC
- S Corporations
What Happens If A Business Cannot Afford To Pay Tax Liability?
If the IRS deems that a company cannot afford to pay the full amount of its tax liability, they may request that taxpayers fill out IRS Form 433-B to determine which one of the IRS tax forgiveness programs may be the most appropriate for the tax situation.
There are three main types of tax relief that can be offered to qualifying entities who cannot afford to pay their tax balance: currently non-collectible status, offer in compromise, and installment agreements.
Currently Non-Collectible (CNC) Status or Temporarily Delayed Collection
If a business is facing hardship that impacts its ability to make a timely tax payment, the IRS will sometimes approve a temporary delay in the tax collection process to allow a business time to gain stability in its financial situation. This process is known as listing an account as currently non-collectible, informing collection agencies that they cannot move forward with seizing tax payments until the hold has been removed.
While this form of tax relief can be helpful in allowing taxpayers to earn more money and get organized before making payments towards their tax debt, it is important to note, that interest and penalties will continue to accrue on the tax balance until it is paid off.
Offer in Compromise (OIC)
If a business cannot afford to pay its tax debt in full, the IRS may approve an offer in compromise, which allows the business to settle the tax debt for less than what was initially owed. If the IRS agrees to settle with an offer in compromise, the remaining tax debt will be forgiven. The amount of an OIC is determined by a formula that takes into account the taxpayer’s ability to pay, their income, expenses, and asset equity.
The IRS considers an OIC as a last resort for taxpayers who are facing serious financial difficulties and cannot afford to pay their tax debt in full.
Installment agreements are a form of IRS tax relief in which the taxpayer can pay back their tax debt through a monthly payment plan. Under an installment agreement, the taxpayer or business in debt agrees to make regular payments of a fixed amount to the creditor over a specified period of time until the debt is fully paid off.
The terms of the installment agreement, including the amount of each payment and the length of the repayment period, are typically negotiated between the debtor and the creditor. If a business agrees to an installment agreement, the installment payment amount will vary depending on the business’s income, expenses, and how much they owe in taxes.
IRS Form 433-B Main Sections
There are seven main sections of IRS Form 433-B that allow the IRS to gather tax information about businesses.
Section 1: Business Information
The first section of Form 433-B requires taxpayers to list all of the required contact information about the company, such as the business name, address, and phone number. Business owners must also provide essential information about the date the business was established, the business type, how many employees there are, and the monthly gross payroll details. If the business also makes internet sales and collects credit card payments through a website, this information will also be listed in section one.
This section is also where information about the people involved in the business should be listed, including partners, members, officers, major shareholders, or other essential company personnel. For each of these people involved in the business, the filer must include whether or not they are responsible for depositing payroll taxes, as well as their name, address, social security number, phone number, ownership percentages, and shares of the business.
Section 2: Business Asset Information
The second section of tax form 433-B requires the person to fill in detailed information about the assets of the business, including cash, money in bank accounts, federal government contracts, available credit, investments, vehicles, business equipment, and real estate.
Section 3: Business Income Information
Section 3 of IRS Form 433-B requests the total monthly income and expenses for the business during the time period for which tax relief is being requested. It must also be stated whether cash or accrual accounting systems are used within the business.
Section 4: Business Expense Information
In section 4, the individual filing must provide the typical total costs your business incurs each month by referencing the business’s latest 6-12 month financial statements, bills, receipts, or any other documents that detail regular monthly expenditures.
Section 5: Calculate Your Minimum Offer Amount
Section 5 allows people to calculate the minimum offer amount for a tax debt settlement based on the information that was provided throughout the rest of IRS Form 433-B.
Section 6: Other Information
Section 6 of the form requires various pieces of information, including the contact details of any payroll service provider or reporting agent, disclosure of any legal actions or lawsuits involving the company, details about any ongoing bankruptcy proceedings, evidence of any debts owed to the company by related parties, disclosure of any transfers of assets at less than full value, details of any funds held in a trust, information about any other business affiliations, and a statement outlining any expected changes to the business’s income.
Section 7: Signatures
Section 7 of form 433-B is where the taxpayer signs and attaches any supporting forms or documentation, including a Profit and Loss statement that covers the most recent 6-12 months, bank and investment account statements from the past 6-12 months, loan information, statements of outstanding accounts and notes receivable, supporting documentation for any special circumstances described in the “Explanation of Circumstances” on Form 656, a Form 2848 if representation such as a certified public accountant (CPA) or an enrolled agent is desired, and a signed and completed Form 656.
If you need any help navigating the tax situation for your business, the tax professionals at Ideal Tax are here to help. Schedule a free consultation with an expert today to learn the best approach to managing your business taxes.