February 7, 2023 | Payment Plans
You may need to complete Form 433-B if you’re applying for a payment plan or hardship status for a business. To apply for an offer in compromise for a business, you need to complete Form 433-B (OIC). Both versions of this six-page form request detailed information about your business finances, but the OIC version takes you through calculating a settlement offer on your taxes.
This guide explains when businesses need to complete 433-B forms and outlines the instructions for these forms. To get help now, contact us today. At the Timothy S. Hart Law Group, P.C., we have extensive experience helping businesses get the best resolution for their tax issues.
Tax relief is a very specific part of the tax code. To get the best results possible, you need to work with an experienced tax attorney who provides individualized attention to your situation.
What Is IRS Form 433-B?
Form 433-B is called the Collection Information Statement for Businesses. It is a form that the IRS uses to learn about a business’s income, assets, expenses, and liabilities. The IRS uses this information to determine if businesses qualify for payment plans, hardship status, tax settlements, or other types of tax relief.
When to Complete IRS Form 433-B
You should only file this form for c-corporations, s-corps, partnerships, multi-member LLCs, and single-member LLCs elected to be taxed as s-corps. Sole proprietors should file Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals). Here is a closer look at the situations where businesses should file this form:
To request hardship status
Hardship status applies if you cannot afford to pay your tax debt, and forcing you to liquidate your assets would lead to more economic hardship. If you’re still in business, you can request hardship status by filing Form 433-B.
If you prove that you cannot pay your back taxes, but your business can pay its current and future tax liabilities, the IRS will grant you hardship status. Hardship status doesn’t eliminate your back taxes. It allows you to temporarily delay paying taxes until your financial situation improves.
If you can’t afford the minimum payment on an Installment Agreement
The rules for installment agreements are different for businesses than they are for individuals. If you’re still in business, you can only set up a monthly payment plan if you owe less than $25,000 in tax, interest, and penalties. Otherwise, you can only set up a payment plan if your business is no longer operating.
The IRS will determine your minimum monthly payment based on how much you owe and the amount of time the agency is willing to let you make payments. If you cannot afford to make the minimum monthly payment, the IRS will require you to provide more information about your financial situation by filing Form 433-B.
When applying for an offer in compromise
An offer in compromise is when you settle taxes for less than you owe. To apply for an offer in compromise on business taxes, you must use Form 433-B (OIC). Note that this is a slightly different version of the 433-B form.
Again, you should only use Form 433-B (OIC) if your business is taxed as a corporation or a partnership. Sole proprietorships should use Form 433-A. If you’re applying for an offer in compromise on both personal and business taxes (not including sole proprietorships), you will need to complete both forms, and in fact, you may need to request two separate settlements.
In limited cases, the IRS may accept an offer in compromise from businesses that are still operating. In this case, you need to make all federal tax deposits for the current quarter and the two proceeding quarters. You cannot apply if your business is in an open bankruptcy case.
Generally, the IRS will not approve your offer-in-compromise request if you owe trust fund taxes. However, there is an exception in cases where the IRS has made a trust fund recovery penalty determination against another responsible party and then agrees to settle the remaining tax liability with the business owner.
These are the main situations where your business needs to file this form. Still not sure if this is the right form for your needs? Then, contact us directly, and we can help you get clarity about your situation.
How to Fill Out Form 433-B
You will need very detailed information about your business to complete this form. Here is an overview. Note that these instructions focus on the standard version of this form.
Business Information and Contacts
The first two sections of this form request very straightforward details about your business, including its name, address, type of entity, and date of establishment or incorporation. You also need the following:
- Number of employees
- Gross monthly payroll
- Frequency of tax deposits
- Whether or not you’re enrolled in the EFTPS
- Payment processor account numbers and/or virtual currency wallet information for e-commerce businesses
- Credit cards accepted and merchant account numbers
You also need to list the names, contact details, and tax ID numbers of all partners, officers, members, and major shareholders. Then, you need to note their ownership percentages, salaries, and annual draws. Finally, you need to identify if these people are responsible for depositing payroll taxes.
Other Financial Information About Your Business
Section three asks you questions about your business’s financial information. To complete this form accurately, gather details to answer the following questions:
- 1. Do you use a payroll service provider? If so, note their details.
- 2. Are you party to a lawsuit? If so, you need the docket number, the amount of the suit, and the possible completion date.
- 3. Has the business ever filed for bankruptcy? If yes, the date filed, dismissed, and discharged, plus the petition number.
- 4. Do any officers, partners, employees, or other related parties owe money to the business? If yes, note the details of the loans.
- 5. Has the business transferred any assets in the last ten years for less than their full fair market value? Then, note the details of the transfer, including the recipient, the date, and the value of the assets.
- 6. Does the business have a subsidiary or parent company? Note their details if you do.
- 7. Is the business a federal contractor? If so, you need to note the amounts owed by the government in the following section when you detail your accounts receivables.
- 8. Do you anticipate an increase or decrease in the business’s income? If so, you need to provide a written explanation.
Business Bank Accounts, Assets, and Liabilities
Section four, Form 433-B, requests information about your business’s assets and liabilities. You need to note cash, the contents of your safe, balances in bank accounts, contact names and balances for accounts receivables, and all of your business investments.
Then, you also need to provide the fair market value and amount owed on vehicles, equipment, inventory, intangible assets, and real estate. This section also asks about your monthly payments, guiding you through calculations to determine the equity in your assets. Finally, you provide details about your business debts and whether or not they’re secured by collateral. The agency also wants to know if you have any open credit cards.
Average Gross Monthly Income and Expenses
In this section, you can use the last three, six, nine, or 12-month period. You simply note those dates, and then you outline all of your business income and expenses. This should line up with the details for your profit and loss statement for the same time period.
If you’ve got this far, you’re done with the form. You just need to sign it and file it. Keep in mind that the IRS may request additional documents to verify your reported information. The agency may also do follow-up work to assess that the details you’ve provided are correct.
Additional Instructions for Form 433-B (OIC)
As indicated above, you must use the OIC version of this form to apply for an offer in compromise on business taxes. Form 433-B (OIC) requests very similar information as the standard version of the form, but there are a few notable differences outlined below.
Determining Equity in Your Business Assets
For all non-cash assets, the business asset information section of the OIC form requires you to multiply the asset’s value by .8 and then subtract the balance. The difference is your equity, and the IRS expects you to put all this money toward your offer. For instance, if you own real estate worth $200,000 and you owe $120,000, the calculation will be $200,000 x .8 – $120,000 = $40,000.
Be sure to do your research when estimating the fair market value of your assets. If you overestimate their values, your offer in compromise may end up being more than you really need to pay. However, if you underestimate the value of your assets, the IRS may increase the value.
You also need to note if you have your assets for sale and the listing price. When calculating your offer, you can exclude equity in income-producing assets such as dump trucks. At the same time, you cannot hide assets, so you may need to list the asset on the form and then provide a written explanation of why its equity shouldn’t be included in your offer. This can get tricky, so it’s usually better to work with a tax professional.
Business Income and Expenses
Like the standard version of this form, this section also lets you list business income and expenses from the last three, six, nine, or 12-month period. However, if you attach a profit and loss statement, you only need to fill in the totals on the form. You don’t need to put numbers on each line.
Calculating Your Minimum Offer
The key difference between these forms is that the OIC version works for you through an offer calculation. Your offer is the total of the equity in your assets plus your remaining future income. If you plan to pay the offer in a lump sum within five months of acceptance, you only need to include 12 months of future income. If you need to pay over a 24-month period, you need to include 24 months of future income.
Both of these forms require a lot of numbers, and for most business owners, those parts of the forms are relatively straightforward. However, you don’t just have to worry about numbers. In many cases, you have to provide additional explanations, which requires strong knowledge of the tax code and the IRS’s collection procedures.
Get Help With Form 433-B
Trying to set up a payment plan for your business taxes? Need relief from back taxes but still want to keep operating your business? Want to see if you can settle your business taxes for less than you owe? Then, you should contact us.
We’ll start with a no-cost consultation about your tax situation. Then, we’ll guide you to the best solution for your situation. In a lot of cases, business back taxes require a multi-pronged approach. Depending on the situation, we may need to request penalty abatement, appeal incorrect liabilities, or amend returns to reduce your tax liability. Then, we help you apply for relief or set up payment plans on the remaining tax liability. To learn more, contact us directly.