How to Complete Form 433-A (OIC)
Offer In Compromise

    Personal and Household Information

    ♫ ♪ Opening music plays in the background ♪ ♫ How to Complete Form 433-A (OIC)

    Let’s show you how to complete a Form 433-A (OIC).

    This form is also about eight pages long.

    You’ll need to complete Form 433-A if you’re an individual, such as a wage earner or a sole proprietor.

    In an effort to keep this video short for your viewing, we have gone ahead and prefilled the form, and we're just going to go through what that looks like.

    Personal and household information Section 1 is going to be your basic personal and household information.

    You're going to put in your personal information.

    Mark the marital status box and add your spouse’s info and marriage date if you’re married.

    Make sure to include all required info regarding your spouse, even if the person is not liable for the tax liabilities.

    Mark if you own your home or rent it, or if you have a different living situation, such as sharing rent or living with a relative, you’d mark the “other” box.

    You’re going to put in your children's, or others living in the household names, ages and relationships.

    And then, there's two boxes over here, the first one is whether or not they are claimed as a dependent on your Form 1040.

    If they’re not and you mark “no” here.

    Just know that you are not going to get credit in the offer process for any expenses related to them unless there's court-ordered child support.

    Then you also need to answer whether or not the people listed contribute to the household income.

    If you’re sharing household expenses, you must disclose that on this form.

    These particular taxpayers don’t have any dependents.

    Wage Earners Employment Information - Section 2

    Wage earners employment information Next is Section 2 Here is where you’ll list employment information for wage earners.

    This is where you're going to put in your and your spouse's employment information, how long you've been employed there, whether you have any ownership interest in the business and your occupations.

    It’s important to disclose any business ownership interest in this section.

    Personal Assets Information - Section 3

    Personal assets information Moving on, to Section 3 This is where you’re going to list your personal asset information.

    I've gone in and filled this out as a fictional example.

    We’ve noticed that oftentimes taxpayers submitting an OIC leave this section blank.

    You’ll want to make sure you’re listing all your personal assets requested in this section.

    A quick tip is that if you don’t have any assets or income in a certain category, put N/A or None in the appropriate subsection.

    You don’t want it to appear as if you’ve skipped a question.

    Personal Assets Checking - Section 3

    Personal assets - checking These fictional taxpayers have a checking account with Some First National Bank with $1,500 in it.

    They have a savings account with Some First National Bank with $20 in it.

    So, the total of the two accounts is $1,520.

    However, right here, it tells you to add lines 1A through 1C.

    And, 1C is going to be if you have more than two bank accounts, in which case you would add an attachment providing all this information on those other bank accounts and then put that total there.

    For line 1, you’re adding 1A through 1C and you’re going to subtract one thousand dollars.

    To assist you with your living expenses, the IRS gives you this $1,000 credit.

    In this example, out of the $1,520 these fictional taxpayers have in their bank accounts.

    We're only putting $520 on line 1.

    Here’s a common error to avoid You must list all your bank accounts on this form.

    Even joint accounts must be listed, and you’ll need to provide the necessary documentation for every bank account listed on this collection information statement.

    Also, your documentation will need to address any deposits in your bank accounts if they’re not from your reported income sources.

    Personal Assets - Investments, Retirement and Insurance - Section 3

    Personal assets, investments, retirement and insurance Moving on down, we have investment accounts.

    These fictional taxpayers have an investment account that has a current market value of $2,000.

    We're able to take the quick sale value which is 80% of the current market value, and that’s $1,600.

    There is no loan balance here so they have $1,600 that will be included for the investment account.

    So that's going to come down to line 2 because that's the only item they have here.

    And then we're going to move into retirement accounts.

    There’s a retirement account with a current market value of $5,000.

    Multiply this by .8 and you get the quick sale value of $4,000.

    However, these fictional taxpayers have a $3,000 loan against their 401(k)-retirement account, leaving it with an actual market value of only $1,000.

    That's the only retirement account they have.

    So, we're going to bring that down to line 3 which I’ll also highlight as important.

    The next section is cash value of life insurance policies.

    Be sure to put the cash value of the policy here not the face value.

    This is for whole life policies only.

    If you have a whole life policy, you’ll need to put that here.

    If you have a term life policy, do not include that here.

    We're going to say that these fictional taxpayers don’t have any whole life insurance policies, so we write N/A at the beginning of this section and do not write anything on line 4.

    Personal Assets - Real Estate - Section 3

    Personal assets - Real estate Continuing section 3 with your personal asset information we’re next going to include your real estate information.

    List your real property here.

    That includes any house, condo, co-op, time share, etc.

    that you own or are buying including any assets owned by your spouse if you live in a community property state.

    Community property states are: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.

    The U.S. Territories of Guam and Puerto Rico are also community property jurisdictions.

    Community property taxpayers often seem unaware of community property laws that can lead to assets owned by a spouse being left off this financial statement.

    So, you're going to put in your address of your primary residence and date of purchase in this section.

    Include the county and country that it's in, date of final payment, how the title is held and description of property.

    In most cases this is going to be a single-family home.

    If you own a condo, duplex or something else then you're going to put in that description here so that the IRS has the description of it.

    For the current market value, you can use online appraisal tools.

    An average of those online appraisal tools' estimates or the market value on an appraisal, if you have had one done recently.

    We advise against using only the tax assessor’s estimated value for real properties.

    In this example, the current market value of the property is $300,000.

    Again, we get to use the quick sale value here ($300,000 x .8)

    that equals $240,000.

    This particular property has a mortgage balance of $260,000, so there is no equity and the value is listed as 0 on line 5a.

    Do not list a negative number.

    If you have more than one property, you would continue to fill this out.

    You can add an attachment if you need to and then all of those properties are totaled on line 5 here.

    Personal Assets - Vehicles - Section 3

    Personal assets – Vehicles The next section for our personal assets is going to be vehicles.

    Be certain to list all vehicles you own.

    We use research tools to verify information on your collection information statement and we will pick up all vehicles registered to you.

    So, you're going to put in the vehicle’s make, model, the year, the date it was purchased and current mileage.

    Include whether it's a loan or a lease, who the creditor is, date of final payment.

    In the amount of the payment, you're going to do the same thing here with the current market value as you did before for real property.

    Online auto appraisal tools a very good place to pull a current market value on a vehicle.

    It's usually pretty accurate if you put in the correct information.

    So, this first fictional vehicle has a current market value of $24,000.

    Our quick sale value at 80% gives us $19,200.

    There is a loan on this vehicle of $15,000 leaving this vehicle having equity of $4,200 on line (6a).

    Now you'll see right here on line (6b) that it tells you, you can subtract $3,450 from line (6a).

    If it's a negative number, put zero.

    So, if you are a single individual filing an offer in compromise, you can subtract $3,450 from this $4,200 bringing that total to $750 on line (6b).

    Note that if the equity is less than the $3,450 exemption amount, you can't put down a negative number and you should just put 0.

    Now this fictional taxpayer’s spouse also has a vehicle.

    So, we put in the information for the other vehicle.

    This one does not have a monthly loan payment, has a current market value of $12,000 and a quick sale value of $9,600.

    We've brought that over here on line (6c)

    since there is no loan balance.

    And it tells you online (6d)

    if you are filing a joint offer, so two taxpayers, then you can subtract $3,450 from the second vehicle as well.

    This is a joint offer, so we're going to subtract the $3,450 from the $9,600 giving us $6,150, which we enter on line (6d).

    And then line (6e) is any other vehicles you own and we total lines (6b), (6d), and (6e), to bring us to $6,900 for the vehicles.

    Personal Assets - Collectibles, Jewelry, Artwork, Collections - Section 3

    Personal assets – collectibles, jewelry, artwork, gun collections, etc.

    Section three continues and addressees the current market value of a variety of personal assets.

    Beginning with your most valuable items, you need to value your collectible items, jewelry, artwork, coin collections, items you have in a safe, gun collections, and anything else of value that you may have.

    In community property states, if you are filing an offer for just your tax liabilities, you need to also include your spouse’s community property from which your creditors could collect.

    Moving along, you need to assign a value to your less valuable items.

    In this case, we're going to say that this fictional taxpayer doesn't have any specific collections.

    They just have their general household items.

    We've just put in a value for miscellaneous household items.

    The best way to come up with the current market value on this is to go through and figure out if you were to put everything in your house out on your yard and have a yard sale, what would you bring in from that, and that's going to be the best way to come up with your current market value if you don't have any significantly valuable pieces.

    We're going to say that this fictional taxpayer has general household items valued at $8,000.

    Our quick sale value at 80% is $6,400.

    Our fictional taxpayer does not have a loan on these items, so we enter $6,400 on line (7a).

    We subtract the $9,690 IRS deduction from the sum of lines (7a), (7b), and (7c), which lowers the amount to zero to be entered on line (7).

    Now this brings us to our box A which is available individual equity in assets.

    It tells you here do not include amounts on the lines with the letter beside the number and round to the nearest whole dollar but do not enter a negative number.

    And then it tells you here, add lines one through seven and enter the amount in box A.

    Be sure to carry the number in Box A over to section 8, to calculate your minimum offer amount.

    Personal Assets Wrap-up - Section 3

    Wrap-up of personal assets section So now you'll see I'm going to scroll up here really quickly, I highlighted all the lines we're going to add up, so 1, 2, 3 and 4.

    We have $520, $1,600, $1,000, and $0.

    And going down further, we don't have anything on 5.

    We have $6,900 on line 6, and $0 on line 7, and that gives us a total of $10,020 in available individual equity in assets.

    This ends the personal asset information portion of the form.

    Self Employed Business Asset Income Expense Information

    Self employed and Business Asset Income and Expense Information Sections 4, 5 and 6 asks for information about your self-employment.

    The information asks for in these three sections are very self explanatory.

    So we're not going to fill them in today for this video.

    But I'll you a few tips to help you if you need to use these parts of the form.

    Self-Employed - Section 4

    Self employment information You need to complete this section if you or your spouse is self employed.

    That is, if you file schdules C, E, F, etc.

    Because the questions in these three sections are very self explanatory.

    I'm not going to fill them in for this video.

    Section 4 only asks for basic information such as the name, address and phone number of your business.

    It also asks if you have employees and make tax deposits.

    Also, if you or your spouse are involved in any other business interests, including an LLC, LLP Corporation, Partnership, etc.

    You'll need to add that information into this section.

    Business Asset Information - Section 5

    Business Asset Information For Self-employed List in this section business assets such as bank accounts, virtual currency or crypto-currency, tools, books, machinery, equipment, business vehicles, and real property that is owned, leased or rented.

    If additional space is needed, attach a list of items.

    Do not include personal assets listed in section 3.

    You'll want to round to the nearest whole dollar, and do not enter any negative numbers.

    If any line item is a negative number, enter zero.

    Also, a quick reminder here, If you are self-employed and have accounts or notes receivables make sure you check the box.

    Taxpayers often don't check the box to let the IRS know if they have accounts or notes receivables.

    Business Income & Expense Info Self-Employed - Section 6

    Business Income and Expense Information For Self-employed Information for this section is basically going to come off your profit and loss statement, if you're self-employed.

    So you'll plug those numbers in here If you provide a current profit and loss statement, for the information in this section.

    Enter the total gross monthly income on line 17, and your monthly expenses on line 29.

    When you do this, you don't have to complete lines 12 through 16 and 18 through 28.

    You may also use the amounts claimed for income and expenses on your most recent schedule c.

    However, if the amount has changed significantly within the past year, a current profit and loss statement should be submitted to substantiate the number on this form.

    and again, round to the nearest whole dollar, and do not enter any negative numbers.

    If any line item is a negative number, enter zero.

    Monthly Household and Expenses - Section 7

    Monthly Household and Expenses And then we get to Section 7 which is going to be your monthly household income and expense information.

    In this case, you make $4,500 gross wages a month and your spouse make $4,000 monthly gross wages.

    If you have other household income, whether it is a non-liable spouse that's not involved, interest and dividends distributions, or net rental income include it here.

    If you are self-employed, then you're going to pull that number from Box C on the prior page for your business income and plug it in here on line 36.

    Also, if you own a corporation, don’t list corporate income and expenses on the Form 433A-OIC; these should go on Form 433B-OIC.

    Next, you’ll add in any child support or alimony that you receive.

    The total household income in this fictional case is going to be $8,500, which you will enter in Box D.

    Be sure to list gross monthly income, rather than using net income or annual income figures, and use the most current information instead of information from last year or prior years.

    Note, your entire income should also include income that is considered as not taxable and may not be included on a tax return.

    And, the IRS may ask for an update of this information later.

    That's going to move us down to our monthly household expenses category.

    You'll see this note here where it says for expenses claimed inboxes 39 and 45 only, you should list the full amount of the allowable standard even if the actual amount you pay is less.

    And then it tells you, where you can find these allowable standards.

    Just search the term “financial standards” on www.IRS.gov and it’ll pull up the Collection Financial Standards page.

    So, you'll want to make sure that you look at those numbers.

    So here for the food, clothing and miscellaneous, I've pulled the allowable standard for a household of two individuals based on what we filled out on the first page of this form as $1,298.

    I’ve brought in housing utility expenses for $1,895 a month.

    That's going to cover their mortgage.

    It’s also going to cover all their monthly cost of property taxes, home insurance, maintenance, dues, fees, utilities, phone, cell phone, cable and internet bills.

    Next, I’ve included the vehicle loan or lease payment, that we calculated earlier at $500 a month that was on the first vehicle.

    Then we have vehicle operating costs of $462, and no public transportation.

    These fictional taxpayers pay $1000 a month for their health insurance premiums and are allowed $112 a month for out-of-pocket health care expenses.

    Again, the out of pocket health care expenses on line 45, come directly from the standards.

    You can use the numbers from the standards even if you pay less as that’s the standard allotment.

    There are no court-ordered payments, no childcare, no term life insurance.

    They're paying $489 a month for state income taxes, $2,040 a month for federal income taxes and they do not have any secured debts or any delinquent state taxes.

    Please keep in mind that monthly credit card payments and unsecured loan payments are not considered to be secured debts.

    So, we've totaled up all these expenses to get Total Household Expenses of $7,796 in Box E.

    We had $8,500 of income so now we have a Remaining Monthly Income of $704 for Box F.

    Calculation of Minimum Offer Amount - Section 8

    Calculation of minimum offer amount Now you're getting to the point in Section 8 here where you're actually going to calculate the minimum amount you can offer.

    There are two different calculations here.

    And it's going to tell you right here, if you will pay your offer off in 5 or fewer payments within 5 months or less, that you're going to multiply Box F, the $704, by 12 to get $8,448 in Box G.

    So now we are looking at Box A, which is $10,020 equity in assets.

    Again, that is coming from right here on page four of eight, Box A.

    So that's our $10,020, and then we enter here our $8,448.

    Let's say that we're going to pay this in five or fewer months.

    That is going to give us a total offer of $18,468.

    If you want to pay the offered amount in five or fewer months, you'll transfer $18,468 to the Form 656.

    If you will pay your offer in 6 to 24 months then you're going to multiply Box F, the $704, by 24 to get $16,896 in Box H.

    It's going to be $16,896 plus $10,020, which gives us a total offer of $26,916.

    If you want to pay the offered amount in 6 to 24 months, you will transfer $26,916 to the Form 656.

    This is important: your offer can’t be zero and you can’t leave the Offer Amount blank.

    Other Information - Section 9

    Other information including “yes & “no” questions everyone should answer.

    Then you're going to move on to Section 9 which is other information.

    These are just some basic yes-or-no questions that you're going to want to go through and answer.

    One thing to note in this section is transfer of assets for less than full value.

    Some taxpayers mistakenly place their primary residence here as it was sold for less than the purchase price due to a decrease in market value.

    Many taxpayers sell their assets for amounts lower than what they’re worth to family members or others to keep them out of the offer calculations or out of the IRS’s reach.

    Depending upon the facts, the IRS may consider this as concealing assets, which may lead for individuals to fines of up to $100,000 and imprisonment of up to 3 years.

    With its records and ability to research past business transactions, the IRS can find out about these types of transactions.

    The IRS may treat this as if you still have the value in the asset when vetting your offer amount.

    Checklist of Necessary Attachments, Signatures/Date - Section 10

    Checklist of necessary attachments, signature and date Section 10 is where you're going to sign and date it.

    A common error the IRS sees is people not signing their form.

    And then down here, it's going to give you a checklist of items that you need to attach and make sure that you verified when submitting this OIC.

    So, go through and make sure you have all these items checked-off and that you're including them when you submit this offer.

    You must include supporting documentation with this form when you submit this offer.

    Again, this form is only used if you are submitting an offer in compromise with the IRS.

    You may also at this point, check out the OIC Frequently Asked Questions on www.irs.gov Just search the term OIC on www.irs.gov to find these FAQs.

    And finally, just because you calculate a certain amount to offer based on your 433-A OIC, it doesn’t mean that offer amount must be accepted by IRS.

    Thanks for watching.

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