What should you do if you cannot pay now, neither do you believe you can afford to pay throuugh a stream-lined installment agreement? You can submit a Form 433-A for Wage Earners and Self-Employed (see instructions in IRS Pub 1854 – How to Prepare form 433-A) to appeal the collections process. Form 433-A is six 6 pages long consisting of seven sections that will guide you through constructing a financial statement and balance sheet of all your assets (of all kinds). It also includes a statement of your monthly expenses, and a special section for the self-employed to report business income and expenses. Guidelines to note in completing Form 433-A include:
- Do it soon. Do not delay in taking this approach if you believe you cannot pay your taxes in full nor in installments.
- Fill out the form completely. Do not leave ANY fields blank – put an N/A in any field that does not apply to you.
- Add extra attachments as needed. If the space provided is not large enough for you to provide a comprehensive response, add extra pages.
- Use current information of no more than 6 months old.
- Submit the verification documents as (bank statement, canceled checks, wage statements, retirement statement, investment statements, and more). If you bank online using bill-pay, you’ll need to contact your bank for check copies and other proof of bills paid. Do not simply fail to submit them. Get the proof!
Do not assume certain documentation is not needed. You’ll want to proactively submit EVERYTHING the IRS may possibly want to see. The IRS will not do an investigation to help you gather all the needed documentation; so it’s up to you to contact your IRS representative and find out what documentation you need before you submit Form 433-A. Call them as often as you need to.
Also, you’ll even want to submit any evidence that clearly shows why your financial situation is what it is. For example. If you have an illness that makes you have higher than average healthcare cost, make sure you send plenty of documentation showing the IRS the extensiveness of your healthcare expenses. They will take it into consideration in determining how much they believe you can pay. You will have to proactively prove that your income and expenses are not in alignment with the “National Standards” for food, clothing and other expenses. You may (and should) as for consideration using the “Local Standards”; especial if you live in areas with a higher than average cost of living like California.
If the IRS believes you can pay if you make certain behavior modifications or by down-sizing your lifestyle choices they will include this in their decision process. The IRS most likely will not help with payment resolutions if you cannot demonstrate that you know and are willing to do whatever is required not to get into this circumstance in the future. This could mean:
- Demonstrating your committing to change your withholding and/or to pay your taxes quarterly
- Living within a certain level of means
- If you have small business, demonstrating that you understand your need to adjust fees you charge to your customers so you can afford to pay the required taxes
Remember, this process is one you can use when there is no possible way for you to pay your taxes. If you can not pay off your tax debt within 24 months using the automatic installment agreement option, try calling the IRS to discuss your situation with a representative. If you still cannot devise a workable plan, then consider using the alternative of working with the IRS Collection Advisory Group and submitting a Form 433-A. Click here to find the office for your area of need: http://www.irs.gov/pub/irs-pdf/p4235.pdf
My word of caution to you in going through this process…
- Leave nothing to chance. Be proactive about it.
- REALLY think through this before submitting an application. Be sure you want to hand over this much information about your financial circumstances to the IRS.
- Don’t try to outsmart the IRS. They live and breath this stuff, and even eat it for breakfast.
Here’s a list of online links within the IRS website to help you research your options.
Online Payment Agreement application
Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individual
Publication 1854, How to Prepare a Collection Information Statement (Form 433-A)
Form 433-B, Collection Information Statement for Businesses
Publication 5059, How to Prepare a Collection Information Statement (Form 433-B)
Collection Financial Standards (Allowable Living Expenses)
Understanding a Federal Tax Lien
Publication 4235, Collection Advisory Group Addresses (Lien Advisors)
Form 8821, Tax Information Authorization
Publication 783, Instructions on How to Apply for Certificate of Discharge from Federal Tax Lien
Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien
Publication 1660, Collection Appeal Rights
Publication 594, The IRS Collection Process