“…in this world nothing can be said to be certain, except death and taxes.” -Benjamin Franklin
Fitting that one of our founding fathers said it. It’s so American, it may as well be etched into the Bill of Rights. Jokes aside, not a tax season goes by where someone doesn’t utter this phrase — frankly, the seasonality of tax season isn’t even a factor anymore, but I digress.
Few people enjoy taxes, least of all business owners. Whether you’re trying to make a profit or increase your margins for potential investors, taxes can a sore spot. While Washington is one of the more lenient states to run a business, there’s always a chance you’ll end up owing a significant amount of taxes. While a long term strategy is restructuring your business (i.e. S Corp), another thing you can do is offer an Offer in Compromise. An offer in compromise is a tax settlement statement that settles the taxes owed for less than the original amount. To do this, you need none other than form 433-B. Several sections must be completed in the form.
Section 1: This section of the form is pretty basic. You simply enter the exact contact information for your business, when it was founded, the layout, employee count, and gross monthly payout.
Note, include in your gross payout any financial information regarding online sales and credit cards allowed for purchases in your company.
Section 2: This section includes a list of the specific individuals that serve to help grow your company, as far as partners, shareholders, investors, etc. You need to include their contact information as well as their ownership or interest percentage.
Section 3: This section is to share the other financial information about the company. Typically this means including your payroll contact (if you outsource) and reporting agent, lawsuits related to the business, bankruptcy, debt currently owed, and asset information. There are a few other inquiries, but you get the idea.
Section 4: This section covers your business’ assets and liabilities, such as cash on hand, business bank accounts, total funds, available credit and more. This is a crucial section that should be carefully examined and filled out to the best of your knowledge, i.e. you want to be as thorough as possible when making a pitch to the IRS about lowering your taxes owed.
Section 5: This section is reserved for your monthly income and expenses during the filing period for your tax payment plan, a temporary delay, or offer.
In addition to the form, you’re expected to attach additional requirements and submit those to the IRS; you should do this three months before the date of filing the form. The attachments should include all bank statements and investment account statements, lender statement regarding assets, with monthly payments and balance as well as UCC financial statements and depreciation schedules, statements of recurring expenses, credit card statements and more.
Normally, if you’re unable to pay the taxes owed, the IRS will ask you to fill out the Form 433-B. There are a few options they’ll come back with for you to repay the funds owed. Usually, this boils down to installments, offering to accept payment after a temporary delay, or the offer in compromise (OIC). Once you have completed the form, the IRS will let you know what their determination is and then you can determine where to go from there.
Now most businesses have to fill out the form, that means LLCs, partnerships, S corporations, etc. If however, you are a sole proprietor then you would be considered self-employed and have to fill out another form, the Form 433-A.
If you like you can request for an installment agreement to break down the total funds owed into equal monthly installment payments. The longest allowable term to pay back the funds is ten years unless the collection statute expiration date (CSED) arrived beforehand. In some cases companies will not be able to pay the full amount and the IRS will accept partial payments instead.
Given that this is an offer to the IRS, having an accountant pull all the required data you need to complete the forms accurately is never a bad option either.