Why Form 433b?
When you are ready to apply for an offer in compromise with the IRS, you must file Form 656, Offer in Compromise. If you own a business that is not a sole proprietorship (i.e. you do not report income from this business on Schedule C (Form 1040), Profit or Loss From Business), you must also submit Form 433-B (OIC), Collection Information Statement for Businesses, as provided in the Form 656 booklet. Form 433-B calculates the minimum offer you can submit to the IRS as a compromise to your outstanding tax liability based on your business assets, income, expenses, and future earning potential. The IRS will only accept offers below this minimum amount if you present evidence of certain special circumstances.
Completing the form
Section 1: In calculating your minimum offer, Form 433-B first requests some basic information concerning your business, including its employer identification number and frequency of tax deposits. The form requests the identity of all partners, officers, LLC members, and major shareholders associated with the business.
Section 2: Next, the form asks for business asset information. This includes the company’s bank accounts, investment accounts, and notes receivable. It also requests information on the company’s real estate, vehicles, and equipment. However, in reporting their value, the IRS allows you exclude your equity in any income producing assets.
Section 3: This section requests your business income. The form requests your average gross monthly business income based on documentation from the most recent 6-12 months. However, if you also provide a profit and loss report for this period, you can present an average amount of profit from these figures instead.
Section 4: This portion similarly requests your business expenses. The form requests your average gross monthly business expenses based on documentation from the most recent 6-12 months. Yet, again, if you also provide a profit and loss report for this period, you can present an average amount of the expenses from these figures instead.
Calculating the offer
After entering in your business’s financial information, Form 433-B calculates your minimum offer amount. The form offers two calculation methods depending upon whether you plan to pay your offer in full within five months or beyond this date. Should you choose to pay sooner rather than later, you may calculate your minimum offer as follows:
[Business income in excess of expenses x 48] + Total available assets
If you choose to pay beyond the five month mark, your minimum offer increases to the following amount:
[Business income in excess of expenses x 60] + Total available assets
Regardless of which option choose, you minimum contribution amount must exceed zero.
Finally, Form 433-B requests certain miscellaneous information that it will consider in settling your tax debt. For example, this section asks whether your business has ever filed for bankruptcy. This question is relevant because your business is ineligible to apply for an offer in compromise on its tax liability currently in a bankruptcy proceeding. This section also asks if your business has other affiliations, whether any related parties owe money to the business, and whether your business has been party to any litigation. Additionally, it asks whether the business has sold any assets within the last 10 years at a discount.