Article on Form 433A OIC by Denver Tax Attorney

What is Form 433A OIC?  This was a recent question one of our clients asked a tax attorney at The McGuire Law Firm.  The article Denver Tax Attorneybelow has been drafted in an attempt to explain what is requested on Form 433A OIC and how this form is used by the Internal Revenue Service.

Form 433A OIC is the financial statement that an individual, including a self employed individual would use when submitting an Offer in Compromise to the Internal Revenue Service.  This form, is not to be confused with Form 433A, which the Internal Revenue Service information collection statement for individuals and self employed individuals.

Form 433A OIC requests personal information from the taxpayer regarding name, address, contact information, employment information and ownership in any business.  In addition to this personal information, the form requests information regarding the taxpayer’s assets, income and expenses.  For example, the taxpayer must state information regarding their checking and savings accounts, retirement accounts, investment accounts, personal property, vehicles and other assets.  Further, the taxpayer must stated their total income, which includes: wages, interest, distributions, net business income, alimony, pensions, social security and any other source of income.  This income is then reduced by the taxpayer’s expenses to calculate the taxpayer’s disposable income.  When reviewing the taxpayer’s expenses, the IRS does establish standards for allowable expenses, known as the national standards for items such as food, clothing, housing, utilities, vehicle operation & ownership costs and out of pocket health care costs.  Other expenses the taxpayer may have may or may not be an allowed expense when calculating the taxpayer’s disposable income.  For example, generally, credit card payments which are unsecured debt would not be an allowable expense.  Further, amounts paid by the taxpayer that are in excess of the allowed standard may not be allowed by the Internal Revenue Service.  Therefore, it is not uncommon for the Internal Revenue Service to find a higher disposable income for the taxpayer than the taxpayer feels is their disposable income.

The 433A OIC assists the taxpayer in calculating their equity in assets by breaking the assets down into categories and stating the amount of the deduction a taxpayer can take for certain assets.  For example, the taxpayer may receive a 20% reduction in the fair market value of their home because the IRS takes into consideration the value of the home under a “fire sale value.”  Further, a taxpayer may be able to receive a 30% reduction in the equity of their retirement account because the IRS does take into account that the taxpayer would need to pay taxes on the account if the account were liquidated.

Thus, in short, Form 433A OIC is used to help calculate a taxpayer’s offer in compromise amount by helping the taxpayer calculate the equity in assets and disposable income, which are the figures used by the IRS to calculate a taxpayer’s offer amount.

John McGuire is a Denver tax attorney at The McGuire Law Firm and has submitted many offer in compromises for individual and business taxpayers.  Mr. McGuire is an experienced tax attorney and has significant experience in working with the IRS Offer in Compromise Unit.

Contact The McGuire Law Firm to speak with a Denver tax attorney and schedule a free consultation.