Offer In Compromise  Form 433-A (OIC)

Form 433A (OIC) Collection Information statement for Individuals and Self-employed persons operating as a sole

Sections 1, 2 covers mostly personal information. Section 3  covers personal asset information such as bank accounts, investments, cash value life insurance and real estate and vehicles.

This section is also for IRAs and 401K plans.  Section 3 of Form 433-A (OIC) allows you to list retirement accounts at 70% of value.

If you have property that is being leased such as vehicles, it is not necessary to show the fair market values.

When you list personnel possessions like furniture unless they are antiques, list them at the value you feel you would get at a yard sale, not the replacement cost.  For artwork, coin collections, antiques etc look at online sites such as Ebay to see how much they are listed for.  Be sure to discount them by about 20% to allow for a quick sale value.  Also, unless you have antiques, the IRS is not really interested in your furniture. The law allows an amount exempt from valuation of $6,250 for personal effects. The value of any amount over this will become part of your IRS Compromise.

Section 4 deals with business assets. If the assets are leased you will not need to list the value and loan balances of the assets. Also for sole proprietors there is an amount exempt from levy of $3,125 for tools, books and equipment used in a trade or profession.

Section 5 is for your business income and expenses is you are self-employed operating as a sole proprietor. 

 Section 6 covers the income and expenses of your business. The easiest way to compete this part is to simply type “See Attached” and attach a profit and loss or income statement for your business if you have one. You can also use the numbers from the schedule C of your tax return if the offer is submitted before June of the year. The reason is that any financial information submitted for an OIC cannot be more than 6 months old. Also the IRS does not allow deductions for depreciation or office in the home in the OIC computation, so if your profit and loss statement or Schedule C shows deductions for depreciation or office in the home, you will have to add those amounts back to get an accurate IRS offer amount.

Section 6 Lines 31 through 52 deals with your personal income and expenses and is often the most important part of the form if there are no assets to borrow against or liquidate. This section is used to calculate the future income component of the Offer in Compromise computation. For lines 31 and 32 put the gross monthly wages for yourself and your spouse. The remaining income lines are for rental, business, interest and dividends and alimony and child support.

Line 41, clothing and Misc. also known as National Standard Expenses.The amount is based on the number of persons in your household. This will include you, your spouse and anyone you are able to claim a dependency exemption for on your tax return. Also include persons who qualify you for head of household status. You are allowed the full amount of the national standard expenses even if your actual expenses for theses items are less. 

For Line 42 housing and utilities, the amount is limited based on the average housing expenses in the county you live in. For renters the expense would consist of rent, utilities and renters insurance if applicable. If you own your own home, the amount would include mortgage payment, property taxes averaged on a per month basis, insurance, utilities and association dues, if applicable. To find the amount of housing and utilites expense you are allowed, pick your state and county. Pick the column with the number of people in your household. For example the housing and utility expense for a family of 4 in Los Angeles California would be $2,469. 

Line 43 Vehicle loan or lease payment. The allowable amounts for vehicle payments whether they are for a loan or lease can be found here on the local transportation costs page. The allowable amounts for ownership costs are up towards the top of the page. The allowable payment amounts are $496 for 1 vehicle and $992 for 2. Generally a single person would be allowed expenses for 1 vehcile.

Line 44 Vehicle operarting costs are found on the same page. The different types of costs allowed consists of vehicle maintenance, repairs, fuel, registration and license, parking and tolls. To find the operating costs limitation, select your region and city. To find out what county is covered in the city listed, go to the bottom of the page that lists the census for each region.  

For example if you wanted to find out the allowable transportation expense for San Bernardino California, scroll down to the bottom of the page to West Census Region. You will see that San Bernardino County is located in the Los Angeles section. Scroll up to the table for Western Region and select the row for Los Angeles. Here you will see that the allowable operating expense is $295 for 1 vehicle and $590 for 2. The allowable amounts for ownership costs are up towards the top of the page. 

Amounts that are greater than the amounts on the local transportation tables may be allowed if you can show that they are necessary for the health and welfare of your family and you can verify them.

Line 45 Public transportation. There is a single nationwide amount of $182 allowed for public transportation. If you have no vehicle, this amount is allowed without proof of payment. If you own a car and also use public transportation both amounts may be allowed if you can show that they are necessary.

Line 46 Health insurance premiums allowed in full.

Line 47 For out of pocket healthcare costs, the IRS allows an amount of $60 per person per month for persons under 65 and $144 for persons 65 and over. The amounts are allowed without verification. If your actual amounts are more, then verification is required.

Line 48 Court ordered payments. This would be used for child or spousal support or any other payments that have been ordered by a court of law. Only payments you are actually making that have a court order will be allowed. If you have a court order for child support, but are not making the payments, you will not be allowed the expense in computing the future income component of the offer in Compromise amount.

Line 49 Child and dependant care. This expense is generally only allowable if both parents work.

Line 50 Life insurance. Use the monthly premium amount. Premiums for policies with cash value are not considered necessary expenses. Also, be aware that any available cash value will be considered an asset with the value added to your tax compromise amount. Reasonable term life policy premiums will be allowed.

Line 51 Taxes. If you are an employee with taxes being withheld from your paycheck, then this amount will come from your pay stub. Include all taxes such as Social Security, Medicare, and all state and local taxes. If you are self-employed, you would put the amount you paid in state and federal estimated taxes on a monthly basis.

Line 52 Other secured debt. Use this line for monthly installment payments that have not been included previously. An example may be a boat or RV payment. Generally these types of payments will not be allowed in the offer in compromise computation.

If you are self-employed operating as a sole proprietor, you will need to complete Sections 5 and 6. Section 5 is self-explanatory. For lines 59a and 59b dealing with business assets, if the assets are leased you will not need to list the value and loan balances of the assets. Also for sole proprietors there is an amount exempt from levy of $3,125 for tools, books and equipment used in a trade or profession.

Section 6 covers the income and expenses of your business. The easiest way to compete this part is to simply type “See Attached” and attach a profit and loss or income statement for your business if you have one. You can also use the numbers from the schedule C of your tax return if the offer is submitted before June of the year. The reason is that any financial information submitted for an OIC cannot be more than 6 months old. Also the IRS does not allow deductions for depreciation or office in the home in the OIC computation, so if your profit and loss statement or Schedule C shows deductions for depreciation or office in the home, you will have to add those amounts back to get an accurate IRS offer amount. 

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