Offer In Compromise
(OIC) Form 433-B (OIC)
order to
submit an Offer in
Compromise, In addition to Form 433-A (OIC), Form 433-B (OIC) Collection
Information
Statement for Business will have to be completed if you operate a business as a corporation,
partnership or LLC.
Sections 1 is self-explanatory. In
section 2 list alll bank and investment accounts and real estate, vehicles and equipment. if the business property is leased, you do not need to list the value or loan
balance. For Section 3 and 4 you will need to prepare a profit and loss or income statement for the
business.
The period of
time covered should be for a minimum of 6 months but 12 months would better. The reason being that, often
times a business will have seasonal highs and lows. The longer period of time will give a more accurate
picture of the income and expenses of the business. The IRS is interested in the future earning ability of
the business when considering an Offer in Compromise.
The IRS
requires that any information submitted not be any older than 6 months. You may be able to use the income and
expense section of your Form 1065 or 1120 as an attachment to Form 433-B to satisfy sections 3 and 4 income
and expenses. If you do so, the forms cannot be submitted later than June if the business is on a calendar
year to satisfy the 6-month requirement. As with a sole proprietorship be sure to add back depreciation
or home office expenses if your income statement shows these deductions.
If you own a
business an issue that may unfortunately come up is the IRS will want to place a value on your business for
purposes of computing an Offer in Compromise amount. This would be part of your net asset value. Often times
what an offer investigator will do is take the net equity amount from the businesses balance sheet to come up
with a value of the business. I have had clients obtain an appraisal from a licensed business appraiser. This
can get very expensive. If the offer specialist does include an amount for the value of your business, make
sure they are not also including the value of business assets separately in their offer computation as this
would be double counting.
Along with the
above-completed form the IRS requires that you submit verification of many of the items on the forms. At the
bottom of Section 8 of Form 433-A (OIC), you will see a list of documentation required by the
IRS. in bold letters Attachments Required For Wage Earners and Self-Employed Individuals. Form 433-B has
similar requirements on page 6 of the form.
When you
submit bank statements, be sure to provide all pages. Also provide all accounts even if an account has no
activity and little money in it. Be sure and make copies of all documentation submitted.
Once you have completed Forms 433 you will want to go
though the Offer in Compromise computation to determine what your offer amount will be. In order to do this
there are several computational details you must be aware of.
When the IRS
values certain assets to determine the net equity in assets they have the discretion to use a discounted
value amount or what they call a quick sale value. The quick sale value is calculated by taking 80% of the
fair market value. This 80% is built into the form 433 A and B (OIC).
Another area
you will need to be aware of when computing your OIC is retired debt. This occurs when you are making
payments on an asset and it will be paid off within the 48 month, 60 month or remaining period on the statute
of limitations. Most offer specialist will multiply the amount paid off by the remaining months to come to a
future income amount. You do not need to compute this when you submit your offer, but just be aware that it
probably will come up and have the effect of increasing your offer in Compromise by some amount. This concept
is covered in example 4 of the examples page.
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