There’s nothing like lots of paperwork to make a stressful situation—like owing back taxes to the Internal Revenue Service—even more stressful.
If you’ve just begun the federal tax resolution process, you’re probably embarking on one of the first steps: filling out Form 433-B, Collection Information Statement for Businesses.
What is IRS Form 433-B?
Form 433-B helps calculate the amount of your federal tax bill you can afford to pay based on your business assets, income, expenses, and future earning potential. Typically, you’ll complete this form when working with a tax attorney or enrolled agent (EA).
The IRS only requires Form 433-B from certain types of businesses. If your business is structured as a corporation, partnership, or limited liability company (LLC), you complete Form 433-B. However, self-employed individuals operating as sole proprietors don’t use this form—they use Form 433-A instead.
What happens when you can’t pay your federal tax bill?
When you owe the IRS more than you can afford to pay, you generally have three options:
Set up an installment agreement. With this option, you still pay the total amount you owe, but you have longer to pay off your balance. The IRS agrees not to levy your bank accounts or take other collection actions as long as you make the agreed-upon monthly payments.
Temporarily delay paying taxes due to hardship. The IRS may place your account in “currently not collectible” (CNC) status. This is only available to people facing severe financial hardships. While your account is in CNC status, the IRS won’t try to collect from you. However, it will take any refunds from your income tax returns. The IRS reviews the financial situation of taxpayers in CNC status every year to see if they can afford to start making payments on their tax debts.
Settle your tax debt. Negotiating with the Internal Revenue Service (IRS) to settle your tax debt for less than the full amount owed. This process is known as an offer in compromise (OIC).
Whichever route you take, the IRS will generally require you to complete Form 433-B to figure out how much you can afford to pay.
How do you get Form 433B?
Form 433-B is part of the Form 656 Booklet, which includes instructions for applying for an OIC, the necessary IRS forms, and a list of other supporting documentation to include with your offer. You can find the Form 656 booklet at IRS.gov. Note that the IRS will not send you this form automatically—it’s up to you, or your EA or attorney, to download it and fill it out.
How to fill out Form 433-B
Form 433-B is made up of seven sections. Let’s look at each of those sections in more detail.
Section 1 - Business Information
The first section requests some basic business information, including your business name and employer identification number (EIN), contact information, number of employees, frequency of tax deposits, and average gross monthly payroll.
You also need to provide information on each partner, member, officer, or major shareholder of the business. This information includes:
Their name, Social Security number, and title
Percentage of ownership and annual salary
Phone number and home address
This section also asks whether you outsource payroll tax processing and tax return preparation. If you outsource these tasks to a payroll provider or accountant, you need to provide their name and address.
Section 2 - Business Asset Information
The next section asks for the market value of all your business assets, including:
Business bank accounts and certificates of deposit
Investment accounts and virtual currency
Real property (also known as real estate)
You’ll have to provide the financial institution name and account number for all accounts. If any of your assets are financed, you’ll also provide the lender’s name, account number, and account balance.
The form provides several boxes for listing all of your accounts and assets. However, if you need additional space, you can attach additional schedules.
Section 3 - Business Income Information
This section requests information on your business income. You need to provide your average gross monthly income for the most recent six to 12 months. This figure should include all sources of income for your business, including gross receipts, gross rental income, interest and dividends, subsidies, etc.
You can choose to attach a current profit and loss statement (P&L). If you attach a P&L, you don’t need to complete lines 6 through 10—simply enter your total income in box B.
Section 4 - Business Expense Information
This section asks for information on your business expenses. You need to provide the average total expenses for the most recent six to 12 months for the following categories:
Inventory bought for resale
Gross wages and salaries
Utilities and telephone
Other expenses (including secured debt payments but not credit card payments)
Again, if you decide to attach a P&L statement, you don’t need to complete lines 11 - 20. Just enter your total monthly expenses in Box C.
It’s crucial to be accurate in both the income and expense sections, as this helps determine how much you can afford to pay.
If you allow the IRS to make the calculation for you, they use the information they have available—primarily 1099s from companies that hired you. They have very little information on your business expenses and tax deductions. As a result, what the IRS says you owe or can afford to pay may be much higher than reality.
When you’re going through this form, it can (literally) pay to have a CPA, accountant, or bookkeeping service go through your books and get an accurate recap of your income and expenses. Basing your offer on your actual income and expenses rather than the IRS’s estimates just might reduce your tax bills significantly—perhaps by tens of thousands of dollars!
Section 5 - Calculate Your Minimum Offer Amount
This section is used to calculate your minimum offer amount. You have two calculation methods to choose from, depending on whether you plan on paying the full amount within five months or over six to 24 months.
If you plan on paying within five months, you calculate your minimum offer as follows:
(Business income in excess of expenses x 48) + Total available assets
If you plan on paying over a more extended period, your minimum offer should be at least:
(Business income in excess of expenses x 60) + Total available assets
Keep in mind that any income-producing assets can be excluded from your calculation.
For example, say you own a bakery and have $40,000 of kitchen equipment essential to creating your products. You don’t have to include that equipment when calculating your minimum offer. However, you do have to include cash in your bank account, the full value of any investment accounts, real estate, and other assets that aren’t necessary for running your business.
Section 6 - Other Information
This section of Form 433-B asks for additional information that the IRS uses to decide whether to accept your offer. This includes information on bankruptcies, other business affiliations, whether other related businesses or shareholders owe the business money, current and past legal issues, lines of credit, etc.
Take time to answer these questions completely and accurately. If the IRS accepts your OIC and then later discovers that you provided inaccurate or incomplete financial information, they can rescind their approval of your OIC and try to collect the total balance owed.
Section 7 - Signatures
This section asks for your signature, title, and the date you signed the form. You’re signing under penalty of perjury, meaning you swear that the contents of the document are truthful and acknowledge you can get in trouble for lying.
It also includes a list of attachments to include with your submission, including:
A current profit and loss statement covering the most recent six to 12-month period
Copies of your six most recent bank statements for all business bank accounts and investment accounts
Copies of current loan and mortgage statements
Recent accounts receivable and notes receivable statements
If your attorney, CPA, or enrolled agent (EA) is representing you during the tax resolution process, you can also attach a signed Form 2848, Power of Attorney. This form allows your representative to receive copies of any notices or other correspondence from the IRS and speak to IRS employees on your behalf.
What happens next?
If you’re completing Form 433-B as part of an OIC, you’ll need to send all your paperwork and a $205 application fee to the IRS. You also need to include an initial payment with your offer—the amount to include is detailed in the Form 656 Booklet.
Mail your completed application packet and payment to the appropriate IRS processing office—those mailing addresses are included in the booklet as well.
After the IRS reviews your offer application, an IRS representative will contact you to accept your offer or request additional information. Make sure you (or your accountant) respond promptly to any requests. Otherwise, the IRS may reject your offer and keep your application fee.
How Bench can help
Filling out Form 433-B doesn’t have to be a stressful or complicated experience, but you do need to have complete and accurate financial information to complete the form. Your first step should be to catch up on your bookkeeping for all prior tax years. Then you’ll have the information on your business income, expenses, business assets, and liabilities to fill out the form.
If you’re behind on your bookkeeping, Bench Retro can help. Our specialized team of experienced bookkeepers will bring your financial statements up to date so you can get through the tax resolution process and avoid tax liens, levies, and other IRS collection efforts.
Even after you’ve settled your back tax obligations, Bench can continue to keep your books current and accurate. This allows you to better estimate the amount you owe and file your taxes on time so that you can avoid tax payment headaches in the future.
The bottom line
Dealing with a tax bill you can’t afford to pay is no one’s idea of a good time, but taking action sooner rather than later can help you minimize interest and penalties and get back in the IRS’s good graces.
Once your back taxes are in order, start setting aside money for your small business taxes each month. When you budget for federal income taxes and set them aside in a separate bank account, you don’t have to worry about surprise tax bills putting a kink in your business growth plans.
If you need help getting started, use our free tax calculator to estimate how much you should pay each quarter. And don’t forget state taxes! You can learn more about planning for these by visiting your state’s taxing authority.