Form 433-B, Collection Information Statement for Businesses, is appropriate for corporations, partnerships, limited liability companies (LLCs), single member LLCs, and multi-member/multi-owner LLCs. Business owners are responsible for completing seven (7) major sections.
Section one requires information concerning all partners, officers, LLC members, major shareholders, and any affiliations or associations with the business. When filling out the Form 433-B must answer a variety of company-related questions centering on frequency of tax deposits, federal contractor status, and average gross monthly payroll. In addition, company officers must reveal their ownership stake, annual salary, and other personal information.
Section two requires information concerning business assets. In order to fill out the From 433-B, you must gather their most current statements from banks, lenders on loans, mortgages, monthly payments, loan balances, and depreciate schedules. Form 433-B also requires information concerning company vehicles. The asset value of a property is subject to adjustment by the IRS. In addition, in section two, business owners must supply financial information, which includes the current market value of accounts and real estate as well as notes receivables and accounts receivables. The IRS provides a formula by which to calculate total value.
In section three, business owners enter their company’s average gross monthly income. To determine the average gross monthly income, business owners must refer to their financial documentation to calculate total business income, which may consist of commissions, invoices, gross receipts from sales and services, and other sources of income (rental income, dividends, interest, and/or subsidies). Business owners must also calculate total business expenses in section four. Business expenses are based upon the following list of standard categories below:
• Materials purchased
• Inventory purchased
• Gross wages and salaries
• Supplies used to conduct business and used within one year
• Vehicle costs
• Current taxes
• Other expenses
To calculate gross monthly expenses, evaluate six to twelve months of their financial information. From this figure, you can arrive at remaining monthly income.
Once the owner has arrived at their remaining monthly income, the next steps involve calculating the minimum offer amount. In section five, business owners must calculate the amount of time it will take to pay the offer in full. How you pay the offer determines the minimum offer amount. For example, if you pay the offer within a shorter period, then the minimum offer amount will be smaller. The business owner must perform a series of calculations to finally arrive at the offer amount. The offer amount must be more than zero. “If you have special circumstances that would hinder you from paying this amount, explain them on Form 656, Offer in Compromise, Page 2, Explanation of Circumstances” (IRS.gov, “433-B, Collection Information Statement for Businesses,” 8/30/2013). Business owners are permitted to exclude equity in income producing assets.
In addition to financial calculations and the presentation of financial documentation, the IRS needs to know information specific to bankruptcy. In section six on Form 433-B, business owners must disclose their bankruptcy status, current and/or pending lawsuits, transferal of assets, current location, funds held in trust, and lines of credit. In addition, businesses must disclose which types of properties are secured by the line of credit. Answers within section six will determine eligibility for an offer.
Lastly, in section seven, businesses must include applicable attachments. The list of attachments is specific to the following:
• Current profit and loss statement (6 to 12 month period)
• Most recent statement for bank, investment, retirement account
• Copies of recent statement for assets used as collateral
• Copies of recent statement for outstanding notes receivables
• Copies of most recent statements from lenders on loans, mortgages, monthly payments, loan payoffs, and balances
• Copies of relevant supporting documentation
• Completed Form 2848, Power of Attorney (if applicable)
Copies of these documents are necessary for the IRS to determine what type of offer it will accept from the business owner. For more information about Form 433-B, Collection Information Statement for Businesses, review the Financial Analysis Handbook (5.15.1) of the Internal Revenue Manual.