In the days of yore, the IRS was little interested in whether you had money or not. If you did not pay your taxes, the Service would just "swoop" in and take everything. Furniture, cats, small children -- all your money, bank accounts, etc. There was extremely little they would not touch, and absolutely no mercy. If you did not pay your taxes, you were considered a fraud, and very little effort was given to relieving any of that outstanding tax burden.
Then beginning in the 1980's, and through recent times, the IRS began taking a different tactic. The idea was that if the IRS helped the taxpayer meet his/her obligations the Service would (a) look a lot nicer, (b) get a lot more money, (c) encourage folks to tell the truth. From this nascent set of ideas, came the wonderful form 433.
IRS Form 433 (see http://www.irs.gov/pub/irs-pdf/f433a.pdf) gives the IRS all the information about your income and assets, as well as your debts and obligations. Finding directions for completing this form is almost impossible. In point of fact, there are several different versions of the 433 abounding. Two of the most common for individual taxpayers are:
1. 433A -- the full enchilada. This unabridged document contains every conceivable income/asset/debt/obligation category the IRS can imagine. It is detailed, cumbersome, and rather depressing.
2. 433F -- this is the summary form of the 433A. Much easier to complete -- only two pages. Completing the 433F first makes completing the 433A much easier. In our firm, we have clients complete the summary form and then we complete the 433A, asking additional clarifying questions as needed.
The 433B is for businesses and is rarely used.
Once completed, the 433 is submitted to the auditor handling the case. If there is no auditor assigned, the attorney on the case contacts the local field office and arranges for an appointment. The taxpayer does NOT need to be there for this meeting.
It is critically important that you provide all substantiating documentation for income and expenses.
Typically, substantiating documentation includes copies of W-2 forms, pay stubs, bank records, lease agreements, titles to vehicles and property, copies of loans and investments paperwork, and any other entry on the 433 income/expense summary page.
THERE IS NO EXCEPTION TO THIS. IF YOU DO NOT HAVE THE DOCUMENTATION -- EITHER GET IT, OR YOU WILL NOT BE PERMITTED TO CLAIM THE EXPENSE, ETC.
At the meeting with the auditor, your attorney will review all the numbers and provide all supporting documentation. The idea is to figure out how much you will be able to afford to pay -- negotiate on monthly payment amounts. Note -- the withholding amount you claim on your paycheck is important here. The IRS WILL review this number when working with you at this auditor meeting. If the number is whacky wrong (i.e. you are withholding 10 and you are actually single without any reason to have anything more than 1), it will hurt you badly. Do NOT go to this meeting with a bogus withholding number.
If your income does not support paying any past taxes, you will be entitled to be placed in "uncollectable" status. This means that while liens may be placed against your property, the IRS will not garnish your wages or take anything from you. Note -- this is a two edged sword. It does not relieve you of tax liability. It does not remove your previous tax debt. It merely means the IRS will not seek to collect from you. Interest will continue to accrue. For some folks, however, the 433 and the audit represent the best method for not losing over 60% of their income to tax garnishments
Two points to remember here: 1. This is complicated form that has to be completed properly -- an attorney is best for this, and 2. The taxpayer meeting with the IRS is never a good thing (handling the audit him/herself) -- the IRS auditor cannot make the same negotiated deals he/she could with your attorney. You need a representative for this purpose.
If you have questions or need help addressing a tax law question, please do not hesitate to contact us! We are experienced immigration, tax, and bankruptcy attorneys who can help with questions from any state in the US. S
Sean R. Hanover, Esq