Resolving your tax debt often involves providing a financial statement to the IRS that discloses what you own, who you owe, what you make, and how much you spend.
Your financial disclosures are required to be made on forms designed by the IRS. There are three forms that the IRS uses: The 433A, which you will use if you are self-employed or a wage earner, the 433F, which is a shortened version of the 433A, and the 433B, which is used by businesses.
But what you put on the 433A, 433F or 433B is not enough. Expect the IRS to request documents that back-up what you list – in other words, proof of how you report your financial situation.
IRS collection officers often appreciate their job being made easier – and that means providing documents that verify what is listed on the 433A, 433F or 433B. More importantly, documents verifying your financial situation permits a Revenue Officer to move closer to making a recommendation to resolve and close your file.
Be prepared in advance – here is a list of 10 items IRS collections is most likely to request from you:
1. Bank statements, usually at a minimum the last three months leading up to the date of the financial statements. If you are self-employed and have both business and personal accounts, both will likely be required.
2. Recent paystubs or proof of other income, like social security benefits, usually covering the last three months.
3. A statement from your bank verifying the amount you owe on your home and car loans.
4. A statement verifying the value of whole life insurance, stocks, brokerage accounts.
5. Verification of any balances in a retirement account. Information should also be obtained detailing indicating any inability to access the funds (age, separation from employment, etc.).
6. Verification of certain monthly living expenses. This can include housing and utilities, car payments, child care, child support, out of pocket medical expenses if the monthly expense is greater than $60 per dependent, health insurance premiums and payment of old state and local tax debts.
The IRS should not request verification of your expenses for food, clothing and entertainment – the IRS has a standard amount that it allows for these expenses regardless of what you spend. Only in unusual circumstances will the IRS allow more than their standard monthly allowances for food, clothing and entertainment.
7. If you are divorced and paying child support, a copy of your decree showing that a court requires you to make the payment and verification of the payments (usually three months).
8. If you are self-employed, the IRS can request verification of your business expenses (this should be consistent with the profit and loss provided as part of the financial statement).
9. If you are self-employed and are required to make estimated tax payments, expect the IRS to ask for proof that you are making your quarterly deposits.
10. Verification of the valuation of your home and car.
Keep in mind this is intended to be a laundry list – what is actually requested is on a case-by-case basis.
Also remember that Revenue Officers need to document their case file and report to their manager that their recommendation for the case resolution (i.e., installment agreement, uncollectible) is backed up by records. And if you are working with Automated Collection Service, I recommend having everything that could be possibly requested available when you place the call – if you are fortunate enough to have found a sympathetic IRS case worker, you do not want to have to call back and start again with someone else because documents are missing. That someone else could be something else.
Any way you cut it, it pays to be prepared in advance and have records available that supports your IRS financial statement.