When representing clients with tax debt, it’s crucial for CPAs, tax professionals, and enrolled agents to have a thorough understanding of how to do asset valuation for IRS purposes. In this in-depth article, we’ll specifically focus on Form 433-A Section 3, a critical component of the Offer in Compromise (OIC) and installment agreement processes. We’ll walk you through the step-by-step procedures for accurately assessing your client’s assets, including real property, personal property, and financial accounts. Additionally, we’ll explore key valuation concepts, provide practical examples, and offer expert insights to help you effectively navigate the complexities of asset valuation. By mastering these skills, you’ll be better equipped to provide your clients with the best possible tax resolution outcomes, solidifying your reputation as a trusted and knowledgeable tax professional.
If your client owes tax debt, an offer in compromise is a way to settle for less than the amount owed—as long as your client meets certain requirements. The IRS decides based on income, expenses, and how much equity your client has in various assets. They compare this to how much of the debt they think the taxpayer is reasonably able to pay. The first step is to submit a Form 433-A.
A Form 433-A is an eight-page collection information statement that documents a taxpayer’s financial situation to prepare for an offer in compromise. The IRS uses this form to determine your “reasonable collection potential” on tax debts. The Form 433 is broken down into 8 sections, plus a 9th section that contains what is referred to as “other information.”
Section 3 Personal Asset Information will require the most homework so we’ll spend all of our time discussing it in this article.
Bank Accounts and Investments
It requires a summary of assets such as bank accounts and investments. Your client must provide the name and address of each bank branch, account numbers and current balances, i.e. checking, savings, and money market accounts. He or she must also provide information on cash on hand. That includes any money under the mattress.
If your client owns stocks, bonds, mutual funds, and any other investment assets be sure to include time deposits, certificates of deposit, IRAs, Keogh plans, 401k plans, and annuities. Detail any credit that is available to your client.
Life Insurance
The IRS requires information about the cash value of whole life or universal life insurance policies. Term life insurance policies do not have to be reported.
Vehicle Information
Allow your client to take a break to sharpen his/her pencil. They’ll need to list the make, model, and model year information for each vehicle. Be sure to record mileage, loan balance, lender, purchase date, and monthly payment amount for all cars, trucks, vans, RVs, trailers, motorcycles, and boats whether they are purchased or leased.
Print out a report showing the fair market value of your vehicles so your client doesn’t over-estimate value. The condition of the vehicle(s) and approximate market value can be found in The Kelley Blue Book.
Personal Assets
Advise your client to list all personal assets including furniture, artwork, and jewelry. (Information about real estate and home will be recorded in the real estate section including information about all mortgages and home equity lines of credit.)
Something your client may want to consider is including either 1) an appraisal of the actual properties or 2) a report from a real estate agent showing comps. The IRS sometimes requests a full appraisal, which runs a few hundred dollars.
Sound daunting? There are six more sections. Will you know how to serve your client if he/she comes to you for assistance?
How We Can Help
Members Only Benefits: IRS Solutions Software gives you the confidence to provide services you may have been uncomfortable with in the past, including guiding your clients through the Form 433 OIC process. Another benefit of membership is the training you get on our monthly case study calls.
Don’t Miss Out! Sign up with IRS Solutions Software. By making sure your clients understand the importance of responding to IRS letters and new laws you’ll both avoid a big surprise when you least need it next tax se
