Taxation & Estate Planning

Assets to always claim as ?exempt? on an IRS financial statement (433A)

By howardlevy

Internal Revenue Code section 6334(a) shields certain taxpayer assets from the IRS collection powers.  As these assets are beyond the reach of the IRS, it is important to remember to always exclude their value from IRS financial statement Form 433A.

Claim as “exempt” the following:

1.     Tools of the trade or profession up to $3,950 in value.  At Page 6, Item 59a (”Business Assets”) of the Form 433A, the IRS requests itemization and valuation of business assets; provide it, but write in “exempt” as to the net equity value available to the IRS pursuant to IRC 6334(a)(3).

2.     Household goods and furniture up to $7,900 in value.  At Page 3, Item 19a (”Personal Assets”) of the Form 433A, the IRS requests itemization and valuation of personal assets; provide it, but write in “exempt” as to the equity value available to the IRS pursuantg to IRS 6334(a)(2).

3.     Also, be sure to reduce asset values of other assets (cars, houses) at 80% of fair market value, pursuant to Internal Revenue Manual 5.15.1.16(2). This reduction is to arrive at quick sale value, which is what the IRS uses to estimate the price for the asset if it were to be sold in a short period of time under financial pressure.

It is important to always claim these exemptions and reductions when submitting an offer in compromise to ensure the value offered is not overstated.

Keep an eye out for future posts on income sources that could be excluded from an IRS financial calculation and compromise calculation.

Full post as published by IRS and the Law on January 27, 2009 (boomark / email).