How to Fill Out IRS Form 433-B (OIC) (w/Examples) + FAQs

A business that owes more federal tax than it can ever realistically pay should file IRS Form 433-B (OIC) along with Form 656 to ask the IRS to settle the debt for less than the full balance. The form is the financial X-ray the IRS uses to decide whether your company qualifies for an Offer in Compromise (OIC) under the Doubt as to Collectibility standard.

A wrong number, missing schedule, or skipped line item can cause an automatic rejection, loss of your $205 application fee, and a fresh round of federal tax liens and levies. According to the IRS Data Book, the IRS receives roughly 30,000 OIC applications each year and accepts only about one in three, which means precision on Form 433-B (OIC) is the difference between a fresh start and continued collection.

Here is what you will learn in this guide:

• 📄 How to complete every line of Form 433-B (OIC), section by section, with named business examples
• 💰 How to calculate your business’s Reasonable Collection Potential (RCP) using Quick Sale Value and future income multipliers
• 🏢 Which entities must use Form 433-B (OIC) instead of Form 433-A (OIC) and why the distinction matters
• ⚠️ The seven most common filing mistakes that trigger automatic rejection and how to avoid each one
• ⚖️ How federal OIC rules interact with state programs like the California FTB OIC and New York State Tax Department OIC

What Form 433-B (OIC) Is and Why It Exists

Form 433-B (OIC), titled Collection Information Statement for Businesses, is the financial disclosure document that businesses must submit when they apply for an Offer in Compromise based on doubt that the IRS can ever collect the full liability. The form forces the business to list every asset, every income source, every operating expense, and every owner or partner. The IRS then uses those numbers to compute the Reasonable Collection Potential, which is the floor for any acceptable offer.

Congress authorized the OIC program under Internal Revenue Code Section 7122, and the IRS implements the program through Internal Revenue Manual 5.8. The plain-English explanation is that the IRS would rather collect something now than nothing over a ten-year statute of limitations. The consequence of skipping or fudging this form is severe, because the IRS can reject the offer, keep the application fee, and resume collection on day one.

A real example helps. Imagine Riverside Plumbing, Inc., a small S-corporation that owes $312,000 in unpaid Form 941 employment taxes. Riverside has $40,000 of equipment, $5,000 in the bank, and $2,000 a month in net business income after allowable expenses. Form 433-B (OIC) is how Riverside proves to the IRS that the company can never pay $312,000 and that an offer of, say, $74,000 is the best the government will ever see.

A common misconception is that any business can settle its tax debt for pennies on the dollar. The reality, documented by the Treasury Inspector General for Tax Administration, is that the IRS calculates a precise minimum offer, and undercutting that floor leads to rejection.

Who Must Use Form 433-B (OIC) Instead of 433-A (OIC)

Form 433-B (OIC) is for business entities, including C-corporations, S-corporations, partnerships, multi-member LLCs, and certain single-member LLCs that elect corporate taxation. Sole proprietors and single-member disregarded LLCs use Form 433-A (OIC) instead, because the IRS treats the owner and the business as one taxpayer.

The consequence of using the wrong form is automatic return of the application without consideration, plus the loss of any payments tied to a 656 that referenced the wrong schedule. A practical rule is to look at the EIN. If the business files its own Form 1120, 1120-S, or Form 1065, then Form 433-B (OIC) is the correct form.

A common misconception is that a single-member LLC must use 433-B (OIC). The IRS treats a default single-member LLC as a disregarded entity for income tax, so the owner files 433-A (OIC) for income tax debts, but uses 433-B (OIC) for employment tax debts the LLC owes in its own name under Treasury Regulation 301.7701-2.

The Three Bases for an Offer in Compromise

The IRS accepts offers under three legal theories. Doubt as to Collectibility (DATC) is the most common and is the basis Form 433-B (OIC) supports. Doubt as to Liability uses Form 656-L and does not require a financial statement. Effective Tax Administration (ETA) applies when collection would create economic hardship or be unfair, and it also uses Form 433-B (OIC).

The consequence of choosing the wrong basis is wasted time and a returned application. For instance, a business that thinks it does not owe the tax should not file 433-B (OIC); it should file 656-L. A common misconception is that ETA offers are easy. The Internal Revenue Manual 5.8.11 shows that ETA approvals are rare and require compelling public-policy or equity facts.

Before You Touch the Form: Eligibility and Pre-Filing Steps

A business cannot just mail in Form 433-B (OIC) and hope for the best. The IRS has gatekeeping rules, and missing one returns the entire package. The first rule is that the business must be current on all required tax filings, which the IRS confirms through its Account Transcripts. A business that has not filed its last 1120-S, for example, will see the offer returned without review.

The second rule is that the business cannot be in an open bankruptcy case under 11 U.S.C. § 362, because the automatic stay blocks IRS collection action and the OIC program is a collection alternative. The third rule is that the business must have made all required federal tax deposits for the current quarter and the two preceding quarters, a rule that catches many employers off guard.

The application fee is $205, payable to the United States Treasury, unless the business qualifies for the low-income waiver, which generally does not apply to entities. The initial payment depends on whether the business chooses a lump sum offer (20% with the application) or a periodic payment offer (first installment with the application and monthly payments while the IRS reviews). Both rules come from IRC § 7122(c).

A real example: Cedar Coast Bakery LLC owes $88,000 in payroll taxes. Cedar Coast files all delinquent returns, makes its current quarter’s Form 941 deposit, pays the $205 fee, and submits 20% of its proposed $30,000 lump sum offer, which is $6,000. Now the IRS will consider the offer on its merits.

A common misconception is that the application fee or initial payment is refundable if the offer is rejected. Both are non-refundable; the IRS keeps the fee but applies the initial payment to the underlying tax debt under Treasury Regulation 301.7122-1(d)(2).

Section 1 — Business Information

Section 1 collects the basic identity of the business. Line 1a asks for the business name, which must match the name on the most recent business tax return exactly. Line 1b asks for the business physical address, which must be the operating address, not a P.O. Box, because the IRS uses it to assign the offer to a local Collection territory.

Lines 2 through 7 capture the Employer Identification Number, type of entity, date of incorporation, state of incorporation, and the business’s primary phone number. The consequence of a mismatch between the EIN on Form 656 and Form 433-B (OIC) is automatic return. A common mistake is listing the trade name (DBA) on one form and the legal name on the other, which the IRS systems will flag.

Line 8 asks whether the business is a federal contractor. The reason matters: under Federal Acquisition Regulation 9.104-5, federal contractors with delinquent tax debts may face contract suspension, and the IRS coordinates with the Treasury Offset Program on contractor receivables.

Example: Northwind Logistics, Inc. is a Delaware C-corporation operating in Ohio. The legal name is Northwind Logistics, Inc., but the business uses the DBA Northwind Freight. On Form 433-B (OIC), Northwind enters Northwind Logistics, Inc. on line 1a and lists Northwind Freight in the trade name field, then puts the Ohio operating address on line 1b and the Delaware registered agent address only if asked elsewhere.

Section 2 — Business Personnel and Contacts

Section 2 lists every partner, officer, LLC member, major shareholder, or person with check-signing authority. The IRS wants to identify everyone who could be assessed under the Trust Fund Recovery Penalty of IRC § 6672 for unpaid payroll taxes.

For each person, the form requires name, SSN, title, ownership percentage, home address, and phone number. The consequence of leaving someone off is that the IRS can reject the offer for misrepresentation and can later assert the TFRP against the omitted responsible person. A common misconception is that only majority owners belong here; the form actually demands every officer and any member with at least some control.

Example: Granite Peak Construction LLC has three members. Sara owns 60%, Mike owns 30%, and Jenna owns 10% but is the only one who signs checks. All three must appear in Section 2, and Jenna’s check-signing authority must be disclosed because it triggers TFRP exposure under IRM 5.7.3.

Section 3 — Business Asset Information

Section 3 is where the IRS calculates the net realizable equity in business property. The form converts fair market value (FMV) to Quick Sale Value (QSV) by multiplying FMV by 0.80, which is the IRS’s standard 20% liquidation discount under IRM 5.8.5.4. From QSV, the business subtracts encumbrances such as loans, liens, and security interests to arrive at equity.

Box 3a — Cash and Bank Accounts

List every checking, savings, money market, online, and digital wallet account. Subtract a $1,000 operating allowance from the total, which is the IRS’s safe harbor for a working business. The consequence of forgetting an account is a finding of dissipation of assets, which lets the IRS add the missing balance back into RCP under IRM 5.8.5.6.

A common mistake is listing only the primary operating account. Maple Avenue Diner, Inc. once listed only its Chase business checking account but forgot a PayPal balance of $4,200 and a Square reserve of $1,800. The Revenue Officer pulled bank records, and the offer was returned for incomplete disclosure.

Box 3b — Investments

List stocks, bonds, mutual funds, and cryptocurrency. The form asks for current market value, not original cost. Crypto holdings are reported under IRS Notice 2014-21, which treats virtual currency as property. The consequence of omitting crypto is a misrepresentation finding, since the IRS now uses John Doe summons authority on exchanges.

Box 3c — Available Credit

List business credit cards and lines of credit, with the credit limit and current balance. Available credit is not a positive asset; it informs the IRS about cash flow. A common misconception is that maxing out cards before filing helps the offer. It does not, because the IRS may treat the spending as dissipation if it is not for ordinary business purposes.

Box 3d — Real Property

List every parcel of real estate the business owns. For each, enter purchase date, FMV, QSV (FMV × 0.80), loan balance, and equity in asset (QSV minus loan balance, never below zero). The IRS uses tools like county assessor records and commercial valuation databases to verify FMV.

Example: Westgate Auto Repair, Inc. owns a shop building with FMV of $400,000, a mortgage of $260,000, and QSV of $320,000. Equity equals $320,000 minus $260,000, which is $60,000. That $60,000 flows into RCP, and the consequence of low-balling FMV is a counter-offer or rejection.

Box 3e — Vehicles, Machinery, and Equipment

List every titled vehicle and every major piece of equipment. The IRS allows an Income Producing Asset Allowance under IRM 5.8.5.5, which can reduce the equity counted toward RCP for tools and machinery essential to operations. The consequence of omitting this allowance is paying more than required.

A common mistake is forgetting fully depreciated equipment. Depreciation for tax purposes does not equal market value. BlueRidge Catering, LLC listed its commercial oven at $0 because it was fully depreciated, but the oven had a used market value of $7,500.

Box 3f — Business Assets at a Glance

The bottom of Section 3 totals net equity in all business assets. This number, often called Box A, becomes the first half of the RCP formula. Errors here cascade through the rest of the form.

Section 4 — Business Income and Expenses

Section 4 captures the business’s future income component of RCP. Lines 17 through 22 list gross monthly receipts, cost of goods sold, gross rental income, interest income, dividend income, and other income. Lines 23 through 32 list allowable monthly expenses, including materials, inventory, wages, rent, utilities, vehicle costs, insurance, taxes, and other necessary business expenses.

The IRS uses actual business expenses rather than the Collection Financial Standards, which apply only to individuals on Form 433-A (OIC). The consequence of inflating expenses is a recalculation by the Revenue Officer, who can pull bank statements and merchant processor reports.

The net difference, available monthly income, is multiplied by 12 if the offer is a lump sum cash offer paid within five months, or by 24 if it is a periodic payment offer paid within six to twenty-four months. This multiplier comes from IRM 5.8.5.20.

Example: Harbor Light Marketing, LLC has $18,000 of gross monthly receipts and $16,500 of allowable monthly expenses, leaving $1,500 of available monthly income. A lump sum offer would multiply $1,500 by 12, producing $18,000. A periodic payment offer would multiply $1,500 by 24, producing $36,000.

A common misconception is that owner draws and member distributions are deductible business expenses. They are not. They are returns of capital to owners and must be added back into available income under IRM 5.8.5.20.4.

Section 5 — Calculating the Offer Amount

Section 5 brings together Box A (net equity in assets) and Box B (future income value) to produce the minimum offer. The formula is:

[ RCP = \text{Net Equity in Assets} + \text{Future Income Value} ]

The offer must equal or exceed RCP, with very narrow exceptions. The IRS may accept less under Effective Tax Administration if collecting RCP would cause economic hardship, but ETA acceptances are rare under IRM 5.8.11.2.

Lump Sum vs. Periodic Payment

A lump sum cash offer is paid in five or fewer installments within five months of acceptance. A periodic payment offer is paid in six to twenty-four monthly installments. The trade-off is the multiplier: lump sum uses 12 months of future income; periodic uses 24 months. The consequence of choosing periodic is a higher minimum but lower upfront cash.

Worked Example

Summit Mechanical, Inc. has $25,000 of net asset equity and $1,000 of monthly available income. A lump sum offer must be at least $25,000 plus $12,000, which is $37,000. A periodic payment offer must be at least $25,000 plus $24,000, which is $49,000. The owner chooses lump sum, sends 20% ($7,400) with the application, pays the $205 fee, and waits for an examiner to assign the case.

Three Real-World Filing Scenarios

Filing Move	Resulting Outcome
Restaurant LLC discloses every Square reserve, PayPal balance, and tip-jar account	IRS verifies disclosure quickly and accepts the offer at calculated RCP
Construction S-corp omits a $40,000 receivable owed by a slow-paying general contractor	Revenue Officer adds back $32,000 (QSV) to RCP and counters the offer
Trucking partnership uses inflated diesel-cost figures to lower available income	Examiner rebuilds expenses from fuel-card statements, raises future income value, and the offer is rejected

Three Named Examples Walking Through Form 433-B (OIC)

Example 1 — Riverside Plumbing, Inc.

Riverside is an S-corp owing $312,000 in 941 taxes. Section 3 shows $5,000 cash, $40,000 in trucks (with $25,000 in loans, leaving QSV equity of $7,000), and $0 real estate. Section 4 shows $2,000 monthly available income. Lump sum RCP equals $5,000 minus $1,000 operating allowance plus $7,000 plus ($2,000 × 12), which totals $35,000. Riverside offers $35,000.

Example 2 — Cedar Coast Bakery LLC

Cedar Coast owes $88,000. The bakery has $3,000 cash, a $25,000 oven with $5,000 income-producing-asset allowance, and $500 monthly available income. Lump sum RCP equals $2,000 plus $15,000 (QSV $20,000 minus $5,000 IPA) plus $6,000, which totals $23,000. Cedar Coast offers $23,000.

Example 3 — Northwind Logistics, Inc.

Northwind owes $1.2 million in employment taxes. Section 3 shows $80,000 of cash and $300,000 in tractors with $250,000 of loans. Section 4 shows $0 available monthly income because the company is barely breaking even. Lump sum RCP equals $79,000 plus $50,000 plus $0, which totals $129,000. Northwind submits a $129,000 lump sum offer and prepares for a counter from the IRS Centralized Offer in Compromise unit in Memphis or Brookhaven.

Mistakes to Avoid

• Listing the wrong legal name on the form. Causes automatic return when the EIN-name pair fails IRS Master File matching.
• Omitting a bank, PayPal, Stripe, or Square account. Triggers a dissipated assets finding and inflated RCP.
• Inflating expenses with owner perks. Country-club dues, personal vehicle leases, and family payroll get reversed by examiners.
• Forgetting accounts receivable. The IRS treats A/R as a collectible asset at QSV under IRM 5.8.5.4.6.
• Skipping the Form 656 attachment. Form 433-B (OIC) without a 656 is just a financial statement, not an offer.
• Failing to attach three months of bank statements. Required by the Form 656 Booklet and missing it returns the offer.
• Sending the package to the wrong service center. Use either the Memphis IRS Center or Brookhaven IRS Center based on state.
• Missing a current federal tax deposit. Voids eligibility and the IRS returns the offer with the fee retained.
• Letting the Collection Statute Expiration Date expire mid-review. The IRS does not get a do-over, but you lose collection alternatives during pendency.

Do’s and Don’ts

Do’s

• Do pull current IRS account transcripts before drafting the form, because the numbers must match.
• Do use IRS Form 2848 to authorize a CPA, EA, or attorney to communicate with the IRS.
• Do file all delinquent returns first, since the IRS rejects offers for non-filers under IRM 5.8.3.
• Do keep operating the business in good standing, because liquidation during review wipes out the offer.
• Do track the one-year mark after submission, because the offer is deemed accepted if the IRS has not decided it within 24 months under IRC § 7122(f).

Don’ts

• Don’t sell or transfer business assets during the offer review, because that is dissipation.
• Don’t pay related-party loans before unrelated creditors; the IRS treats it as a preference.
• Don’t hide a member or officer from Section 2; TFRP exposure follows the omitted person anyway.
• Don’t combine multiple business entities on one Form 433-B (OIC); each EIN files separately.
• Don’t ignore state tax debts, since California and New York run separate OIC programs that need their own forms.

Pros and Cons of Filing Form 433-B (OIC)

Pros

• Stops most levies during review under IRC § 6331(k), giving the business breathing room.
• Tolls the Collection Statute while the offer is pending plus 30 days, often a useful side effect for planning.
• Removes federal tax liens once the offer is paid in full and the five-year compliance period is met.
• Prevents new lien filings on most accepted offers, allowing the company to obtain credit again.
• Resolves the entire liability rather than dragging an installment agreement out for years.

Cons

• Discloses every asset and account, which the IRS keeps in its files for future use.
• Requires five years of tax compliance under Form 656 terms, and any default reinstates the full original debt.
• Costs $205 up front plus a 20% lump sum or first-installment deposit that is not refundable.
• May trigger a Trust Fund Recovery Penalty against owners if not already assessed.
• Public record on accepted offers through the IRS Public Inspection File for one year after acceptance.

Federal vs. Major State OIC Programs

Program Element	Federal IRS Standard
Form name	Form 433-B (OIC) with Form 656
Application fee	$205 (limited entity waiver)
Asset valuation rule	Quick Sale Value at 80% of FMV per IRM 5.8.5
Future income multiplier	12 months lump sum / 24 months periodic
Compliance period after acceptance	Five years of timely filing and payment

State programs differ. The California Franchise Tax Board uses Form 4905BE for businesses and applies its own RCP rules. The New York State Department of Taxation and Finance uses Form DTF-4 or DTF-4.1. The Texas Comptroller handles state sales tax compromises through a different settlement program. The consequence of ignoring state debts is continued state-level levies even after the IRS accepts the federal offer.

Key Court Rulings to Know

The Supreme Court in United States v. Williams, 514 U.S. 527 (1995) confirmed taxpayer standing to challenge wrongful collection. The Tax Court in Johnson v. Commissioner, 136 T.C. 475 (2011) clarified that the IRS abuses discretion when it ignores reasonable expense documentation in OIC review. The Eighth Circuit in Speltz v. Commissioner, 454 F.3d 782 (8th Cir. 2006) upheld IRS rejection where future income projections were ignored.

The plain-English takeaway is that the IRS must actually consider the financial information on Form 433-B (OIC), and a business can appeal a rejection through the IRS Independent Office of Appeals within 30 days using Form 13711. The consequence of missing the 30-day window is loss of administrative review.

A common misconception is that Tax Court will substitute its own RCP calculation. It will not; under Murphy v. Commissioner, 469 F.3d 27 (1st Cir. 2006), review is for abuse of discretion, not de novo recalculation.

Step-by-Step Filing Process

1. Pull current account transcripts for every period in question.
2. File any missing returns and make current federal tax deposits.
3. Gather three months of bank statements, current A/R aging, and depreciation schedules.
4. Draft Form 433-B (OIC), complete Form 656, and select lump sum or periodic payment.
5. Sign, date, attach the $205 fee and 20% (or first installment), and mail to the correct service center.
6. Respond to any examiner request within 14 days to avoid return.
7. Maintain compliance for five years after acceptance.

FAQs

Can a business with an open bankruptcy file Form 433-B (OIC)?

No. The automatic stay of 11 U.S.C. § 362 blocks IRS collection alternatives, so the IRS will return the offer until the bankruptcy case closes or is dismissed.

Does filing Form 433-B (OIC) stop IRS levies?

Yes. Under IRC § 6331(k), the IRS cannot levy while a processable offer is pending and during the 30 days after rejection.

Can the IRS still file a federal tax lien while my offer is being reviewed?

Yes. The IRS may file a Notice of Federal Tax Lien during pendency, although IRM 5.12.2 limits new filings if the offer appears likely to be accepted.

Is the $205 application fee refundable?

No. The fee is non-refundable, and the IRS does not return it even if the offer is rejected, although it may be applied to the underlying debt.

Can a single-member LLC use Form 433-B (OIC)?

Yes. A single-member LLC that owes employment taxes in its own name uses Form 433-B (OIC), but disregarded LLCs with income tax debts use Form 433-A (OIC).

Does Form 433-B (OIC) toll the Collection Statute Expiration Date?

Yes. The CSED is suspended while the offer is pending plus 30 days under IRC § 6331(i)(5).

Can owners submit a personal Form 433-A (OIC) at the same time?

Yes. Owners with personal liabilities, including TFRP assessments, file their own Form 433-A (OIC) and Form 656 alongside the business’s package.

Will the IRS accept any offer below RCP?

No. Offers below RCP are accepted only under Effective Tax Administration in narrow hardship or public-policy situations under IRM 5.8.11.

Can I appeal a rejection of Form 433-B (OIC)?

Yes. A rejected offer can be appealed within 30 days using Form 13711 to the IRS Independent Office of Appeals.

Does an accepted OIC eliminate state tax debts?

No. A federal OIC settles only federal liabilities, and the business must separately apply through state programs like the California FTB or New York Tax Department.

Are accepted Offers in Compromise public information?

Yes. Accepted offers are listed in the IRS Public Inspection File for one year after acceptance under IRC § 6103(k)(1).

Is the IRS required to decide my offer within a set time?

Yes. Under IRC § 7122(f), an offer is deemed accepted if not rejected within 24 months of submission, excluding certain tolling periods.