Overview

Preparing a clear financial statement is essential when you owe back taxes and seek an installment agreement. The IRS uses this information to decide whether to accept your proposed payment amount or request more information. In my practice helping clients with tax collections, I’ve seen well-documented statements speed approvals and reduce back-and-forth requests.

Step-by-step preparation

  1. Choose the right form or format
  • Use the IRS’s accepted collection statements where requested: commonly Form 433-F (Collection Information Statement) or the streamlined online process for eligible balances (see IRS guidance) (IRS: payment plans and Form 433-F). If the IRS asks for Form 433-A or 433-B, follow that instruction.
  1. Gather income documents
  • Recent pay stubs, year‑to‑date income statements, 1099s, bank deposit histories for self‑employment, unemployment benefit statements, Social Security award letters, and any other income evidence.
  1. Itemize monthly living expenses
  • Break expenses into housing (rent/mortgage, insurance, property taxes), utilities, food, health care (insurance premiums, out‑of‑pocket medical costs), transportation (loan payments, insurance, fuel), and legally required payments (court-ordered support). Use actual bills and bank records.
  1. List assets and liabilities
  • Note cash, checking/savings balances, retirement accounts, real estate equity, vehicles (current value and loan balance), and other investments. List outstanding loans, credit card balances, and judgments.
  1. Calculate a realistic monthly payment
  • Work from documented disposable income (income minus necessary expenses). Propose a payment the IRS can enforce and you can sustain; if you overpromise and miss payments you risk default.
  1. Attach supporting documentation
  • Include copies of pay stubs, bank statements (last 2–3 months), proof of recurring bills, loan statements, and bills for special or irregular expenses (medical, childcare). Label attachments so reviewers can match them to line items.

Documentation checklist

  • Photo ID and Social Security numbers for taxpayers and spouses
  • 2–3 months of bank statements
  • Most recent pay stubs or profit/loss summary for self‑employed
  • 1099s, SSA letters, and other income notices
  • Mortgage/lease statements, utilities, auto loans, insurance bills
  • Medical bills and evidence of extraordinary expenses
  • Loan statements and credit card statements

Forms and filing options (2025)

  • Online Payment Agreement: if eligible you can apply through the IRS Online Payment Agreement tool (see IRS guidance). This is often faster for balances below IRS-specified thresholds.
  • Form 433-F: used by the IRS to collect financial details when determining ability to pay. See Form 433-F details at the IRS website: https://www.irs.gov/forms-pubs/about-form-433-f
  • Form 9465: for a basic Installment Agreement Request (may still be referenced by the IRS for simple cases).

(Always confirm the current forms and thresholds on the IRS website before filing.)

Real-world examples (brief)

  • Freelancer: A contractor with fluctuating income included monthly averages from bank deposits plus expense receipts for a home office and health insurance. Showing conservative monthly income helped secure a lower monthly payment that matched seasonal cash flow.
  • Medical hardship: A taxpayer documented recurring high out‑of‑pocket medical costs. Clear bills and insurance statements justified lower disposable income and a reduced payment amount.

Common mistakes to avoid

  • Guessing or rounding income/expenses without backup documents
  • Omitting recurring debts (student loans, child support)
  • Proposing a payment based on optimistic future earnings
  • Failing to update the IRS when income or expenses change

Professional tips

  • Be pragmatic: propose something you can pay for the life of the agreement. In my practice, clients who built conservative buffers avoid defaults.
  • Organize attachments: use a cover sheet mapping each supporting document to the corresponding line on the statement.
  • Consider seeking a CFPB‑recommended consumer or tax professional if your situation is complex (especially business owners or multiple income sources).

Where to get help and authoritative resources

  • IRS: Payment Plans and Installment Agreements and Form 433-F information — https://www.irs.gov (search “payment plans” or “Form 433-F”).
  • Consumer Financial Protection Bureau: general debt-management guidance — https://www.consumerfinance.gov

Related FinHelp articles

Frequently asked questions

  • How long does the IRS take to review a financial statement?
    Response times vary; simple online agreements can be approved quickly, while reviewed statements that include Form 433-F may take several weeks.

  • Can I submit bank statements redacting unrelated transactions?
    You may redact personal details unrelated to the IRS request (consult the IRS request instructions). Do not remove items that contradict the statement.

Disclaimers

This article is educational and does not replace legal or tax advice. Check current IRS pages for forms, thresholds, and online tools before submitting. For tailored guidance, consult a tax professional or enrolled agent.

Sources