Category: IRS Allowable Living Expense Standards

IRS Collection Standards revised March 26, 2018

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The IRS has issued revised National and Local standards (IRS Collection Standards) for calculating repayment of delinquent taxes. These revised IRS Collection Standards are effective March 26, 2018.

These “standards” are used by the IRS in cases requiring financial analysis to determine a taxpayer’s ability to pay on delinquent taxes. As such, they impact, installment agreements, Offers in Compromises, determinations of undue hardship, and collection matters.

Overview of Changes to IRS Collection Standards:

National Standards – Food, Clothing and  Other Items.

The revised Total allowances for Food, Housekeeping supplies, Apparel & Services, Personal Care Products & Services and Miscellaneous were increased by varying amounts for each Family Size category ranging from a .435 Percent increase to a 6.183 Percent increase. The Additional Person allowance (above 4 persons) was increased by 9.84 percent.

National Standards – Out of Pocket Health Care Expenses.

The Out of Pocket Health Care Expense Allowance was increased by 6.122 percent (from $49. to $52.) for the under age 65 category.

But, the allowance for the age 65 and older category was decreased by 2.56 percent (from $117. to $114.).

Local Standards – Transportation.

The Public transportation allowance was reduced from $189.  to  $178.

On the other hand, the Ownership Costs for one car and for two cars were each increased by 2.47 percent.

Operating Costs by region were revised, with some geographic regions having increased allowances while others were reduced.

Local Standards – Housing and Utilities.

          These standards were also revised by state and county.

IRS Collection Standards – Not in compliance with the law?

A substantive legal problem, apparently ignored by the IRS, continues to exist as to the IRS Collection Standards. The law mandates that the IRS collection standards are to provide for an adequate means to provide for basic living expenses.  In contrast, the IRS computation is based upon what people spend to live, not what goods or services actually cost to live.  Just because your family can’t afford to pay for a basic living expense, doesn’t mean that it is no longer a basic living expense. But, this is how the IRS determines its allowances.  The Taxpayer Advocate has continued to recommend that the IRS adopt proper standards. The IRS has not. See Your basic standard of living and determining “ability to pay”. Is the IRS not following the law? ; and providing for retirement is necessary for a family’s health and welfare). Also, IRS Collections continues to routinely “impose” these “standards” and ignores the legal requirement that they take into account a taxpayer’s particular facts and circumstances.

The Current IRS Collection Standards are referenced at this link.

 

Tax Cuts and Jobs Act of 2017: Impact on IRS Collection Financial Statement Submissions and Substantiation

To determine the allowable National Standard for food, clothing, and other items, the IRS generally bases the allowable National Standard expense on the number of persons allowed as exemptions on the taxpayer’s most recent year income tax return (see IRS National Standard, food, etc…, as of March 14, 2018).  However, for tax years 2018 through 2025, H.R. 1-115th Congress (the Tax Cuts and Jobs Act) reduced the deduction amount for personal exemptions to “zero”.  The IRS will be modifying the tax forms for this and other changes. However, for tax year 2018 and future individual returns, it would appear necessary that the IRS continue to have at least some information for personal exemption information on the tax form (e.g., pages 1 and 2 of F 1040).  Why?  Other tax provisions still utilize the number of taxpayer’s “dependents”.  For example: to determine property exempt from levy – Tax Cuts and Jobs Act Section 11041 (d)(4)(A) and (B);  wage withholding rules – Tax Cuts and Jobs Act Section 11041 (c)(2)(B); and, Child Tax Credit – Tax Cuts and Jobs Act Section 11022(a).  If this “exemption” / “dependent” information doesn’t continue to be set forth on the face of the F 1040 returns (for tax years 2018 and following), then it would appear that additional forms and/or documentation may be required as part of the substantiation process for IRS Collections Financial  Statements  (e.g., for 433 A,  433 F)  to determine (and verify) your “allowable” National Standard expense Allowances.

Stop IRS Wage Garnishment. Economic Hardship

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Have a hardship?  Stop IRS wage garnishment.  By showing economic hardship you can reduce or stop IRS wage garnishment.  But, many times it is difficult to obtain a hardship determination from the IRS. For example, if you owe for a particular tax year for which the statute of limitations on collection is about to run (the IRS generally can collect on a tax debt for 10 years), IRS collection employees will seek to impose a minimum payment amount on you even if  you are  suffering from financial hardship.

The reason for this is that the IRS knows that in the near future,  it will be prohibited by law from getting payment.  In reality, the IRS will work in “reverse” and determine the amount they “need” to pay the debt before it expires. The IRS will then seek to impose that amount upon you.

IRM section 1.2.14.1.14 (Policy Statement 5-71) provides, in part:  “A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer.”

Generally, detailed financial statement analysis is needed in order obtain “undue hardship” status.  The fact is that in most cases taxpayers do not prepare the financial statement forms (e.g., Form 433-A, 433-F, etc…) properly. In many cases, important facts and circumstances are not provided by the taxpayer, because the IRS forms “didn’t ask for them”.  Moreover, proper legal argument and presentation of your particular facts and circumstances is critical in order to have the IRS stop wage garnishment and bank levy.

Another problem is that the IRS will use its Allowable Living Expense “standards”, and will seek to ignore your particular facts and circumstances, as required by law.

Obtaining “currently not collectible” status merely places your account on the IRS back burner. Interest and penalties continue to accrue, and the debt grows.  However, if you are suffering from undue hardship, then you need such relief. Additionally, such may, in appropriate cases, be a planning opportunity to have the statute of limitations run on a particular tax year and have the tax debt “go away”.

When you need IRS wage garnishment and levy release assistance, please contact  IRSLevyRelief.com  – toll free 1-866-482-97

 

 

 

 

Owe Back Taxes? No retirement savings for you.

The IRS Allowable Living Expense standards do not provide for a minimal retirement savings allowance in computing a taxpayer’s ability to pay. However, retirement savings are in actuality necessary for maintaining the health and welfare of today’s families. The IRS position is that “discretionary retirement savings” are not a necessary current living expenses while the taxpayer is repaying past due taxes. Instead, the IRS views such a provision as an amount which can be paid to them. Of course, for example, if you work for a State or a City which “requires” retirement savings, then such is “allowable”. This IRS “double speak” is absurd.

The Taxpayer Advocate in its Fiscal Year 2018 Objectives Report to Congress has clearly stated that the current Allowable Living standards are not based upon “an amount of money that allows for a basic standard of living”. Contrary to the IRS position, providing for retirement is necessary for a family’s health and welfare. The Taxpayer Advocate has advised in its Objectives Report that it will be issuing a Taxpayer Advocacy Directive ordering the IRS to expand the categories available in the Allowable Living Expenses. Hopefully, this will include minimal retirement savings.