Category: IRS Financial Statements

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.