Tag: Economic hardship

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.

 

STOP IRS Wage Garnishment - Economic Hardship

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An IRS Wage Garnishment can be devastating. An individual’s wages, salary, and other income ( includes payment for personal services in a work relationship) can be levied. But, Economic hardship can stop an IRS Wage Garnishment.

IRC Section 6343(a)(1)(D) states that a levy shall be released if the Secretary has determined that “such levy  is creating an economic hardship due to the financial condition of the taxpayer”.  For example, the IRS wage garnishment is causing an economic hardship and preventing the taxpayer from paying necessary living expenses (rent, utilities, food, car payment, medical bills, etc…) for the taxpayer and family.

Unlike other levies, when the IRS levies your wages and salary, the levy is continuous. That means an IRS wage garnishment attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar type compensation. In comparison, a bank levy attaches only the monies in the account when the levy is served. It does not reach money deposited later.

A limited part of an individual taxpayer’s wages, salary, (including fees, bonuses, commissions and similar items) and other income, as well as retirement and benefit income, is exempt from levy.  When the IRS wage garnishment is served on the employer, the employer is to provide the employee with a statement that the taxpayer is to complete and return within 3 days. If not provided, then the exempt amount will be figured as if the taxpayer is married filing separate with one exemption.

When there is a joint liability, the IRS will generally not levy on both  incomes of husband and wife, except in flagrant cases of neglect or refusal to pay.  If the taxpayers are separated, then the IRS will consider collecting from both spouse’s income by serving an IRS wage garnishment on the employer of each.

By IRS policy, a levy attaches only to the taxpayer’s usual take home pay. However, voluntary deductions can be disallowed. For example, if the taxpayer has deductions for a savings account or to buy shares in a mutual fund, the IRS will require that those deductions be stopped so that the funds will be applied to the levy.

The IRS wage garnishment is not an installment agreement.  If you ignore the wage garnishment, other seizure actions may still take place.

ECONOMIC HARDSHIP CAN STOP WAGE GARNISHMENTS.

An IRS wage garnishment can be stopped by proving that you have an economic hardship.

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 a detailed financial statement will be required.  This process can become involved and complex  due to various factors. For example:

Not preparing the financial statement forms correctly.

A picture is worth a thousand words, and the financial statement is the portrait of your economic situation, and your particular facts and circumstances.  Most taxpayers simply do not fill these forms out properly because they may not recognize what factors are important to the IRS.

Statute of Limitations:

What if the Statute of Limitations is about to run out on the ability of the IRS to take collection actions (e.g., wage garnishment, bank levy, seizure, etc…)  as to an older year? In these situations, the IRS may become increasingly aggressive by demanding payments which the taxpayer truly can’t pay without suffering economic hardship.

Failure to meet deadlines

Taxpayers having a history of failing to comply with previously agreed deadlines for submitting financial statement information. This can result in a more aggressive administrative posturing by the IRS.

IRS National and Local Living Expense “Standards”

The IRS may very well seek to impose  its National and Local living expense standards when the facts and circumstances show that a deviation from such standards is necessary to avoid an actual hardship.  There are ongoing “issues” (problems) with the IRS position in these matters. For example, The Taxpayer Advocate issued its 2013 Annual report To Congress –  listing as  Most Serious Problem #7, that the IRS Continues to Levy on Taxpayers it Acknowledges are in Economic Hardship and then Fails to Release the Levies. Then,   as to your basic standard of living and determining “ability to pay”,  there is a fundamental issue as to whether the IRS is following the law.  And,  If you owe back taxes, then there is no retirement savings provision for you. The Taxpayer Advocate disagrees with such position.

Unfiled tax returns – and undue hardship 

Where there are unfiled returns, it is not only an abuse of discretion, but illegal for the IRS to proceed with an IRS levy where the levy is creating an economic hardship (see Vinatieri v. Commissioner of Internal Revenue, 133 T.C. 392 (2009).  However, your mere assertion of such status is not going to win the day.  It is important that taxpayers provide the required financial information, with supporting documentation, to substantiate economic hardship. Further, do not make frivolous arguments as they detract from the claim of economic hardship.

When you need assistance, call a tax lawyer with over 30 years of experience. 1-866-482-9767

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