As of March 28, 2016, the IRS Collection Financial Standards have decreased. So what does does this mean for you?
These standards refer to your ability to pay a delinquent tax liability, outside of your necessary expenses. Necessary living expenses for health, welfare, and production of income are based on a series of National and Local Standards. A decrease in these standards means the allowable amount you or your family actually spend for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous expenses has been reduced. The allowable amounts are based on data from the Bureau of Labor Statistics Consumer Expenditure Survey. Based on a Medical Expenditure Panel Survey, National Standards set for out-of-pocket health care expenses have also been reduced.
Local standards make up another aspect of the IRS Collection Financial Standards. Covering housing, utilities, and transportation, they vary by the location in which you live. You’re usually allowed the amount actually spent, or the amount of the local standard – whichever is less.
Housing and utilities standards are based on U.S. Census Bureau, American Community Survey and BLS data, provided by state down to the county level for your primary residence. Transportation standards are made up of two parts: a nationwide figure for monthly loan or lease payments called ownership costs, and additional amounts for monthly operating expenses by census region and Metropolitan Statistical Area (MSA). Both are considered a part of the local standards. No car payment? Then the operating cost alone is used to calculate allowable transportation expense. Public transportation costs are also calculated using a single nationwide allowance based on BLS data. Again, you’re allowed the amount actually spent, or the standard – whichever is less.
Taxpayers should note that the number of persons used to determine all necessary living expenses must match the number of exemptions listed on your most recent income tax return.
Once the ability to pay a delinquent tax liability has been established, taxpayers who do not take on streamlined agreements with the IRS may qualify for repayment using the “six year rule.” A period of six years is allowed for repayment, and includes the ability to pay living expenses that exceed the Collection Financial Standards, as well as other minimum payments such as student loans or credit cards. In these cases, financial information is required, but substantiating reasonable expenses isn’t necessary.
With the decrease in IRS Collection Financial Standards, taxpayers may need help determining necessary living expenses or ascertaining qualification for the six year rule. You can rely on Tax Defense Partners to take your taxpayer information and documentation and do the heavy lifting. Call Tax Defense Partners for your FREE consultation today.
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