New IRS Guidelines For “Allowable Living Expenses”

Just a couple of weeks ago, the Internal Revenue Service issued the 2007 allowable living expense standards. The new standards apply to those of us taxpayers with a tax debt living in California as well as to the rest of the country. Elsewhere in this blog in connection with installment agreements and the Offer In Compromise, I have discussed the so-called “national standards”. These standards enable the Internal Revenue Service to treat all taxpayers in the same region the same way when it comes to paying for allowable living expenses before paying back-taxes.

Allowable living expense standards, also known as collection financial standards, are used to determine the ability of a taxpayer to pay a delinquent tax liability. For purposes of federal tax administration the standards are effective Oct. 1, 2007.

This year the standards have been redesigned to incorporate:

a new category for out of pocket health care expenses;

the elimination of income ranges for national standards for food, clothing and other items;

a nationwide set of tables for national standard expenses, eliminating separate tables for Alaska and Hawaii;

an expanded number of household categories for housing and utilities;

an allowance for cell phone costs in housing and utilities;

equal allowances for first and second vehicles under transportation expenses;

fewer Metropolitan Statistical Areas for vehicle operating costs; and
a separate nationwide public transportation allowance.

To discuss this and other tax problems with a former IRS tax attorney, call Mitchell A. Port at 310.559.5259.