Collection Financial Standards: Guidelines For Repayment Of Delinquent Taxes

You may be familiar with the so-called “national standards” used by the Internal Revenue Service in calculating repayment of delinquent taxes. As of October 3, 2011, new “standards” were issued. Those standards are used so that all taxpayers located in a particular locale are treated the same as every other taxpayer in the same locale; no longer does the Service retain the same degree of discretion it used to have when evaluating one’s ability to pay those taxes.

For instance, for Los Angeles County, the national standards for a family of 5 or more for housing and utilities is $2958 per month.

The maximum allowed for food, clothing and miscellaneous for a family of 5 is $1639 per month.

The maximum amount for vehicle ownership costs for 2 cars is $992 per month while the maximum operating costs for 2 cars is $590.

Separate from health insurance costs, the maximum allowed for out of pocket health care costs for those over age 65 is $144 per month and for those under age 65 is $60 per month.

To the extent the information on the form 433-A “Collection Information Statement” exceeds the maximum national standards for a category of expenditure, the Internal Revenue Service often simply treats the excess expenditure as if it was not incurred and thus the excess amount is counted as “available” to pay delinquent taxes. For example, $2958 is the maximum allowed for housing and utilities but you may actually spend $8389. The extra $5431 will likely be counted as “available” to pay taxes.

When the amount claimed on the form 433-A is more than the total allowed by the national standards, you must provide documentation to substantiate those expenses are necessary living expenses. The IRS won’t simply allow a large mortgage obligation to be sufficient to demonstrate that the expense is “necessary” since that might allow an unlimited amount to be spent on a mortgage and leave nothing left with which to pay delinquent taxes. The IRS will not subsidize your standard of living by allowing a large mortgage while taxes remain unpaid.

I hope this casts the proper light on what lies ahead when negotiating an installment agreement.

For tax help, call a qualified tax attorney. Call Mitchell A. Port at (310) 559-5259.