When an individual is facing IRS debt and is working to get it resolved, they’re often required to fill out a Collection Information Statement. The Revenue Officer assigned to the case is allowed to (and often does) question any expenses that look fishy. However, what expenses are considered allowable can sometimes perplex a taxpayer.
For example, the IRS sets very specific limits on what a household can claim as an expense. These are often referred to as the National Standards. However, IRS simultaneously explicitly prohibits the claiming of certain expenses for collection purposes, including expenses that are deductible or create tax credits on a tax return. Many taxpayers are confused by this fact, and it’s just one of the numerous inconsistencies across the tax code.
When it comes to the dollar amounts which are considered allowable per the National Standards, many people are shocked at how low some of the numbers are. Conversely, there are other people that are shocked at how large some of the numbers are. Keep in mind that the IRS National Standards reflect the government’s calculation regarding a precisely middle class existence. For example, the allowable housing expense will vary geographically, because housing is cheaper in some parts of the United States, and much, much more expensive in other parts. However, the allowable expense for any area represents the median housing cost for that geographical area.
The National Standards for other expenses, such as public transportation and out of pocket health care costs, are the same for everybody nationwide, and are updated every couple years. For food, clothing, and other miscellaneous expenses, the IRS allows a set amount based on the number of family members in the household.
Historically, the IRS has not allowed expenses for unsecured obligations, such as your minimum monthly credit card bills and student loan payments. However, as part of the 2012 “Fresh Start” program, the IRS now gives collections personnel discretion on these items. Your Revenue Officer may permit you to claim these items, and it is therefore better if you do so up front, and let them tell you later that you can’t.
Hopefully this gives you a little more insight into why some expenses are allowed and how they are calculated. In the end, the most important fact is to ensure that that you claim every allowable expense on your Form 433. Doing so will ultimately minimize the amount you end up paying the IRS on your back tax liabilities.