Taxation & Estate Planning

IRS allowances: Expenses you may not need to verify in settling your tax debt

By howardlevy

When negotiating a resolution to a tax problem, expect the IRS to ask for verification of your living expenses.  After verification, the IRS will likely match the amount you spend to their tables of allowances.

The IRS wants to know how much you can repay them – and the government relies on their standard expense allowances to help them calculate it.

But there are three expenses that the IRS should allow you under their guidelines with no verification required.

And because verification is rarely necesary for these expenses, the IRS will allow the expenses according to their guidelines - even if you spend less.  This can provide a welcome cushion to your budget in negotiations with IRS over what you can pay.

Here are the three expenses the IRS should allow you without verification:

1.     Food, clothing and household supplies will be allowed by the IRS – without verification – based on how many are in your household.  The IRS is currently allowing $1,371.00 monthly for food and clothing for a family of four. Take a look at the IRS tables to see how you compare here.

2.     Out of pocket medical expenses are allowed in the amount of $60.00 per month, per person in your household.  A family of four should automatically be allowed $240.00 in monthly medical expenses, even if less is spent.  If you are 65 and over, the IRS will allow $144.00 per month -no verification required.  If you spend more, and you can verify it, the IRS should allow it.

3.     Car operating expenses are allowed by the IRS based on the city or region you live in.  For example, if you live in Detroit, the IRS will allow  $588.00 monthly for gas, insurance and maintenance for two cars in a household.  See what the IRS will automatically allow you for driving your car here.

These allowances are used by the IRS in determining how much is paid in installment agreements, the settlement value of an offer in compromise, and whether collecting from you would pose a hardship.  Most every IRS collection case involves navigating the government’s standard expense allowances. As IRS collection cases turn on these guidelines, understanding and maximizing them is essential to sucess.

Full post as published by IRS and the Law on March 21, 2010 (boomark / email).