The IRS uses "Collection Financial Standards" to assist in establishing a taxpayer's capability to pay an outstanding tax liability. Permissible living expenses include those that meet the test of being necessary to provide for a taxpayer's and his or her family's health and welfare, as well as his or her capacity to generate income.
The IRS admissible living criteria are created to include essential items including a category for an out-of-pocket health care expenses and a budget for the cell phone service. Greater rates may be permitted by the IRS if a taxpayer is able to demonstrate that these amounts are insufficient. As you might expect, the allowances vary widely across the nation.
The four categories approved by the IRS are:
1. Food, Clothing and Miscellaneous Items
National monthly standards have been established for 5 necessary expenses of food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous items.
2. Health Care
National out-of-pocket health care standards have been established for out-of-pocket expenses including medical services, prescription drugs, medical supplies, eyeglasses, contact lenses, etc. An age specific monthly amount is allowed per person in addition to what is paid for health insurance.
3. Housing and Utilities
The monthly standards for housing and utilities are determined on a local basis. The amounts allowed for a particular area and family size cover a taxpayer's primary residence. They include mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, telephone, and cell phone.
Transportation standards for taxpayers with a vehicle consist of several parts:
Nationwide amounts for monthly loan or lease payments — called ownership costs.
Additional amounts for monthly operating costs, which include repairs, maintenance, insurance, fuel, registration, inspection, parking, and tolls.
There's also a single nationwide public transportation allowance.
Isom Accounting and Tax CPA firm specializes in the tax representation of individuals and businesses in front of the IRS and other tax authority. Isom CPA firm is a Southern California boutique firm located in Rancho Cucamonga, CA, which provides nationwide virtual tax debt resolution, accounting and tax services to help its clients get and stay compliant with the tax agencies. Nataliya Isom, CPA is the founder of the Isom Accounting and Tax and is a member of the American Society of Tax problem Solvers, Tax Rep Network, CalCPA and AICPA.