IRS says you spend too much? Solutions to IRS expense allowance guidelines

by Howard S. Levy, Esq. on September 10, 2012

in Automated Collection Service, Bankruptcy - Chapter 13, Collection Financial Standards, Form 433A, Installment agreements, IRS Financial Statements

You decide to tell the IRS collection representative what you make, give them your paystubs, and innocently list your monthly living expenses.  You would like a payment plan, and have some idea of what you can afford.  Or you do not think you can afford any payment, and would like the IRS to put your debt in forbearance.

You nearly drop after the IRS plugs all of your numbers into their calculator, applies their living expense allowances, and tells you what they think you can afford to pay to them.

Needless to say, the IRS thinks you can pay more than what you have offered, mainly because your living expenses are higher than what the IRS thinks they should be.  It could be that you have an old house and high utilities, or have a car or mortgage payment that exceeds the IRS financial standards.

Either way, the IRS is demanding the difference and threatening levy action if you do not agree.

The IRS and you are in two different worlds, and you simply do not have the extra money.

The good news:  The IRS does have solutions for when their expense allowances do not match your reality.  (They just do not always tell you about it or offer it .)

Solution #1 to IRS expense guidelines. The Five Year Repayment Rule.  This can be found in Internal Revenue Manual  Simply put, if your budget allows you to repay the IRS in five years, the IRS can allow all of your expenses, and not apply their rigid financial standards.

Solution #2 to IRS expense guidelines: Streamlined installment agreement.  In streamlined installment agreements, the IRS will give you as long as 6 years to repay them without a full financial disclosure of your income and living expenses.  You can qualify for a streamlined agreement if you owe under $50,000 and can repay in 6 years.  As streamlined installments require minimal financial disclosure, the IRS does not apply their expense guidelines.

Solution #3 to IRS expense guidelines: Chapter 13 bankruptcy.   Chapter 13 is a repayment plan supervised by the bankruptcy court, not the IRS.  It can result in a payment plan using your real budget and actual cash flow, not the IRS’ version.  Chapter 13 has added benefits, including stopping accruals of interest, penalties, and possibly reducing how much tax you have to repay (benefits not available internally with the IRS).  A Chapter 13 can last between 3 to 5 years.

When the IRS applies their often overbearing expense and financial standard allowances and demands a payment you cannot afford, know how to craft a solution that works for you.

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