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Collection Financial
Standards are used to help determine a taxpayer's ability to pay a
delinquent tax liability. Allowable living expenses include those
expenses that meet the necessary expense test. The necessary expense
test is defined as expenses that are necessary to provide for a taxpayer’s
(and his or her family's) health and welfare and/or production of income.
National Standards
for food, clothing and other items apply nationwide. Taxpayers are
allowed the total National Standards amount for their family size, without
questioning the amount actually spent.
National Standards
have also been established for minimum allowances for out-of-pocket health
care expenses. Taxpayers and their dependents are allowed the
standard amount on a per person basis, without questioning the amount
actually spent.
Maximum allowances
for housing and utilities and transportation, known as the Local Standards,
vary by location. In most cases, the taxpayer is allowed the amount
actually spent, or the local standard, whichever is less.
Generally, the total
number of persons allowed for necessary living expenses should be the same
as those allowed as exemptions on the taxpayer’s most recent year income
tax return.
If the IRS
determines that the facts and circumstances of a taxpayer’s situation
indicate that using the standards is inadequate to provide for basic living
expenses, we may allow for actual expenses. However, taxpayers
must provide documentation that supports a determination that using
national and local expense standards leaves them an inadequate means of
providing for basic living expenses.
National Standards:
Food, Clothing and Other Items
National
Standards have been established for five necessary expenses: food,
housekeeping supplies, apparel and services, personal care products and
services, and miscellaneous.
The standards are
derived from the Bureau of Labor Statistics (BLS) Consumer Expenditure
Survey (CES). The survey collects information from the Nation's
households and families on their buying habits (expenditures), income and
household characteristics.
National Standards
have been established for five necessary expenses: food, housekeeping
supplies, apparel and services, personal care products and services, and
miscellaneous.
The standards are
derived from the Bureau of Labor Statistics (BLS) Consumer Expenditure
Survey (CES) and defined as follows:
Food includes food
at home and food away from home. Food at home refers to the total
expenditures for food from grocery stores or other food stores. It
excludes the purchase of nonfood items. Food away from home includes
all meals and snacks, including tips, at fast-food, take-out, delivery and
full-service restaurants, etc.
Housekeeping
supplies includes laundry and cleaning supplies, stationery supplies,
postage, delivery services, miscellaneous household products, and lawn and
garden supplies.
Apparel and services
includes clothing, footwear, material, patterns and notions for making
clothes, alterations and repairs, clothing rental, clothing storage, dry
cleaning and sent-out laundry, watches, jewelry and repairs to watches and
jewelry.
National Standards:
Out-of-Pocket Health Care Expenses
Standards have
been established for out-of-pocket health care expenses including medical
services, prescription drugs, and medical supplies (e.g. eyeglasses,
contact lenses, etc.). These standards are s based on Medical
Expenditure Panel Survey data and uses an average amount per person for taxpayers
and their dependents under 65 and those individuals that are 65 and
older.
The out-of-pocket
health care standard amount is allowed in addition to the amount taxpayers
pay for health insurance.
Out-of-pocket
health care expenses include medical services, prescription drugs, and
medical supplies (e.g. eyeglasses, contact lenses, etc.). Elective
procedures such as plastic surgery or elective dental work are generally
not allowed.
Taxpayers and their
dependents are allowed the standard amount monthly on a per person basis,
without questioning the amounts they actually spend. If the amount
claimed is more than the total allowed by the health care standards, the
taxpayer must provide documentation to substantiate those expenses are
necessary living expenses. Generally, the number of persons allowed
should be the same as those allowed as exemptions on the taxpayer’s most
recent year income tax return.
The out-of-pocket
health care standard amount is allowed in addition to the amount taxpayers
pay for health insurance.
Local Standards:
Housing and Utilities
These standards are
derived from Census and BLS data, and are provided by state down to the
county level. The standard for a particular county and family size
includes both housing and utilities allowed for a taxpayer’s primary place
of residence.
Housing and
Utilities standards include mortgage or rent, property taxes, interest,
insurance, maintenance, repairs, gas, electric, water, heating oil, garbage
collection, telephone and cell phone. The tables include five
categories for one, two, three, four, and five or more persons in a
household.
Local Standards:
Transportation
The
transportation standards for taxpayers with a vehicle consist of two parts:
nationwide figures for monthly loan or lease payments referred to as
ownership costs, and additional amounts for monthly operating costs broken
down by Census Region and Metropolitan Statistical Area (MSA). A
conversion chart has been provided with the standards that lists the states
that comprise each Census Region, as well as the counties and cities
included in each MSA. The ownership cost portion of the
transportation standard, although it applies nationwide, is still
considered part of the Local Standards.
The ownership costs
provide maximum allowances for the lease or purchase of up to two automobiles
if allowed as a necessary expense. A single taxpayer is normally
allowed one automobile.
The operating costs
include maintenance, repairs, insurance, fuel, registrations, licenses,
inspections, parking and tolls.
There is a single
nationwide allowance for public transportation based on BLS expenditure
data for mass transit fares for a train, bus, taxi, ferry, etc.
Taxpayers with no vehicle are allowed the standard, per household, without
questioning the amount actually spent.
If a taxpayer owns a
vehicle and uses public transportation, expenses may be allowed for both,
provided they are needed for the health, and welfare of the taxpayer or
family, or for the production of income. However, the expenses
allowed would be actual expenses incurred for ownership costs, operating
costs and public transportation, or the standard amounts, whichever is
less.
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