The IRS has posted updated collection financial standards for use in calculating repayment of delinquent taxes on its web site. These national standards apply to food, clothing, health care and certain other expenses. Local standards apply to housing, utilities and transportation costs. The standards are effective March 1, 2011.

The IRS uses the collection financial standards in determining repayment of delinquent taxes, including installment agreements (except for streamlined installment agreements) and offers in compromise. The standards are derived from the Bureau of Labor Statistics (BLS) consumer expenditure survey (CES). National standards are available for food, clothing and other expenses, as well as out-of-pocket health care expenses.

While the standard allowance amounts rise slightly from year to year for inflation and other factors, they continue to be set at levels that are considered by most middle-class taxpayers to barely reach subsistence standards. Nevertheless, if a taxpayer pleads an inability to pay for purposes of obtaining an offer-in-compromise or favorable installment agreement from the IRS, these are the cost of living numbers that IRS agents are instructed to use to determine what monthly income the taxpayer has available.

Food, clothing and other items
The national standard for food, clothing and other items range from $534 monthly for a single individual to $1,377 for a family of four. For each additional person above four, taxpayers may add $262 to the four-person allowance.

Out-of-pocket health care costs
The national standard for out-of-pocket health care costs is $60/month for individuals under age 65 and $144 for individuals age 65 and older.

Housing and utilities
The housing and utilities standards include mortgage or rent, property taxes, maintenance, along with gas, electric, water, heating oil, garbage collection and telephone service. The standard amount for housing and utilities is computed based on the state and county where the taxpayer resides and the taxpayer’s family size.

Transportation
Transportation standards for taxpayers with a vehicle take into account monthly loan or lease payments and monthly operating costs. The IRS uses a single nationwide allowance for public transportation. If a taxpayer owns a vehicle and uses public transportation, expenses may be allowed for both, subject to certain rules.

Please contact us if you have any questions.