IRS National Standards
The IRS has developed IRS national standards as guides for taxpayers responsible for resolving their tax liabilities. The IRS national standards (or IRS Collection Financial Standards) are defined as five categories of necessary expenses developed and used by the IRS to calculate a taxpayer’s payment potential.
The standards are used for the purpose of calculating repayment of federal tax liability. “IRS National Standards have been established for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services and miscellaneous” (IRS.gov, “IRSNational Standards: Food, Clothing and Other Items,” 8/25/2013).
For example, under the category of food, the IRS allows for calculations of both 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 ...Food away from home includes all meals and snacks, including tips, at fast-food, take out, delivery and full-service restaurants” (“National Standards: Food, Clothing and Other Items”).
The IRS defines housekeeping supplies as those items necessary for carrying on daily life. They include “stationery supplies, postage, delivery services, miscellaneous household products and lawn and garden supplies” (“IRS National Standards: Food, Clothing and Other Items”).
Apparel and services include clothing, footwear, watches and jewelry. They also include “material, patterns and notions for making clothes, alterations and repairs, [and] ... dry cleaning and sent-out laundry” (“IRS National Standards: Food, Clothing and Other Items”).
Personal care products and services include a list of items used in the hair, oral hygiene products and shaving needs. They are also extended to cosmetic and bath products and related personal care products, which also include electronic personal care appliances.
The miscellaneous allowance includes credit card payments, bank fees and charges, school supplies and reading material.
The IRS allows taxpayers to calculate their respective IRS national standards by family size. However, if the amount claimed is more than the total allowed by the National Standards for food, housekeeping supplies, apparel and services and personal care products and services, the taxpayer must provide documentation to substantiate that those expenses are necessary living expenses.
The total number of persons considered in terms of National Standards should figuratively represent the same number allowed as exemptions on the taxpayer’s income tax return (“National Standards: Food, Clothing and Other Items”).
IRS Local Standards
The IRS Collection Financial Standards are also extended to local territories. The IRS Local Standards provide guidelines regarding how to account for housing and utilities. Housing and utilities calculations are based upon state, county and family size.
In addition, IRS Local Standards also include transportation standards. For example, in terms of ownership costs, single taxpayers are allowed one automobile. Taxpayers are allowed operating costs by regional and metropolitan area.
There is a single allowance for public transportation. The “single nationwide allowance for public transportation [is] based upon Bureau of Labor Statistics expenditure data for mass transit fares for a train, bus, taxi, ferry, etc. Taxpayers with no vehicle are allowed the standard amount monthly, per household, without questioning the amount actually spent” (IRS.gov, “Local Standards: Transportation,” 8/25/2013).
In the case of taxpayers who use both their personal vehicles and public transportation, the IRS may allow expenses for both, provided that the need is for the health and welfare of the family and contributes to the production of income.
Specific costs and more information about IRS Local Standards can be found on the IRS website.
I hope that I have helped solve some of the mystery surrounding how the IRS determines what are acceptable expenses when you apply for an installment repayment agreement. Whether you agree with their assessment or not, at least you know what criteria they are using to base their decision on.
All of the information about national and local standards can be found on the IRS website, so that should give you some idea of how to present your case for getting an repayment installment agreement approved. If you have questions or need assistance in understanding how to apply these guidelines to your situation, reach out to me. I have helped many, many clients prepare their applications for repayment plans to the IRS with great success. I know I can help you, too.