One of the changes made by the IRS with the national standards of allowable expenses is that the IRS has added a new category specifically for out of pocket health care expenses. While I have not had an opportunity to look into the specifics of this new standard yet, it already causes some worry because I am nervous that the IRS is going to be limiting a valid expense that many taxpayers have each month.
Out of pocket health care expenses are an expense that I generally tell my clients the IRS will allow 100% of if they can prove they are making payments. Now, of course, the IRS is not going to allow you a monthly expense for the $200,000 you owe the hospital for that open-heart surgery you had performed without insurance, unless you can prove you are making monthly payments to the hospital. That is the key - making those monthly payments. However, now, when you pay the hospital the IRS gives you 100% credit for those payments. Whereas, if you were making a huge mortgage payment each month, the IRS will only allow the national standard expense which can be significantly lower than a mortgage payment.
My cause for concern is that the IRS is going to eliminate a valid expense each month that will force my clients to not have prescriptions filled or to cancel health insuranec policies to be able to afford IRS payment plans. Now, since I haven’t reviewed the new standard in detail yet, that may not be the case, but it was definitely a scare when I looked through the press release. More information to come on this topic.
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QUESTION:
I tried setting up an installment agreement with the IRS myself, but I was not able to negotiate an amount that I felt I could make comfortably each month. The revenue officer kept telling me that there were national standards that she must apply and most of my living expenses were greater than the national standards. What are these national standards?
ANSWER:
The IRS has instituted national standards based on data from the Bureau of Labor Statistics, the Medical Expense Panel Survey and other governmental surveys for allowable living expenses, housing and utilities, and transportation. Many of my clients have similar problems when dealing with the IRS because the national standards do not take into consideration costs of living such as gasoline that costs three dollars per gallon. While it is annoying, the standards are here to stay. However, beginning in just a few months, the IRS will adopt new standards. The new standards have been updated to include a new category for out of pocket health care expenses, eliminated the income ranges for food, clothing and other items, an expanded number of categories for household categories, an allowance for cell phone costs in housing and utilities, equal allowances for first and second vehicles. These expenses are occasionally adjusted for inflation. While there are some major changes to the national standards, it will most likely not solve the problem that most taxpayers face when dealing with the IRS. It will be interesting to see how the changes affect offers in compromise that are currently being considered by the IRS when the new year rolls around. If you have some IRS tax liability and need help negotiating a monthly payment or offer in compromise you can afford, please call my office today for your free consultation. We also provide family court, probate and real estate services. Call today for your free consultation.
I will follow up on this topic after the first of the year when we can see how the new national standards are affecting our clients and what types of things we are doing to work with the national standards.
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