Are College Tuition or Studen Loans Allowable Expenses when Negotiating an Offer in Compromise?
QUESTION:
I am trying to negotiate an offer in compromise with the IRS for my tax liability. I went to college and graduate school and I had to borrow a lot of money to get those degrees, but it lead to getting a good paying job. Now I also have children in college and I am trying to pay for their education so they don’t get stuck with student loans like I did. Will the IRS allow those expenses in the calculation of my offer in compromise.
ANSWER:
The IRS generally will not allow you an expense for college tuition or student loan repayments for you children or anyone else for that matter. College tuition is not considered to be a "necessary expense." Rather, the IRS considers paying college tuition an excess or luxury. However, depending on how quickly you can repay the amount you owe for taxes, penalties and interest the IRS may allow the expense. If you can pay off your total liability (including taxes, penalties and the interest that continues to accrue) within 36 months they will allow educational expenses as an expense. This is the same rule if you do not have children in college yet, but you have them enrolled in private school.
On the other hand, if you are paying student loans or you have school or education expenses for yourself that is "income generating" meaning you will earn more money for completing the course of study, then the IRS will allow those payments. Using this logic, you can see that paying for a child to go to college is not considered "income generating" for you personally.