In October, 2007, the IRS revised its allowable expense standards to make them onerous. These standards where then revised again in February of 2010, which made adjustments annually in February for cost of living and inflation.
Instead of establishing national standards which recognized the need for higher living expenses for higher income families, in the name of democracy, it began a system of one size fits all, and that one size is quite miserable.
The new laborious standards make for astonishing monthly installment agreement amounts and acceptable amounts under an Offer in Compromise (OIC) for higher income taxpayers. The only tax relief for such taxpayers is bankruptcy filings and the expiration of the collection statute. Many higher income W-2 taxpayers are forced to quit long term jobs and careers to avoid the hardships the more onerous IRS living standards impose.
The new expense standard also fails to recognize the varying cost of living in different regions and communities, and eliminated differentials for Hawaii and Alaska.
If a taxpayer can pay a full tax debt in 60 months or less, this avoids these difficult standards. A taxpayer with larger tax debts has a problem. The new living standards may dictate that someone with 10K a month in income pay 6 K a month in taxes.
If the taxpayer can pay the tax debt off in five years, the IRS will take 2K a month. On the other hand if the taxpayer owes 300K, he or she will be subject to the draconian new living standards and have to pay 6K a month.
A one-year rule can also be invoked where the installment agreement payments are staggered with a lower amount the first year and bumped the second year forward. This provides only temporary relief from long term hardship.
Dana M. Ronald
Tax Crisis Institute
July 30, 2013