IRS Standards Of Living Standards Guidelines For Establishing An Offer In Compromise
Taxpayers submitting an offer in compromise to the IRS must prepare a the Form 433a. This is the IRS Collection Information Statement. On part of that form, the taxpayer includes their Monthly Income and Expenses. The IRS provides tables to use for your living expenses. The purpose of the 433a is to determine how much the taxpayer can pay each month toward their outstanding tax liability.
The IRS uses national and local standards tables to compute the maximum amounts they will give you for food, clothes, rent, utilities, etc. Also there are tables for vehicle expenses, and medical. Most of the time the IRS standards will allow the table amounts without having to show them proof.
The IRS employees have some leeway in allowing expenses above the table amounts. When the offer division examines the 433a for your income and expense items, they tend to be more strict in their interpretation of the limits on your deductions.
Many people don’t use the IRS Living standards guidelines when doing an offer. It is easy to overstate your expenses when doing this. The IRS after reducing your expenses to conform with the guidelines, often will show that you can afford to pay the tax in full. They will then deny your offer in compromise. It is essential that when you do an offer in compromise that you obtain the Form 656 guidebook. It will alert you to using the tables, especially the IRS Standard Guidelines.
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