IRS Updates the Allowable Living Expense Standards for 2012
NOTE: This headliner is current through the publication date. Since changes may have occurred, no guarantees are made concerning the technical accuracy after the publication date.
Headliner Volume 326
April 2, 2012
The Internal Revenue Service released the 2012 update to the Collection Financial standards, also known as the Allowable Living Expense standards on April 2.
The ALE standards are used in determining what a taxpayer may claim as basic living expenses necessary to avoid undue hardship when the taxpayer cannot full pay their taxes. The standard allowances provide consistency and fairness in collection determinations because they are based on the average amount citizens in similar locations spend for basic necessities.
The national standards amount for food, clothing and other items includes a miscellaneous allowance for taxpayer expenses that are not included in any other allowable living expense items.
The miscellaneous allowance was expanded in April 2012 to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments, bank fees and charges, reading material and school supplies.
The ALE standards are only used in cases requiring financial analysis to determine a taxpayer's ability to pay. Most of the installment agreements secured by Collection employees are streamlined agreements, which require only basic financial information and no documentation of expenses.
In cases where taxpayers do not meet the criteria for a streamlined agreement, they may still qualify for the “six-year rule." The timeframe for this rule was increased in 2012 from five years to six years. The six-year rule allows for payment of living expenses that exceed the ALE standards, as well as other expenses, such as minimum payments on student loans or credit cards, as long as the tax owed, including penalty and interest, can be full paid in six years. Taxpayers are required to provide financial information in these cases, but do not have to provide documentation for reasonable expenses.
More information on the ALE standards is available at the Collection Financial Standards Web page.
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