by steve | Mar 24, 2011 | IRS Tax Advice, Tax News
Affordable Fresh Start Tax LLC A Professional Tax Firm Experts in taxation
I am a former IRS Agent of 10 years and a teaching instructor who taught at the local, regional and district IRS offices.
IRS will try to tell you the National Standards apply and they cannot deviate from that. Do not let them bully you. That is not the case. Below is the direct link from the IRS IRM that gives you power to fight back.
http://www.irs.gov/irm/part5/irm_05-015-001.html#d0e1381
Some of the other expense IRS allows but does not tell you about.
Accounting and legal fees.Your representation fee to process this case. IRS will try to tell you that is not included in necessary expenses however that is not the case. Normal fee range between $2000-$3500, so make sure that is included into necessary and reasonable expenses.
Charitable contributions. If your condition of employment or your job requirement finds that it is required IRS must allow the charitable contribution. I have never had an agent agree on this without pressing on the the manager. The normal IRS Agent does not want to do any more than they have too and this is always a fight.
Child Care (Baby-sitting, day care, nursery and preschool) If it meets the necessary expense test. Only reasonable amounts are allowed. Cost of child care can vary greatly.
Court-Ordered Payments.Alimony, child support, including orders made by the state, and other court ordered payments) If alimony and child support payments are court ordered, reasonable in amount, and being paid, they are allowable.
Dependent Care. For the care of the elderly, invalid, or handicapped.) If there is no alternative to the taxpayer paying the expense.
Education If it is required for a physically or mentally challenged child and no public education providing similar services is available. Education expenses are also allowed for the taxpayer if required as a condition of employment.
Life Insurance If it is a term policy on the life of the taxpayer only. If there are whole life policies, these should be reviewed as an asset for borrowing against or liquidating. Life insurance used as an investment is not a necessary expense.
Secured or legally perfected debts. If it meets the necessary expense test. Taxpayer must substantiate that the payments are being made.
Unsecured Debts. If the taxpayer substantiates and justifies the expense, the minimum payment may be allowed. The necessary expense test of health and welfare and/or production of income must be met. Except for payments required for the production of income, payments on unsecured debts will not be allowed if the tax liability, including projected accruals, can be paid in full within 90 days. Examples of unsecured debts which may be necessary expenses include: Payments required for the production of income such as payments to suppliers and payments on lines of credit needed for business and payment of debts incurred in order to pay a federal tax liability.
Taxes If it is for current federal, FICA, Medicare, state and local taxes. Current taxes are allowed regardless of whether the taxpayer made them in the past or not. Delinquent state and local taxes are allowable depending on the priority of the FTL and/or Service agreement with the state and local taxing agencies.
Optional Telephones and Telephone Services (Pager, Call waiting, caller identification or long distance) If it meets the necessary expense test.
Student Loans If it is secured by the federal government and only for the taxpayer’s education. Taxpayer must substantiate that the payments are being made.
Internet Provider/E-mail If it meets the necessary expense test – generally for production of income.
Never let the IRS bully you, fight back
by steve | Oct 29, 2010 | IRS Tax Advice
National Standards as applies on the 433A
The National Standard is a fixed set of expense. It is a figure set by the IRS and the Department of Labor. If you go to our website to the home page, click the toolbar marked IRS forms, see the National Standards, you will find the applicable chart. Call us if you have problems finding the landing page.
You will find the Standard that fits your situation.
National Standards: Food, Clothing and Other Items include the following expenses:
Apparel and services. Includes shoes and clothing, laundry and dry cleaning, and shoe repair.
Food. Includes all meals, home and away.
Housekeeping supplies. Includes laundry and cleaning supplies; other household products such as cleaning and toilet tissue, paper towels and napkins; lawn and garden supplies; postage and stationary; and other miscellaneous household supplies.
Personal care products and services. Includes hair care products, haircuts and beautician services, oral hygiene products and articles, shaving needs, cosmetics, perfume, bath preparations, deodorants, feminine hygiene products, electric personal care appliances, personal care services, and repair of personal care appliances.
Miscellaneous.
IRS allows taxpayers the total national standard amount for their family size without questioning the amount actually spent. Other rules apply but you will need a tax professional for help in this area.
Local Standards set forth by the IRS and the Department of Labor
Local standards include the following expenses:
Housing and Utilities. Housing expenses include: mortgage (including interest) or rent, property taxes, necessary maintenance and repair, homeowner’s or renter’s insurance, homeowner dues and condominium fees. The utilities include gas, electricity, water, heating oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, telephone and cell phone. Usually, these expenses are considered necessary only for the primary place of residence. Any other housing expenses should be allowed only if, based on a taxpayer’s individual facts and circumstances, disallowance will cause the taxpayer economic hardship.
Generally the total number of persons allowed for determining family size should be the same as those allowed as exemptions on the taxpayer’s most recent year tax return. There may be reasonable exceptions, such as foster children or children for whom adoption is pending.
An allowance for cell phone expenses has been included in the Housing and Utility standards. If a taxpayer claims a separate cell phone expense on the financial statement, the amount would be added to the housing and utility expense claimed and subject to the allowable amount for the Housing and Utility standards. Ensure the taxpayer is not duplicating this expense.
Taxpayers are allowed the standard amount for housing and utilities or the amount actually spent, whichever is less. If the amount claimed is more than the total allowed by housing and utilities standards, the taxpayer must provide documentation to substantiate those expenses are necessary.
When deciding if a deviation is appropriate, consider the cost of moving to a new residence; the increased cost of transportation to work and school that will result from moving to lower-cost housing and the tax consequences. The tax consequence is the difference between the benefit the taxpayer currently derives from the interest and property tax deductions on Schedule A to the benefit the taxpayer would derive without the same or adjusted expense.
All deviations from the housing and utilities standards must be verified, reasonable and documented in the case history.
Transportation.
This includes vehicle insurance, vehicle payment (lease or purchase), maintenance, fuel, state and local registration, required inspection, parking fees, tolls, driver’s license and public transportation. Public transportation includes mass transit fares for a train, bus, taxi, etc., both within and between cities.
Transportation expenses are considered necessary when they are used by taxpayers and their families to provide for their health and welfare and/or the production of income. Employees are expected to exercise appropriate judgment in determining whether claimed transportation expenses meet these standards. Expenses that appear to be excessive should be questioned and, in appropriate situations, disallowed
When determining the allowable amounts, allow the full ownership standard amount, or the amount actually claimed and verified by the taxpayer, whichever is less. Allow the full operating standard amount, or the amount actually claimed by the taxpayer, whichever is less. Substantiation for the operating allowance is not required unless the amount claimed exceeds the standard.
There is a single nationwide allowance for public transportation. This allowance is established as a floor for individuals with no vehicle. Taxpayers with no vehicle are allowed the standard, per household, without questioning the amount actually spent. The taxpayer is not required to provide documentation unless the amount claimed exceeds the standard.
If a taxpayer owns a vehicle and uses public transportation, expenses may be allowed for both, provided they are needed for the health and welfare of the individual or family, or for the production of income. However, the expenses allowed would be actual expenses incurred. Documentation would not be required unless the amount claimed exceeded the standards.
Consider availability of public transportation if car payments (purchase or lease) will prevent the tax liability from being paid in part or full. Public transportation could be an option if it does not significantly increase commuting time and its use is not unrealistic. You should also consider the age, health and needs of minor children when requesting the taxpayer use public transportation in lieu of vehicle expenses
If a taxpayer has a car, but no car payment, only the operating costs portion of the transportation standard is used to figure the allowable transportation expense.
A single taxpayer is normally allowed ownership and operating costs for one vehicle. The taxpayer is allowed the standard for ownership and operating costs, or the amounts actually spent, whichever is less.
Please see the below link for the National Standards
http://www.irs.gov/individuals/article/0,,id=96543,00.html
