Resolving IRS Collections Issues in San Jose, CA: Understanding the Financial Guidelines

Resolving IRS Collections Issues in San Jose, CA: Understanding the Financial Guidelines

The focus of my practice is in working with taxpayers to give them confidence in the resolution of tax and financial issues that is causing unnecessary anxiety and stress. We can relieve you of stress by providing representation before the IRS in the area of collection of tax debt, and finding the best option to satisfy the debt; including installment agreements and offers in compromise.

It is a numbers game that drives everything when resolving collections issues. It’s about cash flow and what is available to make payment in full, in partial, or possibly not at all. We need to understand the process and get all the numbers in line and documented.

When taxpayers find themselves in a position where they cannot possibly pay their tax debt, the IRS will work with them to find a workable alternative to paying the debt in full with one payment. The Secretary of Treasury has been granted authorization by Congress of the following which is a benefit for all parties:

  • Enter into installment agreements.
  • Compromise the tax debt.
  • Formalize the financial guidelines to evaluate offers.

With this kind of authority there is the opportunity to negotiate the payment of the tax debt that allows the taxpayer to get tax and financial matters back under control without experiencing financial ruins.

Future income and net equity in assets are two pieces that go into calculating collectibility. The IRS will look for total gross monthly income of the household, and this includes anyone who has any income regardless whether that person is liable or not. The total is needed in order to figure the allocable amount for the person liable.

  • When looking at assets, the IRS will figure equity in your home by taking 80% quick sale to get value of home, less the mortgage. If there is any equity, the IRS will want that to be used to pay down the debt if possible.
  • To figure cash value in bank account you will need to take 3 months of bank statements, and take the lowest daily balance for each month, add them together and divide by 3 resulting in the cash value for your account.
  • Stock, mutual funds, bonds would be taken at value. A Roth IRA would be deducted by 10% early withdrawal penalty plus income tax, and the rest would go to the IRS.
  • Open line of credit that could be borrowed against to pay tax debt.
  • Life insurance policy that has cash value that could be used toward the debt.
  • Personal assets that could be sold to pay debt, collectibles, jewelry, artwork, items of value.

The IRS will look at the allowable expenses compared to the income amounts to come to the monthly collectible amount. National standards are used to obtain allowable expenses for:

  • Food – for home, bought from grocery stores or other food stores. For away from home, meals and snacks, including tips from fast-food, take-out, delivery and full service restaurants, etc.
  • Housekeeping supplies – laundry and cleaning supplies, stationary supplies, postage, delivery services, miscellaneous household products, and lawn and garden supplies.
  • Apparel and services – includes clothing, footwear, material, patterns and notions for making clothes, alterations and repairs, clothing rental, clothing storage, dry cleaning and sent-out laundry, watches, jewelry and repairs to watches and jewelry.
  • Personal care products and services – includes products for the hair, oral hygiene products, shaving needs, cosmetics and bath products, electric personal care appliances, and other personal care products.
  • Miscellaneous – can be used to cover expenses that exceed the standards, or for other expenses, such as credit card payments, bank fees and charges, reading material and school supplies.
  • Public transportation – fares for bus, train, taxi, ferry, etc.
  • Ownership costs – amount of lease or monthly payment amount for automobile.
  • Operating costs – amount for gas, oil, repairs, maintenance, and insurance for automobile.

Local standards are used to obtain housing and utilities expenses. This includes mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, wager, heating oil, garbage collection, residential telephone service, cell phone service, cable television and internet service.

There are other expenses that are not included in the standards that the IRS will consider allowable; these include FICA or SE tax, health, life, and disability insurance, federal and state income tax.

There are also conditional expenses the IRS will allow with the stipulation that the debt will be paid within 6 years. These include accounting and legal fees, charitable donations, child care, court-ordered payments, dependent care, education, involuntary deductions (union dues) secured debts, unsecured debts, and student loans.

Once all the information is compiled then an analysis can take place to best determine what can realistically be presented to the IRS. It’s a matter of having all the income, allowable expenses, assets available, and an understanding of the current and future financial situation of the taxpayer that will drive the decision.

For more information on the financial guidelines with regards to working with collections, feel free to contact me at (408) 684-8505 or email me at