The IRS’Collection Financial Standards (CFS) are used to determine how much a taxpayer canhave as a necessary living expense when determining an ability to payinstallment agreement (ATP IA), currently not collectible status (CNC), or anoffer in compromise (OIC).   Thesestandards are updated annually at the end of March.

The CFS putlimitations or provide for a standard amount allowed for certain householdliving expenses such as:

  • Food,clothing, and other expenses:  a flat amount is allowed based on the size ofthe family
  • Housingand utilities:  the standard provide for a maximum amountbased on the taxpayer’s location and size of their family.  The taxpayer is allowed the lesser of the standardor the amount paid for housing and utility costs.
  • Transportationcosts:  a flat amount is allowed for vehicle operatingcosts (one vehicle for a single taxpayer, two vehicles for a married taxpayer)and public transportation (if used), based on the taxpayer’s location   The taxpayer is also provided a maximum for eachcar payment.   The taxpayer can use the lesserof the standard allowed or the actual car payment that is paid.
  • Out-of-pockethealthcare costs:  the taxpayer is allowed a flat amount, dependingon their age, for each member of the family. The taxpayer can claim a greater amount if they have more actual paidexpenses than the standard amount.

There are othernecessary household expenses that are allowed that are not subject to the CFS.  These expenses include taxes paid, health insuranceand term life insurance premiums, court-ordered payments (i.e. alimony, child support),child care, and other expenses that are necessary for the health and welfare ofthe family or for the production of income.

Taxpayers who are entering into an extension to pay agreement or a streamlined installment agreement (72-month or less payment plan when you owe less than $50,000), do not have to use the CFS to determine their ability to pay.  Also, the IRS has an 84-month payment plan for taxpayers who owe between $50,000 and $100,000.  The 84-month plan does not require that the taxpayer apply the CFS -however, all 84-month plans require the IRS to file a tax lien.

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