IRS Revises Measure of Ability to Pay

The IRS has updated the Collection Financial Standards used to determine a taxpayer’s ability to pay a delinquent tax liability. The changes went into effect Oct. 1. For bankruptcy purposes, the new tables are not effective until Jan. 1, 2008.

The revised standards include some basic changes such as the elimination of income ranges for National Standard Expenses (for food, clothing and other household items) and the creation of a new category for out-of-pocket health care costs. Other changes include:

Elimination of separate standard expense tables for Alaska and Hawaii. Allowance for cell phones under housing and utility expenses. Equal allowances for first and second vehicles. Creation of a public transportation allowance.

The standards are intended to gauge expenses that are necessary for a delinquent taxpayer to provide for the health and welfare of his or her household. The IRS may still allow actual expenses if a taxpayer can provide documentation to indicate the standards are inadequate to provide for basic living expenses.

The revised standards are available at www.irs.gov/individuals/article/0,,id=96543,00.htm.