Budget #3 – Income and Expenses using IRS Collection Financial Standards
The IRS has developed a set of national and local expense standards for food and clothing (line 35), housing and utilities (line 36), and transportation (line 37). Collectively, these expense guidelines are called the Collection Financial Standards.Allowable monthly expenses for food, housing, and transportation are limited to the lower of:
- Your actual expense, or
- the appropriate Collection Financial Standard
Accordingly, you need to know your actual expenses (collected in Budget #1).
Food and Clothing Expenses are limited by national standards for allowable living expenses. (Residents of Alaska and Hawaii have higher allowable food and clothing expenses.) The national standard is broken down by the number of people in a family and monthly gross income.
Housing Expenses are limited by local standards for housing expenses. The standard is broken down by the number of people in a family and the county where the family resides.
Transportation Expenses are limited by regional standards for transportation expenses. The standard is broken down by the number of cars in a family, and the region where the family resides.
In Budget #3, replace the figures on Lines 35, 36, and 37 with the lower of the appropriate Collection Financial Standard, or your actual expense from Budget #1. Also, in Budget #3, assume that the IRS will disallow any expense claimed on Line 44 for Other Expenses. Budget #3 provides a picture of your financial situation from the IRS perspective.
Very often it will look like you have extra money under the IRS budget than you do under your actual budget. Budget #3 is generally becomes the foundation for calculating your reasonable collection potential on the Worksheet to Form 433A.
Analyzing your expenses using collection financial standards will likely produce very strong emotional reactions.
Summary of Required Attachments to Form 433A
You must attach to Form 433A the following documentation:- Copy of your last tax return (Form 1040, 1040A, or 1040EZ with all schedules),
- Proof of all current expenses for the last three months,
- Proof of all transportation expenses for the last three months,
- Proof of all health care expenses for the last three months, and
- Proof of any court-ordered payments for the last three months.
