IRS Collections Representation: Collection Financial ......$750k per year to $3.2 million per year in just 17 months. • Founder of TaxMarketingHQ.com, TaxLiensHQ.net, and TaxFirms.com,

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TaxResolutionAcademy.com

IRS Collections Representation:Collection Financial Standards for

Individuals & Form 433-A

IRS Program Number: 4Y1UP-T-00085-20-O


Copyright Notice

Any reproduction or unauthorized use of these materials, without the express written consent of 230 Media LLC is prohibited.

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Disclaimer

This presentation is intended to serve solely as an aid in continuing professional education. Due to the constantly changing nature of subject of the materials, this product is not appropriate to serve as the sole resource for any accounting opinion or return position, and must be supplemented for such purposes with other current authoritative materials. The information in this manual has been carefully compiled from sources believed to be reliable, including IRS notices, procedures, regulations, IRC, and IRM, but its accuracy is not guaranteed. In addition, 230 Media, LLC dba Tax Marketing HQ, its authors, and instructors are not engaged in rendering legal, accounting, or other professional services to readers/attendees and will not be held liable for any actions or suits based on these slides or comments made during any presentation. If legal advice or other expert assistance is required, seek the services of a competent professional under an appropriate engagement.


CPE Credit

• Certificates of Completion will be sent within a week and IRS CE reporting will be completed at end of month.

• To receive CE/CPE credit, you must stay logged in for at least 50 minutes and you must answer at least three polling questions per hour.

• If you dialed in via phone for audio, you MUST also be online via computer or mobile device to be able to view and answer polling questions.

• See the reminder email for link to handouts, ordownload from the “Handouts” pane.

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GoToWebinar Issues/Solutions

GoToWebinar suggests closing all other applications and windows on your computer during the webinar. Failure to do so may result in the GTW app having to “fight” other applications for memory and other system resources on your computer, causing audio drops and other problems.

If you are listening to the audio portion over the telephone, you must also be logged in to the video portion on a smartphone, tablet, or computer in order to see and respond to the polling questions. Failure to do this will result in no CPE credit.

Also note that millions more people are now working from home, and millions of human offspring are at home instead of school, and they’re all doing who knows what on the Internet. That means Internet traffic is up over 30%, and may be causing local slowdowns in some neighborhoods. This can cause audio issues in particular.


Questions

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We welcome and encourage your questions and comments. However, for liability reasons, we cannot address specific client issues or questions beyond the scope of this presentation.

Q&A portion will be at the end of the class. We will respond to as many questions as we can in the time allotted, but I guarantee there will be far more questions than time to answer them all.

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Quick reminder…• This is a basic level class intended to provided you with the

foundational information you’ll need to work the vast majority of 1040 IRS Collections cases.

• There are countless “rabbit holes” we could meander down, but we need to stay on track in order to cover this course’s material.


• Enrolled Agent specializing in IRS Collections representation.

• Author of the Amazon bestseller Tax Resolution Secrets, showing consumers how to address their tax debt problems, and Tax Resolution Systems, a checklist manual for practitioners (available on Amazon).

• Built boutique tax practice from $0 to $35,000 per month in just 10 months after growing an employer’s firm from $750k per year to $3.2 million per year in just 17 months.

• Founder of TaxMarketingHQ.com, TaxLiensHQ.net, and TaxFirms.com, co-founder of software startup Prolaera, co-founder of Tax Resolution Academy®.

• Consultant to hundreds of successful tax resolution practices, from solo practitioners to firms with 30+ employees.

Jassen Bowman, EA, CTR, NTPI Fellow

Who is this wahoo?

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Collections Financial Standards For Individuals


Course Objectives

•Understand the purpose and application of IRS Collection Financial Standards.

•Explain each individual expense category and how to apply them.

•Understand the purpose of IRS Form 433-A.

•Complete the Form 433-A Income & Expense Table (IET).

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Purpose & Application of Collection Financial Standards

What is the purpose?

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Purpose

To determine a taxpayer’s ability to repay


Scope

•Differentiates between necessary and unnecessary living expenses

•Designed around a middle class lifestyle

•Reviewed quarterly

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Allowance Beyond Standards• Standards intended to cover basic living expenses, nothing

more.

• Service may allow for actual expenses in rare situations.

• Taxpayers living significantly beyond standards will be required to downsize their lifestyle or obtain alternate resolution. One-Year Rule – IRM 5.14.1.4.1


Expenses Never Allowed

• Private school tuition

• Higher education tuition

• Tithing

• Charitable contributions

• Retirement contributions

• Payments on unsecured debts

• 2012: Minimum credit card payments and minimum student loan payments permitted in OIC RCP calculations.

• Ref: Pub. 1854

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When You’ll Use The Standards

• Any Offer in Compromise application• 0.28% of cases

• Any request for Currently Not Collectible status• ~15% of cases

• Any Installment Agreement that is NOT a Guaranteed or Streamline IA• Exception: The Six Year Rule – IRM 5.14.1.4.1 (01-01-2016)


Six-Year Rule – IRM 5.14.1.4.1 (01-01-2016)

• Six-Year Rule: When a taxpayer is unable to full pay immediately and does not qualify for a streamlined installment agreement, the taxpayer may still qualify for the six-year rule. Taxpayers are required to provide financial information in these cases, but are not required to provide substantiation of reasonable expenses. All expenses may be allowed if: the taxpayer establishes that he or she can stay current with all paying and filing requirements, the tax liability, including projected accruals, can be fully paid within six years and within the CSED, and the expense amounts are reasonable. Do not automatically allow agreements based on the six year maximum if expenses are unreasonable.

• Reminder:

• The Six-Year Rule is not applicable to corporations, partnerships, LLCs (where the LLC is identified as the liable taxpayer), orany business expenses. The Six-Year Rule is also not applicable for Business Master File (BMF) liabilities owed by in-business sole proprietors or LLCs, where the individual owner is identified as the liable taxpayer.

• https://www.irs.gov/irm/part5/irm_05-014-001r#idm140714637308816

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https://www.irs.gov/irm/part5/irm_05-014-001r#idm140714637308816

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One-Year Rule – IRM 5.14.1.4.1• One-Year Rule: Taxpayers who cannot full pay their accounts within six years may

be given up to one year to modify or eliminate excessive necessary expenses. In some cases, by modifying or eliminating some conditional expenses, a taxpayer may be able to full pay the liability plus accruals within the six year limit. This would enable a taxpayer to retain some conditional expenses under the Six-Year rule. The taxpayer does not have to qualify for the Six-Year rule in order to apply the One-Year rule.

• Reminder:

• The One-Year Rule is not applicable to corporations, partnerships, LLCs (where the LLC is identified as the liable taxpayer), or any business expenses. The One-Year Rule is also not applicable for BMF liabilities owed by in-business sole proprietors or LLCs, where the individual owner is identified as the liable taxpayer.


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Lump Sum National Standard –Updated March 30, 2020

• Food• Housekeeping supplies• Clothing and maintenance• Personal care products and services• Misc (the catch-all, including min cc payments)• Allowed without questioning actuals• One person: $715• Two people: $1,298• Three people: $1,433• Four people: $1,740• Each additional person: $378• https://www.irs.gov/businesses/small-businesses-self-

employed/national-standards-food-clothing-and-other-items


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https://www.irs.gov/businesses/small-businesses-self-employed/national-standards-food-clothing-and-other-items

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Health Care

•Actual out of pocket costs or…

•Standard amount of $56 OR $125 if 65 and over.

•Plus…

•Actual health insurance premiums• https://www.irs.gov/businesses/small-businesses-self-employed/national-standards-out-of-pocket-health-care


Transportation Standards• Public transit OR a car, not both

• Car free and clear? Only operating costs allowed

• Public transit: $224 per month (nationwide)

• Ownership Costs: $521 / $1,042• Two car limit for ownership and operating costs.

• Operating Costs For ______________ Region: $_____ / $_____• _____________ Metro: $_____ / $_____

• Metro Area Includes: ______________, ____________, _____________, ________________, _______________, ____________, _____________.

• https://www.irs.gov/businesses/small-businesses-self-employed/local-standards-transportation

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https://www.irs.gov/businesses/small-businesses-self-employed/national-standards-out-of-pocket-health-care

https://www.irs.gov/businesses/small-businesses-self-employed/local-standards-transportation

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Local Standards: Housing & Utilities

•Rent or mortgage (PITI)

•Maintenance

•Gas, electric, water, garbage

•Home phone, cell phone, cable TV, and Internet

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Basis for the numbers

•US Census Bureau

•American Community Survey

•Bureau of Labor Statistics (income)

• Reminder: Designed to approximate a median income lifestyle.

• https://www.irs.gov/businesses/small-businesses-self-employed/local-standards-housing-and-utilities


Housing & Utilities Example: Florida

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https://www.irs.gov/businesses/small-businesses-self-employed/local-standards-housing-and-utilities

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Housing & Utilities:__________________, ____

Family of 1: $__________ per monthFamily of 2: $__________ per monthFamily of 3: $__________ per monthFamily of 4: $__________ per monthFamily of 5 or more: $__________ per month

Higher amounts require conditional analysis.


Exceeding the Housing Standard

•Most commonly exceeded standard

•Some taxpayers may think the standard unfair

•12-month adjustment period (1 year rule)

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Overview of IRS Form 433-A

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Section 4: Personal Assets• Cash

• Personal bank accounts• Checking

• Savings

• Money Market

• Investments• Stocks, bonds, etc.

• Retirement accounts (IRA, 401k, etc.)• Yes, the Service can legally force retirement account liquidation.

• Asset value reduced an additional 10% to account for early withdrawal penalty.

• Any business entity in which you have a financial interest

• Virtual currency


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Section 4: Personal Assets

•Available credit•Credit cards•Lines of credit•Home equity lines

•Annuities

•Life insurance with cash surrender value



•Real estate•Personal residence• Investment properties•Vacation homes•Partial ownership• Inherited

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•Vehicles• Owned & leased• Cars• Boats• Motorcycles• Aircraft• ATVs (All-terrain Vehicles – 4 wheeler)• PWCs (Power Water Craft – SeaDoo/Jetski)• Trailers


Section 4: Personal Assets• Other Personal Assets

• Furniture

• Clothing

• Art

• Coins• Stamps

• Comic books

• Guns

• Antiques

• Intangibles: Intellectual property, contracts, mining claims

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Income/Expense Table (IET)

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Form 433-A, Section 5

Often the most important items on 433-A

This is where Collection Financial Standards are actually applied

Determines IA payment or OIC remaining income for offer amount


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Self-Employed

Complete Form 433-A, Section 6 to include all business information, including assets.

Section 7 income goes into IET


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Self-Employed Tip

Simply submit P&L, Balance Sheet, & Depreciation Report

• IRM Financial analysis handbook allows this, plus….

• It demonstrates to the RO that client is taking steps to resolve root cause of the problem.


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Conclusion• Understanding the Collection Financial Standards is important to properly represent

collections clients.

• Proper completion of Form 433-A, and inclusion of necessary documentation, can significantly accelerate the resolution timeframe.

• Proper 433 documentation is often the most difficult thing to obtain from the client.• Mortgage analogy

• Even when not required, as in Streamline cases, completing a “rough draft” 433-A allows you to better assist your client.


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Documents

IRS Collections Representation: Collection Financial ......$750k per year to $3.2 million per year in just 17 months. • Founder of TaxMarketingHQ.com, TaxLiensHQ.net, and TaxFirms.com,