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State Installment Plans and the IRS
August 31, 2012
I subscribe to a few Linkedin tax professional groups and this week another attorney posted his new blog to the group page. His article states that as part of the new offer in compromise program, the IRS will accept payments to state and local taxing authorities for past tax liabilities as an allowable expense. While it is true that the IRS will accept payments for past liabilities to other taxing authorities as an allowable expense, this is nothing new. IRM Section 5.15.1.10(3) states the following under its notes/tips for taxes: “Delinquent state and local taxes are allowable depending on the priority of the [federal tax lien] and/or Service agreement with the state and local taxing agencies.” You can read the full section on non-traditional expenses allowed here. The above referenced internal revenue manual section comes from the IRS financial analysis handbook, most commonly used in evaluating a taxpayer’s ability to pay on an installment agreement, but applicable to offers in compromise as well. So long as a taxpayer can establish that he or she has entered into a formal payment agreement with a state or local taxing authority and can show proof of payment, the IRS will accept these payments as an allowable expense. Whether a financial analysis is required for establishment of a payment plan or filing an offer in compromise, it is important that your tax professional knows what may qualify as an allowable expense. Many eligible expenses do not appear on the pages of the financial analysis papers because they came about through court cases or internal regulations, so it is important that you hire someone like myself who is willing to put in the time and effort to research eligible expenses and stay on top of things. Until next time, Alex