The One Year Rule
The second rule added to IRM §5323 is the one year rule for eliminating excessive necessary and not allowable conditional expenses. This rule, which is contained in IRM §5323.5, states that taxpayers who cannot fully pay their accounts within three years may be given up to one year to modify or eliminate excessive necessary and/or not allowed conditional expenses. With the modification or elimination of some conditional expenses, a taxpayer may be able to fully pay a liability within the three year limit, thus enabling the taxpayer to retain some conditional expenses.
An installment payment agreement must include a payment increase at the date a taxpayer is expected to have modified or eliminated excessive necessary or not allowable conditional expenses. The Service has stated that the taxpayer is responsible for determining how best to adjust or eliminate excessive necessary and/or not allowable conditional expenses, but at the expiration of one year, the Service will expect an amount equal to the amount of the excessive or disallowed expenses.
Bluestein & Muhlbauer, P.C.
333 International Drive
Williamsville, NY 14221
716.633.3200
