THE BUREAUCRACY OF A BUREAUCRACY
An analysis of the recent IRS amendments to IRM §5323
By Deborah J. Muhlbauer
Lookout tax practitioners! In what seems to be the Internal Revenue Service’s ever continuing quest to regulate (and complicate) its internal policies and procedures, on August 29, 1995, the Service released its revised IRM §5323 related to analysis of a taxpayer’s financial condition. Replacing the one section, two page IRM §5323 which had been in effect since December 11, 1992, are twenty five subsections of subsections, denoted by decimal point, which I will break into groups for purposes of this article.
Group one, which includes §5323.1, §5323.11, and §5323.12, contains the overview and definitions relevant to this manual section. Group two, which is a singular subsection, contains the IRS policy regarding analysis of a taxpayer’s compliance and tax history.
Group three, comprised of §5323.3, §5323.31, §5323.32, and §5323.33, is directed to the analysis of a taxpayer’s financial condition, and includes a general overview (§5323.31), discussion of sources of analysis (§5323.32), and criteria for determining maximum collectibility (§5323.33).
Group four contains the Service’s significantly formalized policy on analysis of expenses. The following twelve subsections constitute this group:
General (§5323.41)
Allowable Expenses (§5323.42)
Necessary Expenses (§5323.43)
Necessary Expenses: General (§5323.431)
Necessary Expenses: National Standards (§5323.432)
Necessary Expenses: Local Standards (§5323.433)
Necessary Expenses: Other (§5323.434)
Necessary Expenses: Other - Unsecured Debts (§5323.435)
Conditional Expenses (§5323.44)
Conditional Expenses: Three Year Rule for Full Payment (§5323.441)
Conditional Expenses: Unsecured Debts (§5323.442)
Finally, singular subsection five contains the Service’s new one year rule for eliminating non-allowable expenses, and the subsections of group six discuss case resolution by approach, specifically the installment payment agreement (§5323.61), offer in compromise (§5323.62), and currently not collectible status (§5323.63).
TYPES OF EXPENSES: NECESSARY AND CONDITIONAL
THE THREE YEAR RULE
THE ONE YEAR RULE
COLLECTION CASE RESOLUTION
The above is a general discussion of the Service’s amendments to IRM §5323 and intended to apprise the practitioner of the most relevant substantive changes in the Internal Revenue Service policy related to analysis of a taxpayer’s financial data. However, as should always be the case, a practitioner faced with a federal tax collection problem should consult the particular manual provisions related to his/her client’s particular facts or circumstances.
Additionally, a practitioner should consult the following exhibits which have been added to the Internal Revenue Manual in conjunction with the Service’s amendments to IRM §5323. The exhibits are as follows: Exhibit 5300-45 - Guide to Expenses; Exhibit 5300-46 - Financial Analysis - Expenses; Exhibit 5300-47 - Questions and Answers to Assist in Financial Analysis; Exhibit 5300-48 - Financial Analysis - Total Monthly National Standards; and Exhibit 5300-49 - Financial Analysis - Monthly National Standards. Releases containing the local standards for housing and transportation are to be published separately from the Internal Revenue Manual and interested practitioners should contact the local District Directors Office for more details.
In conclusion, although it appears that the discretion of the individual revenue officer is becoming a thing of the not too distant past, amended IRM §5323 does address those situations where exercise of discretion is appropriate and necessary. It is in these areas that the tax practitioner should be familiar, well informed, and creative, to achieve the best possible outcome for his/her clients.
Bluestein & Muhlbauer, P.C.
333 International Drive
Williamsville, NY 14221
716.633.3200
