What expenses does the IRS allow when calculating an Offer in Compromise?

The IRS uses specific expense standards when calculating your Reasonable Collection Potential for an OIC. Allowable expenses include: National Standards (fixed amounts set by the IRS for food, clothing, housekeeping, and personal care, based on family size), Local Standards (housing and utilities based on your county, plus transportation based on your region), other necessary expenses (health insurance premiums, court-ordered payments like child support and alimony, childcare for work, term life insurance, current tax payments, secured debt payments on assets the IRS allows you to keep, and student loans for education required for employment). Expenses NOT typically allowed include: credit card payments (unsecured debt), luxury items, voluntary retirement contributions beyond employer match, private school tuition, excessive housing costs above local standards, and entertainment. The IRS may allow expenses above the standard amounts if you can demonstrate they are 'necessary for the health and welfare' of your family. A skilled tax professional knows how to maximize allowable expenses within IRS guidelines, which lowers your RCP and reduces your required offer amount.