IRS RESPONSE TO RECOMMENDATION: In response to the NTA’s report to Congress in 2005, IRS considered the use of self-sufficiency standards as an alternative to the ALE. IRS determined that the data did not meet standards of accuracy, cover a sufficient geographic area, are not collected regularly, and are not generally accepted as reliable. In addition, the self-sufficiency standard reports for the various states use a variety of state and local sources and lack the consistency needed to ensure nationwide consistency and fairness. In discussions with TAS regarding decreases in the ALE for 2016, IRS agreed to consider other sources for use in calculating the ALE.
Where practicable for the taxpayer and the IRS, no substantiation is required for some expenses unless the monthly amount exceeds the national level. This includes public transportation for the purchase of bus tokens, subway passes, out-of-pocket health care costs for medication, doctors, dentists, and food, clothing, and household supplies for the purchase of numerous personal and household items. For an automobile loan/ lease or mortgage/rent amount, where the expense can vary significantly and substantiation would be less cumbersome, documentation is required in some cases.
CORRECTIVE ACTION: N/A
TAS RESPONSE: The National Taxpayer Advocate understands that it will not be easy finding an alternative to the current ALE standards that is both sufficient for taxpayer needs and consistent for all taxpayers. She invites the IRS to join her in researching and considering other sources for calculating the ALE standards.
The National Taxpayer Advocate appreciates that in some instances the taxpayer does not have to provide documents to substantiate a given expense. However, the allowed amount serves as a cap on the expense, when we know that some taxpayers will pay more and some will pay less because the ALE standards are based on average expenditures. Second, in many cases taxpayers will forego one expense in order to pay for a more immediate or costly expense. The current system is not always reflective of a taxpayer’s true financial situation, making it difficult to substantiate.
ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted
OPEN or CLOSED: Closed
DUE DATE FOR ACTION (if left open): N/A