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Commissioner, T.C. Memo. 2003-34; Schulman v. Commissioner, T.C.
Memo. 2002-129. When determining whether an installment
agreement will facilitate the collection of tax, the IRS
considers the taxpayer’s ability to pay the tax by analyzing the
taxpayer’s assets, liabilities, and monthly income and expenses.
Schulman v. Commissioner, supra. In determining the amount a
taxpayer is able to pay, the IRS allows the taxpayer to offset
income with certain necessary or conditional expenses, provided
the taxpayer substantiates them. Id. (citing 2 Administration,
IRM (CCH), secs. 5.15.1 to 5.15.1.4, at 17,653-17,660).
“Necessary” expenses are those that provide for a taxpayer’s
health and welfare and/or the production of income. 2
Administration, IRM (CCH), sec. 5.15.1.3(2), at 17,655.
“Conditional” expenses are any expenses other than “necessary”
expenses. Id. secs. 5.15.1.7(6), at 17,661, 5.15.1.3(3), at
17,655. An Appeals officer may allow “excessive necessary” and
“conditional” expenses, provided that the tax liability,
including all accruals, will be paid within 5 years. Id. sec.
5.15.1.3(4).
On the collection statement submitted to the Appeals
officer, petitioners stated that they had a combined monthly
income of $8,924 and total expenses of $7,546.4 Thus, without
4The IRS determined that petitioners had a combined gross
monthly income of $14,382. Moreover, petitioners were unable to
(continued...)
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