Representation before the IRS · Taxpayer financial situation

IRS Collection Financial Standards

The rule

The Collection Financial Standards are the tables the IRS uses to decide how much of a delinquent taxpayer’s monthly income is spoken for by living expenses and how much is therefore available to pay the government. They are not law. No statute mentions them, no regulation prescribes them, and no court is bound by them. They are administrative guidelines, published on irs.gov and administered through IRM 5.15.1. But they decide almost every collection alternative a representative will ever ask for, because the “reasonable collection potential” underlying an offer in compromise (IRC § 7122) and the monthly figure in a negotiated installment agreement are both computed from the residue the standards leave behind.

The governing concept is the necessary expense test, which IRM 5.15.1.8 defines as expenses “necessary to provide for a taxpayer’s and his or her family’s health and welfare and/or production of income.” Everything else follows from that sentence. The IRM sorts allowable expenses into three types: allowable living expenses set by the national and local standards; other necessary expenses, which meet the test and are normally allowed in a reasonable amount; and other conditional expenses, which may not meet the test at all but may still be allowed depending on the facts (IRM 5.15.1.8).

Within the first of those three, there is a further distinction that matters more than any other on this topic, and it is the distinction the exam tests. National standards are allowances the taxpayer receives in full, monthly, for the family size, without questioning the amount actually spent. Local standards are ceilings: the taxpayer is normally allowed the local standard or the amount actually paid, whichever is less. Two categories are national — food, clothing and other items, and out-of-pocket health care. Two are local — housing and utilities, and transportation.

The standards do not apply to entities. IRM 5.15.1.8 carries an explicit reminder that the allowable living expense standards are not applicable to corporations, partnerships or LLCs, or to any business expenses. A business’s expenses are analysed on their own terms under IRM 5.15.1.18.

Current figures

The tables in force are effective June 29, 2026^TY2026 for purposes of federal tax administration.

Vehicle operating costs are published by Census region and metropolitan statistical area, so there is no single national number. Housing and utilities are set for every county in every state, which is why the printable version runs to the length shown above.

How it works in practice

The analysis begins with a Collection Information Statement — Form 433-A or 433-F for individuals, 433-B for businesses, and the (OIC) variants where an offer is contemplated. The revenue officer or campus employee compares reported income against allowable expenses and arrives at a monthly disposable figure. The order of operations is what a representative should rehearse:

1. Count the household. The number of persons allowed for national standard expenses should generally match the dependents and taxpayers claimed on the current-year return (IRM 5.15.1.8). Reasonable exceptions exist — the IRM names foster children and pending adoptions — but they must be documented.
2. Give the national standards in full. No receipts, no questions. The IRM’s own example makes the point in the taxpayer’s favour: a taxpayer whose actual spending in the covered categories falls short of the national standard still receives the standard.
3. Cap the local standards. Housing and utilities, and transportation, are the lesser of actual and standard. If the taxpayer has a car but no car payment, the ownership component drops to zero and only the operating cost is allowed (IRM 5.15.1.10).
4. Add other necessary expenses in reasonable amounts — current taxes, court-ordered payments, health insurance, child care, and so on.
5. Test the conditional expenses against the six-year and one-year rules.

That last step is where practice diverges most from the tables. IRM 5.14.1.4.1 provides that where a taxpayer can stay compliant and full-pay within six years and within the collection statute, all expenses may be allowed if the amounts are reasonable, with no substantiation of reasonable expenses required. Separately, a taxpayer who cannot full-pay within six years may be given up to one year to modify or eliminate excessive necessary expenses — and the IRM says in terms that the taxpayer does not have to qualify for the six-year rule in order to use the one-year rule.

Deviation is available and under-used. The IRS’s own disclaimer says that where the facts show the standards are inadequate to provide for basic living expenses, actual expenses may be allowed, provided the taxpayer documents it. What will not work is inconvenience: IRM 5.15.1.8 says a deviation from a local standard is not allowed merely because it is inconvenient for the taxpayer to dispose of valued assets or reduce excessive necessary expenses.

How this has changed

The standards themselves are re-published annually; the tables cited here took effect on the date shown in the figures section, and the corresponding revision of IRM 5.15.1 was transmitted the same day. That revision made several changes a representative should know about. It incorporated interim guidance on International Collection Financial Standards, which now govern taxpayers residing outside the United States — collection employees are directed to use the international calculator and specifically told not to substitute an arbitrarily selected United States location as a starting point, with Puerto Rico residents continuing under the regular housing and utility standards.

The same revision replaced the Consumer Price Index with the Personal Consumption Expenditures price index as the inflation measure used to adjust the allowable living expense standards, with a separate fuel-price adjustment drawn from Energy Information Administration data. It also added forced sale value and reduced forced sale value guidance to the asset analysis, expanded the digital assets section, and added an expectation that a taxpayer use equity in assets toward the liability before other collection alternatives are considered — a change that bears directly on how an offer or an agreement will be received.

The structural point has been stable for much longer. The national/local architecture, the necessary expense test, and the three-way sort into living, other necessary and other conditional expenses have all been in the IRM in recognisable form for over two decades. What changes each year is the arithmetic.

Exam focus

Expect a question that asks which standards are established locally rather than nationally, or which of four listed categories is not a Collection Financial Standard. Learn the four categories cold — food/clothing/other items, out-of-pocket health care, housing and utilities, transportation — and learn which two are national and which two are local. Employment, retirement contributions, and charitable giving are not among them; if an answer choice names one, it is the distractor. A second, less common line of questioning tests the necessary expense test itself: health and welfare or production of income, applied to the taxpayer and family. Amounts are not tested, and should not be memorised.

Check yourself

1. A taxpayer with a household of three reports actual monthly spending of 1,400 dollars on food, clothing, housekeeping supplies, personal care and miscellaneous. The three-person national standard for those categories is higher than that. What amount is allowed?

A. 1,400 dollars, because allowances are limited to amounts actually spent B. The full three-person national standard C. The average of actual spending and the standard D. 1,400 dollars unless the taxpayer substantiates the difference

Answer: B. National standards are allowed in full for the family size without questioning the amounts actually spent, and the IRM’s own example allows the standard where actual spending is lower.

2. Which pair of Collection Financial Standards is established on a local rather than a national basis?

A. Food and clothing B. Out-of-pocket health care and food C. Housing and utilities, and transportation D. Transportation and out-of-pocket health care

Answer: C. Housing and utilities are set by county and family size; transportation operating costs are set by Census region and metropolitan area. Both are ceilings, not entitlements.

3. A taxpayer owns a vehicle outright with no loan or lease payment. What transportation allowance applies?

A. Ownership plus operating costs, as for any vehicle owner B. The operating cost portion only C. The public transportation allowance only D. Nothing, because there is no payment to allow

Answer: B. With no lease or loan payment the allowable ownership cost is zero, and only the operating component of the transportation standard is used.

4. A taxpayer cannot full-pay within six years and claims a conditional expense that does not meet the necessary expense test. Which is correct?

A. The expense must be disallowed immediately, because the six-year rule does not apply B. The taxpayer may be given up to one year to modify or eliminate the expense C. Conditional expenses are never allowed under any circumstances D. The expense is allowed in full because the six-year rule was not met

Answer: B. The one-year rule allows up to a year to modify or eliminate excessive necessary expenses, and the taxpayer need not qualify for the six-year rule in order to use it.

5. Which of the following is not a category of Collection Financial Standard?

A. Transportation B. Out-of-pocket health care expenses C. Employment D. Housing and utilities

Answer: C. The four categories are food/clothing/other items, out-of-pocket health care, housing and utilities, and transportation. There is no employment standard.