IRS expenses refers to the allowable living expenses set by Internal Revenue Services. It can also be called the “collection financial standards”. The standards are intended to assist determining a taxpayer’s ability to pay a delinquent tax liability. It can also be used in Chapter 7 and Chapter 13 bankruptcy cases to calculate the average income of the debtor. (See here for an example of financial standards being used in a Chapter 13 calculation form.)
There are two types of standards: the national standards, and the local standards. National standards are the same national wide, while local standards are different from state to state. The national standards have five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous (see here for the 2020 allowable living expenses national standards). Out-of-pocket health care expenses is also a type of expense under national standards. The local standards have two categories: housing and utilities standards, and transportation standards. (To see a detail explanation of each expense, check out this IRS webpage.)
The standards are calculated by family size. The more members in the family, the higher expenses the standards allow. However, if the actual expenses are more than the standards, the taxpayer must provide documentation to prove that the extra expenses are necessary living expenses.
[Last updated in June of 2020 by the Wex Definitions Team]