IRS National and Local Standards — Expense Allowances in Collection — Definition Glossary

Defined by Sarah Mitchell, CPA | Reviewed by: James Okafor, EA | Updated May 2026

Full Definition

The IRS uses National Standards and Local Standards to evaluate a taxpayer’s ability to pay during collection proceedings (OIC, installment agreements, currently not collectible status). National Standards cover: food, clothing, out-of-pocket health care, and housekeeping supplies — fixed amounts by household size regardless of location. Local Standards cover: housing and utilities (varies by county), transportation (vehicle ownership and operating costs). The IRS generally allows only expenses within these standard amounts, regardless of what the taxpayer actually pays. For businesses, the relevant analysis is different: the IRS evaluates actual business expenses rather than National/Local Standards — but only “ordinary and necessary” business expenses are allowed. Luxury expenses, excessive salaries, and non-business expenses are disallowed. For business owners whose business and personal finances are intertwined (sole proprietors, single-member LLCs), the analysis combines business expense evaluation with personal National/Local Standards.

Why This Matters for Businesses With Tax Debt

Understanding IRS National and Local Standards — Expense Allowances in Collection is essential for any business owner navigating IRS enforcement or business tax debt. This term directly affects the resolution options available — including whether tax debt financing is a viable solution, how federal tax liens affect the business, and what the IRS can legally collect.

Related Tax Terms

• Currently Not Collectible
• Offer in Compromise
• Installment Agreement

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Sources: IRS.gov; Internal Revenue Code (IRC); IRS Publications 1, 594, 1660, 594. Tax Funds is a financing marketplace — not a lender, CPA firm, or law firm. Content is for informational purposes only and does not constitute tax or legal advice.