A more thorough explanation:

IRS expenses, also known as collection financial standards, are the living expenses set by the Internal Revenue Service (IRS) to determine a taxpayer's ability to pay their delinquent tax liability. These standards are also used in Chapter 7 and Chapter 13 bankruptcy cases to calculate the average income of the debtor.

There are two types of standards: national and local. National standards are the same across the country, while local standards vary from state to state. The national standards include necessary expenses such as food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous expenses. Out-of-pocket healthcare expenses are also included in the national standards. The local standards have two categories: housing and utilities standards, and transportation standards.

The standards are calculated based on 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.

For example, if a family of four has a monthly income of $5,000 and their allowable living expenses based on the national standards are $4,000, the IRS may determine that they have the ability to pay their delinquent tax liability. However, if the family's actual living expenses are $4,500, they can provide documentation to prove that the extra $500 is necessary for their basic living expenses.