NLE (Necessary Living Expenses)

The IRS does not accept your actual expenses at face value in collection determinations. Instead, it applies a standardized system called Collection Financial Standards, divided into four categories: National Standards (food, clothing, personal care), Local Standards (housing, utilities, transportation), and Out-of-Pocket Healthcare. These standards represent the 'lesser of' rule: if you spend less than the standard, the IRS allows only your actual expense. If you spend more, the IRS caps your allowable deduction at the standard. National Standards are uniform across the country and scale by household size. Local Standards vary by county and metropolitan area. The gap between your actual expenses and the IRS-allowed NLE is your Monthly Disposable Income — the number that drives your RCP calculation and determines whether you qualify for an OIC, CNC status, or installment agreement terms.