ALE Standards Are Guidelines, Not Caps: When the IRS Must Allow Above-Standard Expenses

One of the fastest ways for the IRS to manufacture a "no hardship" finding is to cap the taxpayer's allowed expenses at the national and local Allowable Living Expense standards. If the taxpayer's housing costs $5,500/month but the ALE standard says $2,800, the IRS disallows $2,700 — and suddenly the deficit shrinks or disappears. Hardship denied.

There's a problem with that approach: it violates the IRS's own rules. The IRM says the ALE standards are guidelines, not caps. And the IRM says deviation is not just permitted — it's required when failure to deviate causes hardship.

What the IRM Actually Says

IRM 5.15.1.1(8) is the controlling provision. It says:

"The standard amounts set forth in the national and local guidelines are designed to account for basic living expenses. In some cases, based on a taxpayer's individual facts and circumstances, it will be appropriate to deviate from the standard amount when failure to do so will cause the taxpayer economic hardship."

Notice the language. It does not say "it may be appropriate." It says "it will be appropriate." When failure to deviate causes hardship, the deviation is not a favor. It's not a concession. It's the correct application of the standard.

IRM 5.19.13 confirms: "ALE standards are guidelines. If it is determined a standard amount is inadequate to provide for a specific taxpayer's basic living expenses, allow the higher expense with substantiation."

Housing Costs Above the Standard

Housing is the most common area where actual expenses exceed the ALE standard — and the most important area for getting the deviation right, because housing is typically the taxpayer's largest expense.

Consider a taxpayer whose monthly housing costs are $5,500 against an ALE local standard of $2,800. The standard is based on the HUD median for the county. But the taxpayer carries three mortgages — not because they bought a mansion, but because a natural disaster forced them to take an SBA disaster loan to rebuild. The third mortgage exists because of a federally declared disaster, not a lifestyle choice.

Treas. Reg. § 301.6343-1(b)(4)(ii)(E) specifically lists "a natural disaster" as an extraordinary circumstance the IRS must consider. The taxpayer's elevated housing costs are a direct consequence of the disaster the regulation contemplates. Disallowing them to defeat a hardship finding would contradict the regulation.

IRM 5.15.1.1(8) also instructs employees to consider "the cost of moving to a new residence" before disallowing above-standard housing. For elderly taxpayers with chronic health conditions, established medical care networks, and multiple mortgages that wouldn't be satisfied by a local downsize — moving doesn't solve the problem. It creates new ones.

And here's the clincher: the home is exempt from levy under IRC § 6334(a)(13). Congress decided the IRS should not seize a taxpayer's principal residence. It would be internally contradictory to deny the housing expense that keeps the taxpayer in the home Congress said the IRS cannot take.

Medical Costs Above the Standard

Medical expenses are the least disputed category for deviation — and yet many Appeals Officers still default to the standard. The 2025 national standard for out-of-pocket health care for individuals 65 and older is $149 per person, or $298 for a couple. For taxpayers with chronic conditions, actual costs can easily run three to four times that amount.

The IRM at 5.15.1.7(1) is direct: "If the amount claimed is more than the total allowed by the ALE medical standard, the taxpayer must substantiate the amount claimed and it is allowed." That's not "it may be allowed." It's "it is allowed" — with substantiation.

The National Taxpayer Advocate has specifically flagged this as a problem. The Advocate's 2016 Annual Report to Congress recommended increasing the out-of-pocket health care standard, finding that the existing standard was inadequate and resulted in taxpayers being placed in installment agreements they could not afford. The standard hasn't kept pace with actual medical costs for elderly taxpayers.

If the IRS reduces a taxpayer's allowed medical expenses to $298/month when their actual, substantiated, medically necessary costs are $950/month — and then says "see, now income exceeds expenses, so there's no hardship" — the problem is obvious. The hardship was not eliminated. It was hidden by refusing to count the actual cost of staying alive.

The Critical Point That Makes the Debate Irrelevant

Here's something I emphasize in every CDP submission where expenses are at issue. Even if the Appeals Officer caps every expense at the ALE standard — even if housing is reduced to the local standard, even if medical is reduced to $298/month, even if every above-standard dollar is disallowed — the deficit often remains.

The deficit gets smaller. But the hardship doesn't disappear. In most cases I handle, no version of the math produces a surplus. The "allowed" expenses debate changes the size of the monthly deficit. It does not change whether the deficit exists.

So if you're a representative, make this point explicit: "Even under the most restrictive application of the ALE standards, the taxpayer's income does not cover their expenses. The deficit may be $1,200/month instead of $2,800/month — but a deficit is a deficit. Hardship remains."

How to Present Above-Standard Expenses

Substantiate everything. The IRM allows deviations with substantiation. Provide invoices, medical bills, mortgage statements, SBA loan documents. Leave no room for "unsubstantiated."

Cite the specific IRM provisions. IRM 5.15.1.1(8) for the general deviation authority. IRM 5.15.1.7(1) for medical expenses. IRM 5.19.13 for the "guidelines, not caps" language. Make the Appeals Officer confront their own manual.

Cite the regulation for disaster cases. Treas. Reg. § 301.6343-1(b)(4)(ii)(E) — natural disasters as an extraordinary circumstance. If the above-standard costs are disaster-related, the regulation explicitly requires them to be considered.

Run both scenarios. Show the math with actual expenses and with ALE-capped expenses. If the deficit exists under both scenarios, say so. It takes the deviation debate off the table.

The Bottom Line

The ALE standards are guidelines. The IRM says so. The IRM says deviation is appropriate — even required — when failure to deviate causes hardship. Medical expenses above the standard are allowed with substantiation. Housing expenses above the standard are allowed when driven by extraordinary circumstances like natural disasters.

Disallowing legitimate expenses to manufacture a "no hardship" finding is not what the IRM directs. And if it's what the Appeals Officer does, it needs to be explained in the Notice of Determination — with citations to the specific IRM provision that prohibits the deviation. If no such provision exists, the determination has a problem.