IRM 5.15.1 Update

Structured financial analysis dossier representing the IRS Financial Analysis Handbook

Executive Summary for the Taxpayer. The IRS revised its Financial Analysis Handbook effective June 29, 2026, giving Collection employees updated procedures for evaluating income, expenses, assets, shared household costs, business finances, and collection alternatives. The revision is internal IRS administrative guidance, not a new tax statute or regulation, and it does not by itself change your tax liability or guarantee a particular collection outcome.

The June 29, 2026 revision of Internal Revenue Manual (IRM) 5.15.1, Financial Analysis Handbook supersedes the November 22, 2021 version. Its stated audience is SB/SE revenue officers, Collection management officials, and other IRS Collection employees, and its effective date is June 29, 2026. The purpose is to help employees secure, verify, and analyze financial information when determining a taxpayer’s ability to pay delinquent liabilities. IRM 5.15.1 Manual Transmittal

The revision adds or clarifies guidance involving initial investigative interviews, requests for full or partial payment, field appointments, shared expenses, international financial standards, officer compensation, digital assets, life settlements, retirement plans, and asset valuation. It does not create a blanket rule that every taxpayer must receive a field visit or that every asset must be sold.

What Changed

The most important changes include:

Area June 29, 2026 revision
Interviews Employees should request full payment and discuss available assets during the initial investigative interview.
Collection Information Statements Updated guidance for Forms 433-A, 433-B, and 433-F, including when business and individual statements must be analyzed together.
Field visits Added procedures for scheduling visits to secure financial information or observe business operations and assets, subject to safety procedures.
Shared expenses Added guidance allowing the one-person standard and, in certain cases, up to 50% of necessary shared expenses when non-liable household income cannot be verified.
Business expenses Clarified that only necessary cash expenses are generally used in payment-potential analysis and that excessive officer compensation may be added back.
Asset valuation Added Forced Sale Value (FSV) and Reduced Forced Sale Value (RFSV), in addition to Quick Sale Value (QSV).
Digital assets Added a dedicated section addressing cryptocurrency, virtual currency, NFTs, valuation, reporting, levy, and seizure considerations.
Life insurance Added guidance on life settlements and viatical settlements as possible sources of equity.
International taxpayers Incorporated Interim Guidance Memorandum SBSE-05-0725-0041 concerning International Collection Financial Standards.

These changes are instructions for IRS employees. The IRM is not law, and internal guidance generally cannot override the Internal Revenue Code, Treasury Regulations, applicable court decisions, or a taxpayer’s procedural rights. IRS Internal Revenue Manual

How Collection Financial Analysis Works

During an initial investigative interview, a revenue officer may request immediate full payment, ask for a substantial payment from available assets, or secure a complete Collection Information Statement when the taxpayer cannot pay in full. Forms commonly used include:

  • Form 433-A for wage earners and self-employed individuals.
  • Form 433-B for businesses.
  • Form 433-F for certain individual and trust-fund investigations.

A CIS should generally contain information no older than six months and should be updated if the investigation continues beyond twelve months or circumstances materially change. Employees may verify information through tax returns, bank records, credit data, property records, vehicle records, online research, and properly authorized third-party contacts. IRM 5.15.1.2

Field visits are fact-dependent. For a business taxpayer, the revised guidance generally directs the revenue officer to arrange an appointment to observe the operation, employees, inventory, equipment, and other business assets when the case is not resolved. Safety concerns may support meeting at an IRS office, communicating by telephone or correspondence, or using secure digital tools instead. IRM 5.15.1.2

Practical advantage: A complete, reconciled CIS can support an installment agreement, Currently Not Collectible status, or an Offer in Compromise.

Risk: Refusing to provide financial information or refusing to pay when the ability to pay exists may lead to warnings and appropriate enforcement procedures, including a notice of levy or seizure consideration. IRM 5.15.1.17

Preparation: Organize current statements, explain unusual deposits or expenses, and identify assets before the interview rather than waiting for discrepancies to appear.

Household budget and proportional expense analysis for IRS collection review

Implications for Individual Taxpayers

The IRS analyzes household income, including wages, self-employment income, rental income, pensions, interest, dividends, child support, trust distributions, and other sources. Income may be averaged over time when it is seasonal, sporadic, or fluctuating. IRM 5.15.1.12

Allowable Living Expenses use national and local standards for food, clothing, health care, housing, utilities, and transportation. Expenses exceeding a standard may be allowed when they are necessary, reasonable, substantiated, and documented. Economic hardship exists when collection would prevent payment of reasonable basic living expenses; maintaining an affluent or luxurious lifestyle is not treated as hardship. IRM 5.15.1.8; 26 CFR § 301.6343-1(b)(4)

Potential advantages

  • Documented medical, housing, transportation, or family circumstances may support an allowance above a standard.
  • Shared-expense rules may provide a more accurate allocation when a spouse, partner, or roommate contributes to household costs.
  • Existing obligations may be considered under the six-year or one-year rules in appropriate installment agreement cases. IRM 5.14.1.4.1

Risks

  • Unverified income from another household member can affect the expense allocation.
  • Voluntary retirement contributions are generally not treated as necessary expenses when the taxpayer claims an inability to pay. IRM 5.15.1.28
  • Excess home equity, vehicles, brokerage accounts, or other assets may affect collection potential.

Preparation

  • Gather three to six months of bank, credit card, wage, mortgage, rent, insurance, and medical records.
  • Explain shared accounts, roommate arrangements, and who actually pays each bill.
  • Document disabilities, required employment expenses, court orders, and unusual necessary costs.

Businesses, Estates, Trusts, Partnerships, and LLCs

Businesses are evaluated through gross receipts, deposits, accounts receivable, inventory, equipment, cash flow, liabilities, and the ability to remain current with federal tax deposits. Depreciation, depletion, amortization, and other non-cash deductions generally are not treated as cash expenses in the payment-potential analysis. IRM 5.15.1.18

Allowable Living Expense standards do not apply to corporations, partnerships, LLCs, or business expenses. Business expenses must generally be necessary to produce income, and excessive officer compensation may be reduced and added back to business income. IRM 5.15.1.2

Potential advantages

  • A reliable cash-flow analysis may support an installment agreement with increasing payments as revenue improves.
  • Income-producing equipment may be retained when liquidation would destroy the income stream, if the analysis supports that conclusion.
  • Complete business and individual financial information can distinguish entity liabilities from owner liabilities.

Risks

  • Commingling personal and business funds may support alter-ego, nominee, or transferee theories under applicable law. IRM 5.15.1.18; IRC § 6901
  • Responsible persons may face the Trust Fund Recovery Penalty for willful failure to collect or pay trust-fund employment taxes. IRC § 6672
  • Partnerships and single-member LLC cases may require both business Form 433-B and individual Form 433-A analysis, depending on the liable taxpayer. IRM 5.15.1.2

Preparation

  • Separate bank accounts and payment records by entity.
  • Maintain current profit-and-loss statements, balance sheets, payroll records, accounts receivable aging, inventory reports, and asset listings.
  • Reconcile returns, bank deposits, financial statements, and CIS figures before submission.

For estates and trusts, the IRS may examine interests in distributions, fiduciary accounts, inherited property, real estate, securities, life insurance, and other assets. The nature of the liable party and the taxpayer’s legal interest must be established under applicable federal and state law. IRM 5.15.1.13

Corporations and Officer Compensation

The revised handbook specifically discusses officer compensation and non-cash benefits, including stock, stock options, insurance, vehicles, aircraft, and real property. Compensation that is excessive in relation to the corporation’s ability to pay, the local economy, the officer’s duties, or the overall facts may be reduced in the collection analysis. IRM 5.15.1.18

Potential advantage: Properly documented compensation and business benefits can help establish legitimate operating expenses.

Risk: Personal use of corporate assets, shareholder loans without repayment terms, or payment of personal expenses from corporate funds can create collection and liability concerns. Trust-fund exposure also requires analysis of responsible persons under IRC § 6672.

Preparation

  • Maintain payroll registers, employment agreements, board records, shareholder loan documents, and benefit statements.
  • Separate personal and corporate charges.
  • Explain the business purpose and fair value of vehicles, housing, travel, insurance, and other benefits.

Assets, Digital Currency, Retirement Plans, and Insurance

The IRS may evaluate cash, securities, real estate, vehicles, boats, aircraft, inventory, machinery, receivables, intangible assets, retirement plans, and life insurance. Equity generally requires an analysis of value, encumbrances, and lien priority. IRM 5.15.1.20

The revised valuation guidance distinguishes:

  • Quick Sale Value: Generally about 80% of fair market value when financial pressure requires a sale in approximately 90 days.
  • Forced Sale Value: A reduction that may reflect a foreclosure-type sale, generally not exceeding a 25% reduction from fair market value under the cited procedures.
  • Reduced Forced Sale Value: Generally about 60% of fair market value in circumstances involving a distraint sale and redemption considerations. IRM 5.15.1.21

The taxpayer is not automatically required to sell every asset. Income-producing assets may be retained when liquidation or borrowing would cause hardship or materially impair the income stream. IRM 5.15.1.23

Digital assets are addressed directly. IRC § 6045(g)(3)(D) generally defines a digital asset for broker information reporting, while Notice 2014-21 treats convertible virtual currency as property for federal tax purposes. Rev. Rul. 2019-24 addresses cryptocurrency transactions including certain events involving distributed ledger technology. The IRS may request the type, number of units, custodian, wallet information, and current value. IRM 5.15.1.26.1

Retirement accounts may be considered assets and may be reachable by levy, but employees must consider other assets, the taxpayer’s conduct, retirement status, withdrawal restrictions, penalties, and whether the taxpayer depends on the funds for necessary living expenses. IRM 5.15.1.28

Whole-life insurance may have cash or loan value, and a policy may sometimes be sold through a life settlement or viatical settlement. The policy’s purpose, beneficiary needs, health circumstances, and potential hardship remain relevant. IRM 5.15.1.27

Digital assets, retirement funds, life insurance, and property valuation in a collection analysis

International Taxpayers and Shared Household Expenses

For taxpayers living outside the United States, Collection employees are directed to use the International Collection Financial Standards Calculator rather than arbitrarily selecting a U.S. location. Foreign accounts and assets may also prompt FATCA, FBAR, treaty, or Mutual Collection Assistance Request research. IRM 5.15.1.8

For shared household expenses, the IRS may calculate the taxpayer’s proportionate share of household income and necessary expenses. If non-liable income cannot be verified, the revised guidance may allow the one-person standards plus up to 50% of reasonable shared expenses in appropriate circumstances. Information concerning a non-liable person remains protected by the confidentiality rules of IRC § 6103.

Preparation

  • Provide foreign account statements, ownership documents, exchange rates, tax forms, and evidence of foreign living costs.
  • Separate shared and individual expenses.
  • Document whether funds are commingled and the percentage of household income contributed by each person.

Collection Alternatives and Enforcement

The financial analysis may support:

The IRS may file a Notice of Federal Tax Lien or pursue levy and seizure under established procedures when the taxpayer does not resolve the liability and assets are available. Administrative seizure and sale procedures include taxpayer redemption rights under IRC § 6337(b)(1). The existence of equity does not mean an asset will always be forced into a sale.

Practical Document Checklist

Prepare the following where applicable:

  • Forms 433-A, 433-B, or 433-F.
  • Six months of personal and business bank statements.
  • Recent pay records, invoices, commission records, and benefit statements.
  • Tax returns, Forms W-2, Forms 1099, Schedules K-1, and payroll tax filings.
  • Profit-and-loss statements, balance sheets, cash-flow projections, and accounts receivable aging.
  • Mortgage, deed, appraisal, tax assessment, insurance, and payoff documents.
  • Vehicle, boat, and aircraft titles, loan contracts, appraisals, and valuation support.
  • Brokerage, bond, retirement, annuity, and digital-asset statements.
  • Life insurance policy illustrations, cash values, loan values, and settlement estimates.
  • Trust, estate, inheritance, divorce, child-support, and court-order documents.
  • Foreign account, FATCA, FBAR, and international asset records.
  • Written explanations for unusual deposits, transfers, commingled funds, or expenses above IRS standards.

Taxpayer Rights, Safety, and Representation

A taxpayer may consult an authorized representative, and an IRS employee must suspend the interview to permit that consultation when the taxpayer requests it. Represented taxpayers may generally work through their representative, although business asset observations and other verification procedures may still be scheduled under the applicable IRM. IRM 5.1.10.7.1

Field visits are subject to IRS safety procedures and stated exceptions. A taxpayer who disagrees with an economic-hardship determination may seek assistance from the Taxpayer Advocate Service. Taxpayers should not provide original documents unless specifically required; provide copies and retain a complete submission file.

Brick Taxes provides tax preparation, IRS representation, and collection-resolution assistance. Matthew Jones is a federally licensed IRS Enrolled Agent with 25 years of tax-preparation experience and an accounting background. Information is available at BrickTaxes.com or 732-540-1040.

Official Authorities Referenced