Source: https://lundinonchapter13.com/Content/Section/95.4
Timestamp: 2019-12-08 05:02:59
Document Index: 665709297

Matched Legal Cases: ['§ 95', '§ 95', '§ 707', '§ 707', '§ 707', 'art 5', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 1325', '§ 1325', '§ 1325', '§ 707', '§ 1325', '§ 707', '§ 707', '§ 101', '§ 707', '§ 101', '§ 707', '§ 707', '§ 1325', '§ 707', '§ 707', '§ 707', '§ 707', '§ 1325', '§ 707', '§ 5', '§ 707', '§ 707', '§ 101', '§ 707', '§ 707', '§ 707', '§ 101', '§ 507', '§ 707', '§ 707', '§ 507', '§ 707', '§ 507', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 101', '§ 468', '§ 92', '§ 469', '§ 1325', '§ 92', '§ 1325', '§ 707', '§ 707', '§ 707', '§ 95', '§ 471', '§ 94', '§ 476', '§ 95', '§ 707', '§ 707', '§ 475', '§ 95', '§ 95', '§ 475', '§ 95', '§ 476', '§ 95', '§ 475', '§ 95', '§ 475', '§ 95', '§ 95', '§ 707', '§ 101', '§ 379', '§ 36', '§ 92', '§ 101', '§ 468', '§ 92', '§ 1325', '§ 470', '§ 93', '§ 94', '§ 95', '§ 95', '§ 471', '§ 94', '§ 101', '§ 468', '§ 92', '§ 1324', '§ 502', '§ 115', '§ 477', '§ 95', '§ 707', '§ 485', '§ 96', '§ 707', '§ 473', '§ 94', '§ 468', '§ 92', '§ 1325', '§ 165', '§ 91', '§ 475', '§ 95', '§ 477', '§ 95', '§ 7122', '§ 553', '§ 477', '§ 95', '§ 475', '§ 95', '§ 475', '§ 95', '§ 476', '§ 95', '§ 471', '§ 94', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 707', '§ 1325', '§ 485', '§ 96', '§ 363', '§ 3', '§ 165', '§ 91', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 101', '§ 440', '§ 73', '§ 95', '§ 113', '§ 136', '§ 523', '§ 159', '§ 523', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 99', '§ 1325', '§ 477', '§ 95', '§ 475', '§ 95', '§ 95', '§ 485', '§ 96', '§ 486', '§ 97', '§ 707', '§ 707', '§ 472', '§ 94', '§ 477', '§ 95', '§ 101', '§ 440', '§ 73', '§ 136', '§ 477', '§ 95', '§ 440', '§ 73', '§ 73', '§ 707', '§ 486', '§ 97', '§ 477', '§ 95', '§ 477', '§ 95', '§ 486', '§ 97', '§ 440', '§ 73', '§ 485', '§ 96', '§ 707', '§ 485', '§ 96', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 707', '§ 481', '§ 95', '§ 477', '§ 95', '§ 477', '§ 95', '§ 475', '§ 95', '§ 707', '§ 483', '§ 95', '§ 472', '§ 94', '§ 36', '§ 95', '§ 95', '§ 36', '§ 94', '§ 95', '§ 95', '§ 707', '§ 5', '§ 707', '§ 707', '§ 707', '§ 707', '§ 5', '§ 707', '§ 707', '§ 5', '§ 707', '§ 707', '§ 707', '§ 70', '§ 5', '§ 707', '§ 1325', '§ 707', '§ 1325', '§ 707', '§ 1325', '§ 707', '§ 1325', '§ 1325', '§ 1325', '§ 1325', '§ 1325', '§ 707', '§ 707', '§ 707', '§ 5', '§ 707', '§ 1325', '§ 707', '§ 707', '§ 707', '§ 707', '§ 707', '§ 1325', '§ 707']

§ 95.4 Other [Necessary] Expenses—In General; All Categories
Cite as: Keith M. Lundin, Lundin On Chapter 13, § 95.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
To determine disposable income for a Chapter 13 debtor with current monthly income (CMI)1 greater than applicable median family income,2 “amounts reasonably necessary to be expended—” are determined in accordance with § 707(b)(2)(A) and (B).3 Among the monthly expenses allowed by § 707(b)(2)(A)(ii)(I) as deductions from CMI on the way to disposable income are
the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief, for the debtor, the dependents of the debtor and the spouse of the debtor in a joint case, if the spouse is not otherwise a dependent.4
There is an immediate disconnect here of uncertain import. Using initial capital letters, § 707(b)(2)(A)(ii)(I) allows a Chapter 13 debtor with CMI greater than applicable median family income to deduct actual monthly expenses for the categories specified as “Other Necessary Expenses” issued by the IRS. You will search high and low for “Other Necessary Expenses” issued by the IRS. In Part 5 of the Internal Revenue Manual in the chapter dealing with Financial Analysis, there is a subsection called “Other Expenses” that contains “Expense Item[s]” organized in something like categories.5 If you dig further into the text of the Internal Revenue Manual, you find that in a negotiation between the IRS and a delinquent taxpayer, “Other Expenses” may be considered that meet a “necessary expense test”—they must “provide for the health and welfare of the taxpayer and/or his or her family or they must be for the production of income . . . determined based on the facts and circumstances of each case.”6
The difference between the description in § 707(b)(2)(A)(ii)(I) of the Bankruptcy Code and that in the Internal Revenue Manual could be the (significant) difference between “actual” expenses and actual expenses that are also (subjectively?) “necessary.” Section 707(b)(2)(A)(ii)(I) refers to “actual” expenses in “categories.” The word “necessary” is in the bankruptcy statute only as the title of the categories issued by the Internal Revenue Service. Section 707(b)(2)(A)(ii)(I) does not use “Necessary” as a condition or limitation on the “actual” expenses allowed within the categories specified by the IRS. In contrast, the IRS uses “necessary” as a limitation on “Other Expenses” a taxpayer is allowed in a negotiation with the Treasury Department—but this condition emerges only by drilling into the instructions to revenue agents in the Internal Revenue Manual.
The use of “actual” without modification or limitation in § 707(b)(2)(A)(ii)(I) should signal that “actual” expenses are what is allowed in each of the categories specified by the IRS. When Congress intended an expense deduction to satisfy other, higher standards, it said so. For example, in the very next subclause of § 707(b)(2)(A)(ii), monthly expenses include “actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor’s immediate family.”7 If Congress intended to allow only “necessary” actual monthly expenses in the categories of Other [Necessary] Expenses specified by the IRS, ordinary canons of statutory construction advise that § 707(b)(2)(A)(ii)(I) would have said so.
There are at least two other possible sources for adding the modifiers “reasonable” and/or “necessary” to the “actual” expenses allowed by § 707(b)(2)(A)(ii)(I). Section 1325(b)(3) states that “[a]mounts reasonably necessary to be expended” shall be determined in accordance with § 707(b)(2)(A) and (B) for Chapter 13 debtors with CMI greater than applicable median family income. It requires some circular reasoning, but determining amounts “reasonably necessary to be expended” in accordance with § 707(b)(2)(A) and (B) might include considering whether the expense amounts allowed by § 707(b)(2)(A) and (B) are reasonable and necessary. Normal use of words and sentence structure doesn’t drive that conclusion, but some courts have embraced the argument.8
Another potential source for conditions such as reasonableness or necessity would be the Internal Revenue Manual. Discussed further below, the Internal Revenue Manual is thick with conditions, limitations and modifiers to guide evaluation of Other Expenses allowed a taxpayer in negotiation for payment of delinquent taxes. Section 707(b)(2)(A)(ii)(I) references categories of Other Necessary Expenses, not the Internal Revenue Manual. Several courts have observed that an earlier draft of what became § 707(b)(2)(A)(ii)(I) actually contained a reference to the Internal Revenue Manual, but as enacted § 707(b)(2)(A) does not.9 There are many good reasons why Treasury Department interpretations of IRS guidelines should not be imported into disposable income test analysis in Chapter 13 cases.10
The categories of Other [Necessary] Expenses specified by the IRS are fundamentally different from the National Standards11 and Local Standards12 also allowed as expense deductions in § 707(b)(2)(A)(ii)(I). The National Standards and Local Standards are specific amounts displayed by the IRS in tables based on income (prior to October 1, 2007),13 family or household size and location. In contrast, the Other Expenses allowed by the IRS when it considers installment payments or an offer in compromise by a delinquent taxpayer are not specified in amount; according to its internal guidelines for collecting delinquent taxes, the IRS allows Other Expenses that are “necessary” and “reasonable considering the taxpayer’s individual facts and circumstances.”14
Section 707(b)(2)(A)(ii)(I) describes allowable Other Necessary Expenses differently than the National Standards and Local Standards expense deductions. As discussed above,15 a debtor’s monthly expenses “shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.”16 In contrast, “actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service” are allowed—signaling that monthly expenses within the categories of Other [Necessary] Expenses are not allowances fixed by the IRS but are subjective amounts actually experienced by the debtor.
For better or worse, the statute is no clearer than that with respect to the content of “actual monthly expenses.” There is no temporal benchmark. Does the debtor tally up actual expenses in the month before the bankruptcy petition? Or are actual expenses averaged over some other period of time? The statute is explicit with respect to the time period for other measures of income or expense. For example, for most debtors the income component of CMI is precisely bound to a six-month period before the filing of the bankruptcy petition.17 The phrase “actual monthly expenses” is not precisely timed.
It might be argued that actual monthly expenses should be determined at the petition for a Chapter 13 debtor with CMI greater than applicable median family income because § 707(b)(2)(A)(ii)(I) is explicit that it is the categories “specified . . . issued . . . as in effect on the date of the order for relief” that control the allowance of Other [Necessary] Expenses. It would be odd to use the categories of Other [Necessary] Expenses specified by the IRS at the petition but then determine those expenses based on some other timing.
But one of the few decisions on the subject found a different timing for actual monthly expenses in § 1325(b)(1). The bankruptcy court in In re Crittendon18 noted that the first sentence of the disposable income test in § 1325(b)(1) contains the phrase “as of the effective date of the plan.”19 The Crittendon court first held that this effective date language applies to the projected disposable income requirement in § 1325(b)(1)(B) even when “amounts reasonably necessary to be expended” are determined in accordance with § 707(b)(2)(A) and (B). The court concluded that deductions in the categories specified as Other [Necessary] Expenses are actual expenses that can change between the petition and the confirmation date to respect the effective date language in § 1325(b)(1).
Time-shifting the determination of Other [Necessary] Expenses to the effective date of the plan may be more realistic of the debtor’s finances, but other expense components of the disposable income calculation are determined at the petition,20 and time-shifting Other [Necessary] Expenses will have the unsettling effect of further distancing the income side of the disposable income calculation from the expense side of that calculation.21 In most Chapter 13 cases, CMI will be determined based on income during the six months before the month in which the petition was filed.22 The effective date of the plan typically will be at least two or three months after the petition23—separating income and expenses for disposable income test purposes by as much as nine months in many Chapter 13 cases. Also, there is no official form filed by Chapter 13 debtors that captures actual expense information at the effective date of the plan.
Once a period of time for determining actual monthly expenses is defined, then there is uncertainty how to calculate “monthly” expenses within that time period. For example, in In re Casey,24 the debtor was required by a state court order to make payments to an ex-spouse of $600 per month. This court-ordered payment fell squarely within the category of Other [Necessary] Expenses specified by the IRS for “Court-Ordered Payments.”25 But according to the state court order in Casey, this obligation would cease in the 24th month of the proposed plan. The court concluded that the $600 monthly payment must be multiplied by the 24 months remaining under the state court order and then divided by the 60 months of the proposed plan to give an “actual monthly expense” of $224.39 during the Chapter 13 case.
The outcome in Casey is perhaps defensible, but it is not grounded in the words of the statute, and in some cases, dividing an actual payment by the number of months in the plan will leave the debtor with insufficient cash from month to month to make the court- ordered payment. Elsewhere in § 707(b)(2), Congress was clear that an expense amount should be calculated by generating a total and dividing by 60. For example, in § 707(b)(2)(A)(iii) average monthly payments on account of secured debts are calculated as the sum of all amounts scheduled as contractually due during the 60 months following the petition divided by 60.26 There is no similar statutory methodology with respect to actual expenses in the categories of Other [Necessary] Expenses specified by the IRS. Is it an “actual” expense if dividing by 60 generates a number that is different than the “actual” amount?
The actual monthly expenses allowed are expenses for the debtor, the dependents of the debtor and the spouse of the debtor in a joint case if the spouse is not otherwise a dependent.27 If the debtor’s spouse is a dependent, then without regard to whether the spouse is also a joint debtor, the debtor’s actual monthly expenses for the spouse are allowed in each category of Other [Necessary] Expenses specified by the IRS.
When the spouse is a joint debtor, the statute awkwardly allows only “the debtor’s actual monthly expenses” in the categories of Other [Necessary] Expenses specified by the IRS. What happens to a spouse’s actual monthly expenses in the categories of Other [Necessary] Expenses specified by the IRS that are not actual monthly expenses of the debtor? For example, court-ordered child support for a dependent of the spouse who is not a dependent of the debtor seems to be unaccounted for in this expense calculus. Detailed elsewhere,28 when the spouse of the debtor is a joint debtor, § 101(10A)(A) and (B) may capture all of the spouse’s income as part of CMI, but the statute is anything but clear that all of a spouse’s separate expenses are properly accounted for as deductions from CMI on the way to disposable income.
If the debtor’s spouse is not a dependent and not a joint debtor, the spouse’s Other [Necessary] Expenses are not allowed as monthly expenses of the debtor under § 707(b)(2)(A)(ii)(I). This is a bit unbalanced because any amounts paid by the nonfiling spouse on a regular basis for the household expenses of the debtor or a dependent of the debtor would be included in the debtor’s CMI by § 101(10A)(B).29
“Dependent” is not defined for purposes of actual monthly expenses in the categories of Other [Necessary] Expenses specified by the IRS.30 The IRS offers a definition of dependent in its guidelines for revenue officers.31 The bankruptcy court in In re Haley32 concluded that cellular telephone service fell within the Optional Telephones category of Other [Necessary] Expenses specified by the IRS,33 but actual monthly cell phone expenses for a parent or for a grown child were not allowable because § 707(b)(2)(A)(ii)(I) limited these expenses to the debtor and dependents of the debtor. Actual cell phone expenses for the debtor’s younger sister who was not a dependent of the debtor were disallowed for the same reason in In re Oltjen.34 In In re Napier,35 debtors with CMI greater than applicable median family income were not allowed Other [Necessary] Expenses for unrelated boarders living in the debtor’s residence. As explained by the court:
Though the language in § 707(b)(2)(A)(ii)(I) is awkwardly worded, it indicates that the expenses must relate to dependents of Debtors in order to allow Debtors to increase their applicable means test deductions. . . . Though § 1325(b)(3) makes reference to members of a debtor’s household for purposes of determining whether to apply the means test in a chapter 13, it must be read in conjunction with § 707(b)(2)(A)(ii)(I), which allows expenses only associated with a debtor, his spouse, and dependents.36
The statute is explicit that the actual monthly expenses allowed are “for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service.” The statute doesn’t say that bankruptcy practitioners should look any deeper into the Internal Revenue Manual than the categories specified by the IRS. There are pages of commentary in the Internal Revenue Manual describing Other Expenses—how they are determined, what is included and what is not and what discretion a revenue agent has in evaluating Other Expenses claimed by a delinquent taxpayer.37 The wording of § 707(b)(2)(A)(ii)(I) does not invite analysis of conditions imposed by IRS guidelines that are plainly absent from the bankruptcy statute.
Any effort to consult the Internal Revenue Manual for illumination with respect to the content or application of the categories of Other [Necessary] Expenses will run into a roadblock that perhaps proves the futility of the exercise: The IRS changes the parts of the Internal Revenue Manual that address Other [Necessary] Expenses whenever it wants to, without notice to the public, without compliance with the Administrative Procedures Act and without consideration that the categories have been incorporated into the Bankruptcy Code.38 At this writing, there are at least two distinct versions of the Internal Revenue Manual that specify categories of Other [Necessary] Expenses that were issued by the IRS and probably effective in Chapter 13 cases. The first set is dated May 1, 2004.39 The second set is dated May 9, 2008.40
The earlier set contained 16 categories of Other [Necessary] Expenses.41 The May 9, 2008, version contains only 15 categories—the “Health Care” category went missing.42
In contrast to many “disclaimers” issued by the IRS with respect to the effective date in bankruptcy cases of changes to the National Standards43 and Local Standards,44 there is no published statement by the IRS fixing an effective date in bankruptcy for the Other [Necessary] Expenses categories dated May 9, 2008. Perhaps the new Other [Necessary] Expenses categories were effective in bankruptcy cases on May 9, 2008; perhaps they were never effective in bankruptcy cases. If the new categories were effective in bankruptcy cases on May 9, 2008, a Chapter 13 debtor filing on May 8, 2008, had 16 categories of Other [Necessary] Expenses allowed as deductions in the calculation of disposable income, but a debtor filing a day later had only 15 categories. This happened without notice or opportunity for comment and could substantially impact the rights of debtors and unsecured creditors in Chapter 13 cases. The complete absence of transparency in this relationship between the Internal Revenue Manual and the Bankruptcy Code is an almost unbearable consequence of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).45
The commentary in the Internal Revenue Manual changed on May 9, 2008, in ways that could be material in courts that (mistakenly) look to the Internal Revenue Manual for guidance with respect to use of categories of Other [Necessary] Expenses in Chapter 13 cases. The instructions to revenue agents about amounts allowed for “necessary expenses” changed on May 9, 2008.46 In addition to eliminating the Health Care category,47 the IRS changed the content of other categories48 as well as the descriptions of previously specified categories.49
These changes to the categories of Other [Necessary] Expenses specified by the IRS reflect the changing imperatives of tax collection by the Treasury Department, not the policies or practicalities of determining disposable income for Chapter 13 debtors. It is intolerable that the rules for determining something so fundamental as the entitlement of unsecured creditors in Chapter 13 cases can change in the middle of the night: the IRS sneezes, and the bankruptcy world catches cold.
Without careful attention to the language of § 707(b)(2)(A)(ii)(I), several courts—some with and some without reference to the Internal Revenue Manual—have grafted onto bankruptcy law modifying language that limits or conditions the statutory allowance of actual expenses. For example, the bankruptcy court in In re Oltjen50 held that actual Internet expenses for a debtor with CMI greater than applicable median family income had to be reduced from $44 per month to $25 per month because the debtor failed to prove “why she needs internet service or why an internet expense at this [44] dollar level is reasonably necessary for her maintenance or support.”51 In In re Renicker,52 the debtor’s $235-per-month telecommunications expense—though admittedly falling within a “category” of Other [Necessary] Expenses specified by the IRS53—was disallowed by application of a reasonable and necessary test:
[U]nder the I.R.S. standards incorporated into § 707(b)(2)(A)(i), telecommunications expenses can be included in the calculation of disposable income if they are necessary and reasonable. The source of this standard is not the § 1325(b)(2) “reasonably necessary” standard, though. The “necessary” element is derived directly from the Internal Revenue Manual which sets forth the definition and applicable standards for the “Other Necessary Expenses” referred to in § 707(b)(2)(A)(i), and the “reasonable” element is, the Court believes, implicit in all disposable income analyses.54
Another line of cases conditions or limits the deduction of actual expenses based on a slightly different standard—again sometimes citing the Internal Revenue Manual. In In re Stimac,55 the court evaluated actual expenses for cell phones and the like using a “health and welfare . . . production of income” test from the Internal Revenue Manual:
The Internal Revenue Manual provides that . . . Other Necessary Expenses “must provide for the health and welfare of the [debtor] and/or his or her family or they must be for the production of income.” I.R.M. § 5.15.1.10.1. . . . [D]ebtors can take a . . . deduction for cell phone bills and other telecommunications expenses necessary for the health and welfare of the debtor (or the debtor’s dependents) or for the production of income. . . . [B]ecause a cell phone used partially for work and partially for personal use is not “basic home telephone service,” that full amount . . . can be deducted . . . if it meets the health and welfare or employment test.56
The generic “reasonable and necessary” test applied by some of these courts is obviously not the same as the “health, welfare and production of income” test concocted by others. All of these courts are cutting tests from whole cloth: the Bankruptcy Code mandates only that expenses in the categories specified by the IRS must be “actual.” Those who would argue that Congress “could not” have intended to allow unreasonable or unnecessary expenses—even if actual and in a category specified by the IRS—should answer the question whether an “unreasonable” cell phone expense is different from a $5,000-per-month home mortgage or secured debt for a vacation home or luxury automobile—expenses clearly allowed as deductions in the disposable income test as reconstituted by BAPCPA.57 There is a very slippery slope here as the bankruptcy courts create their own tests for the propriety of Other [Necessary] Expenses. Different tests and inconsistent outcomes are inevitable across districts and across cases and judges within districts. Some would say it is just this sort of discretion with respect to the allowance of expenses in Chapter 13 cases that Congress intended BAPCPA to limit.58
Superimposing Internal Revenue Manual considerations on the allowance of actual expenses in the categories specified by the IRS will lead the bankruptcy courts ever deeper into lifestyle analysis and the sort of value assessments that characterized pre-BAPCPA disposable income test case law.59 The actual expenses experienced by debtors in the categories of Other [Necessary] Expenses specified by the IRS would be dollar amounts that could be used to calculate disposable income without obvious need for judicial interpretation in most cases. But the IRS notion of what Other Expenses are allowable to a taxpayer is a case-by-case, discretion-filled process that turns on the subjective evaluation of individual taxpayers by individual revenue agents.60
How can the IRS approach be superimposed on the BAPCPA formula? Who will be the “revenue agent” in Chapter 13 cases? As demonstrated below, the categories of Other [Necessary] Expenses specified by the IRS run a broad gamut within which any subjective standards such as “reasonable” or “necessary” or “health and welfare” will demand enormous resources—from trustees? creditors? courts? The statute seems written to avoid just that exercise of discretion. The courts just cited seem determined to reestablish supervision and control over the discretionary spending choices of Chapter 13 debtors with CMI greater than applicable median family income.
There will be difficult litigation in the bankruptcy courts as debtors, trustees and creditors attempt to force-fit IRS guidelines for collecting taxes into the fabric of disposable income in a Chapter 13 case. Collecting taxes is not the same thing as calculating expenses for a Chapter 13 debtor. Chapter 13 is a voluntary process, and much of the debt in a Chapter 13 case, unlike taxes, is dischargeable. The policy considerations that play out in the Internal Revenue Manual with respect to Other [Necessary] Expenses are a worse than imperfect guide to determine a Chapter 13 debtor’s actual monthly expenses in the categories specified by the IRS.
As noted above, there were 16 categories of Other [Necessary] Expenses specified by the IRS in the May 1, 2004, version of the Financial Analysis Handbook:
Charitable Contributions (Donations to tax-exempt organizations)
Child Care (Babysitting, day care, nursery and preschool)
Court-Ordered Payments (Alimony, child support, including orders made by the state, and other court-ordered payments)
Dependent Care (For the care of the elderly, invalid, or handicapped)
Optional Telephones and Telephone Services (Cell phone, pager, Call waiting, caller identification or long distance)
Repayment of loans made for payment of Federal Taxes.61
As also mentioned above, the version of these categories issued by the IRS on May 9, 2008, has only 15 categories: the “Health Care” category was eliminated.62
Several important points scream out from this list. Many of the categories specified by the IRS are very broad and very general. For example, “Education”63 or “Health Care”64 could include everything from college education expenses to botox treatments. “Unsecured Debts”65 are just about everything a debtor owes money for that isn’t secured by something.
In contrast, some categories specified by the IRS are narrow and specific, sometimes with parenthetical “explanations” that could be read to exclude expenses that would otherwise seem included. “Court-Ordered Payments”66 could be read to include any judgment that awards a right to payment from the debtor. But the parenthetical—“(Alimony, child support, including orders made by the state, and other court-ordered payments)”—ambiguously either suggests that this category is only about domestic support obligations67 or confirms that it broadly includes all court-ordered payments.
The obvious huge question here is how will the bankruptcy courts determine the content of the categories specified by the IRS? As demonstrated above, a fair number of courts have looked to other IRS documents to find conditions and limitations such as “reasonable” and “necessary” to graft onto the categories of Other [Necessary] Expenses specified by the IRS. Those courts are likely to look further into the Internal Revenue Manual for guidance with respect to the content of the categories.
This is a troublesome prospect on several levels. The Bankruptcy Code says that Chapter 13 debtors with CMI greater than applicable median family income are entitled to deduct actual expenses in the categories specified by the IRS. There is nothing in the Bankruptcy Code about looking elsewhere in the Internal Revenue Manual or any other IRS document to elaborate on the meaning of “categories.” Using the categories is a dramatically different proposition than applying the IRS interpretation of those categories for tax collection purposes. For example, as detailed below,68 the broad category “Education” is limited by the IRS in its Internal Revenue Manual as follows:
If it is required for a physically or mentally challenged child and no public education providing similar services is available. Education expenses are also allowed for the taxpayer if required as a condition of employment. Example: An attorney must take so many education credits each year or they will not be accredited and could eventually lose their license to practice before the State Bar. A teacher could lose their position or in some States their pay is commensurate with their education credits.69
These limitations on the category “Education” are not intuitive or sensible for purposes of the disposable income test. If interpretation from the Internal Revenue Manual is imposed on the “category” for purposes of the disposable income test, then bankruptcy courts will be testing the availability of public education as a component of determining expenses in Chapter 13 cases. Schooling expenses for debtors attempting to qualify for better employment when that education is not required to maintain current employment would be (nonsensically) excluded.
The commentary in the Internal Revenue Manual is fundamentally inconsistent with the Bankruptcy Code. The Internal Revenue Manual repeatedly measures the propriety of an expense deduction against the ability of a taxpayer not in bankruptcy to repay delinquent taxes. Of course, the bankruptcy-appropriate considerations with respect to the expenses of a Chapter 13 debtor are broader and different than the collection of taxes. Engineering a budget to pay taxes in full—often at the expense of other, nongovernmental creditors—may be the legitimate goal of a revenue agent applying the Internal Revenue Manual guidelines, but bankruptcy is much more complex. The fundamental bankruptcy policies of equality of collection and distribution of the estate collide head-on with maximizing the recovery of the tax collector (only).
Some categories specified by the IRS are limited by the Internal Revenue Manual in ways that are contradicted by or inconsistent with specific provisions of the Bankruptcy Code.70 Some categories specified by the IRS as interpreted in the Internal Revenue Manual contain expenses that are completely forbidden in Chapter 13 cases.71 The provisions of the Internal Revenue Manual interpreting the categories of Other [Necessary] Expenses are levels removed from the sort of binding regulations of an agency to which courts sometimes give deference.72
It can only be hoped that the bankruptcy courts will hesitate and after study refuse to apply the IRS’s interpretations of its categories of Other [Necessary] Expenses in Chapter 13 cases. Instead, the bankruptcy courts must develop bankruptcy-appropriate interpretations of the categories specified by the IRS.
Another immediate impact of the list above is its breadth. The 16 (now 15) categories of Other [Necessary] Expenses issued by the IRS overlap each other and overlap the National Standards and Local Standards discussed above.73 The categories of Other [Necessary] Expenses also significantly duplicate separate reductions of CMI in clauses (ii), (iii) and (iv) of § 707(b)(2)(A), such as the deduction for average monthly payments on account of secured debts in clause (iii)74 and the payment of all priority claims in clause (iv).75
Section 707(b)(2)(A) delivers inconsistent instructions with respect these overlaps. Section 707(b)(2)(A)(i) clearly states that a debtor’s CMI is “reduced by the amounts determined under clauses (ii), (iii) and (iv).”76 But § 707(b)(2)(A)(ii)(I) then states, “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.”77 The deduction for actual monthly expenses for the categories specified as Other [Necessary] Expenses by the IRS is in the same clause as this “notwithstanding” sentence. Many of the categories of Other [Necessary] Expenses specified by the IRS include payments for debts.
For example, Court-Ordered Payments—the fourth category of Other [Necessary] Expenses listed above78—includes alimony and support, which would be domestic support obligations (DSOs) under § 101(14A) as amended by BAPCPA.79 Arguably, any Court-Ordered Payment would be a “debt” for purposes of § 707(b)(2)(A)(ii)(I). In other words, this entire category of Other [Necessary] Expenses specified by the IRS is allowed Chapter 13 debtors with CMI greater than applicable median family income by one sentence in § 707(b)(2)(A)(ii)(I) and then is taken away two sentences later. Is this just surplusage, or is there something in the category of Court-Ordered Payments that would not be a debt?80
Notice further that the category Court-Ordered Payments overlaps at least two separate expense deductions allowed by § 707(b)(2)(A) in the disposable income calculation for Chapter 13 debtors with CMI greater than applicable median family income. DSOs under § 101(14A) will typically be Court-Ordered Payments and will be entitled to priority under § 507(a)(1).81 Under § 707(b)(2)(A)(iv), all priority claims, “including priority child support and alimony claims,” are deductible expenses in the calculation of projected disposable income.82 According to the Internal Revenue Manual, alimony and child support would be a deductible Other [Necessary] Expense included in the category Court-Ordered Payments only if “court ordered, reasonable in amount, and being paid.”83 So, a DSO that is court-ordered, reasonable(!) and actually being paid by a Chapter 13 debtor would be considered by the IRS to be an allowable Other [Necessary] Expense.
But that same Court-Ordered Payment for a DSO might be characterized as payment for debt that would be excluded from expenses for purposes of clause (ii) of § 707(b)(2)(A).84 Double-but that same Court-Ordered Payment for a DSO would be a priority debt under § 507(a)(1), allowed as an expense deduction by § 707(b)(2)(A)(iv).85 Triple-but, if that Court-Ordered Payment happens to be a debt to a former spouse that is also secured, it would fall outside the priority in § 507(a)(1),86 it would be excluded by the “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I) and—because there would be no amount “contractually due” for purposes of § 707(b)(2)(A)(iii)87—the debt might fall out of the disposable income calculation altogether.88
The point is obvious: Too many buts here. The incorporation of categories of Other [Necessary] Expenses specified by the IRS is a terrible fit with the calculation of projected disposable income in Chapter 13 cases. The categories of Other [Necessary] Expenses for “Secured or legally perfected debts,”89 “Unsecured Debts,”90 “Student Loans”91 and “Repayment of loans made for payment of Federal Taxes”92 present the same difficulties: these are categories of Other [Necessary] Expenses allowed by the IRS that contain “payments for debts” that are excluded from monthly expenses for purposes of the reduction in CMI allowed by § 707(b)(2)(A)(ii) but with respect to which other provisions of the disposable income test allow deduction in whole or in part with conditions and limitations that are different from those specified by the IRS.
What do we do with overlaps of categories of Other [Necessary] Expenses and separate expense items specifically allowed by BAPCPA? For example, § 707(b)(2)(A)(ii)(II) states that “in addition” a debtor’s monthly expenses may include a continuation of actual expenses paid by the debtor that are reasonable and necessary for the care and support of an elderly, chronically ill or disabled household member or member of the debtor’s immediate family.93 A category of Other [Necessary] Expenses specified by the IRS is “Dependent Care (For the care of the elderly, invalid, or handicapped).”94 Prior to May 9, 2008, there was a separate category of Other [Necessary] Expenses specified by the IRS for “Health Care.”95 On October 1, 2007, the IRS modified its National Standards to include an expense deduction for Out-Of-Pocket Health Care.96 To varying degrees, all four of these allowed expense items overlap and will even be coextensive in some Chapter 13 cases. There are no meaningful instructions in the Bankruptcy Code for resolving these multiples of allowed expense deductions.
Courts hungry to impose logic on the overlaps and inconsistencies will run into problems of statutory construction. Elsewhere in § 707(b)(2)(A), Congress demonstrated its ability to avoid overlaps between subclauses. For example, § 707(b)(2)(A)(ii)(IV) permits a Chapter 13 debtor with CMI greater than applicable median family income additional monthly expenses for the actual expenses of attending elementary or secondary school for each dependent child—limited that the debtor must provide documentation and detail “why such expenses are not already accounted for in the National Standards, Local Standards or Other Necessary Expenses referred to in subclause (I).”97 This explicit statutory exclusion of overlapping or duplicative expenses does not appear in any other subclause or sentence of § 707(b)(2)(A). When courts perform conventional statutory interpretation with respect to the categories of Other [Necessary] Expenses specified by the IRS, an explicit statutory mechanism for avoiding the overlap of some expenses that is missing with respect to other expenses supports the argument that duplicative and overlapping expenses are sometimes allowed by § 707(b)(2)(A).98
The many challenges of interpretation, overlap and duplication with respect to the categories of Other [Necessary] Expenses specified by the IRS make it especially difficult for the Advisory Committee on Bankruptcy Rules to draft a form that accurately captures the actual monthly expenses of Chapter 13 debtors allowed by § 707(b)(2)(A)(ii)(I). Detailed elsewhere,99 Official Form B22C does not accurately reflect the categories of Other [Necessary] Expenses issued by the IRS, and the treatment of those categories is further confused by controversial interpretations of the conflicting provisions of BAPCPA written into the instructions in the Official Form.
Fundamentally, at Lines 30–37, Official Form B22C lists only 8 of the 16 (now 15) categories of Other [Necessary] Expenses specified by the IRS.100 Throughout Official Form B22C, the drafters instruct debtors to subtract or net overlapping and duplicative expenses when a category of Other [Necessary] Expenses overlaps a separate expense allowance somewhere else in § 707(b)(2)(A).101 Many of the categories of Other [Necessary] Expenses in Official Form B22C are described with commentary, explanations and instructions that are sometimes drawn from the Internal Revenue Manual and other times are different from both the Bankruptcy Code and commentary in the Internal Revenue Manual.102 Official Form B22C puts Chapter 13 practitioners in the difficult position of having to modify the Official Form to accurately claim actual monthly expenses for the categories specified as Other [Necessary] Expenses by the IRS.
The 16 sections that follow address each of the categories of Other [Necessary] Expenses specified by the IRS. An effort is made to identify how these categories overlap each other and other expenses allowed Chapter 13 debtors with CMI greater than applicable median family income by other provisions of BAPCPA. An effort is made to identify when Official Form B22C is true to the statute and when the form defaults to interpretation by the IRS in its Internal Revenue Manual. Reported decisions already demonstrate that integration of the categories of Other [Necessary] Expenses specified by the IRS into the projected disposable income test will take years of difficult litigation. The details are not pretty.
1 11 U.S.C. § 101(10A), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
2 See § 469.1 [ Comparison of CMI to Applicable Median Family Income: § 1325(b)(3) ] § 92.4 Household Size and Comparison of CMI to Median Family Income: § 1325(b)(3).
4 11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added). The word “Necessary” in the title of this and subsequent sections is in brackets because there is no such thing as a category of Other Necessary Expenses specified by the IRS as contemplated by 11 U.S.C. § 707(b)(2)(A)(ii)(I). There are categories of Other Expenses specified by the IRS, but the “Necessary” part of that phrase appears only in the Bankruptcy Code and is not specified by the IRS. See below in this section.
5 See I.R.M. 5.15.1.10 (May 9, 2008). See also I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.
6 I.R.M. 5.15.1.10(1) (May 9, 2008); I.R.M. 5.15.1.10(1) (May 1, 2004), available at 2007 WL 2646965.
7 11 U.S.C. § 707(b)(2)(A)(ii)(II) (emphasis added), discussed in § 95.24 Elderly, Ill or Disabled.
8 See § 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues.
9 See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation. See, e.g., In re Hylton, 374 B.R. 579, 584 (Bankr. W.D. Va. 2007) (“A prior version of the BAPCPA which was never passed defined ‘projected monthly net income’ for the means test to require a calculation of expenses . . . ‘“as determined under the Internal Revenue Service financial analysis”’ . . . . The reference to the Internal Revenue Service financial analysis was replaced by the language currently in section 707(b)(2)(A) . . . . The change from the prior version evidences Congress’ intent that the Courts not be bound by the financial analysis contained in the IRM.”); In re Briscoe, 374 B.R. 1, 10 (Bankr. D.D.C. 2007) (“As the bankruptcy court noted in [In re Fowler, 349 B.R. 414 (Bankr. D. Del. 2006)], a prior version of BAPCPA calculated monthly expenses by requiring debtors to apply ‘the expense allowances under the applicable National Standards, Local Standards, and Other Necessary Expenses allowance . . . under the Internal Revenue Service financial analysis for expenses in effect as of the date of the order for relief.’ . . . (quoting H.R. 3150, 105th Congress (1998)) . . . . The phrase ‘under the Internal Revenue Service financial analysis’ is conspicuously absent from the final version of the amended § 707(b)(2).”). But see In re Bennett, 371 B.R. 440, 443–44 (Bankr. C.D. Cal. 2007) (“[T]he Court is guided by the comments of Congressman Sensenbrenner from the Committee on the Judiciary. H.R. Rep. 109-31, pt. 1 at 13–14 (2005) . . . . Footnotes 62–65 in the Report refer to the ‘Internal Revenue Service, Internal Revenue Manual—Financial Analysis Handbook, pt. 5.15.1 (rev. May 1, 2004).’ It would appear that not only the National and Local Standards but the Internal Revenue’s Financial Analysis Handbook . . . as well was in the mind of Congress when the amendments to 11 U.S.C. § 707(b)(2) were adopted.”).
10 See below in this section, and see §§ 475.1 [ National Standards ] § 95.2 National Standards and 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation. See also Matthew Stephenson & Kristin Hickman, The Administrative Law of Borrowed Regulations: Legal Questions Regarding the Bankruptcy Law’s Incorporation of IRS Standards, 1 Norton Bankr. L. Adviser 1 (2008).
11 See § 475.1 [ National Standards ] § 95.2 National Standards.
12 See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation.
13 See National Standards before October 1, 2007, discussed in § 475.1 [ National Standards ] § 95.2 National Standards.
14 I.R.M. 5.15.1.7(6) (May 9, 2008); I.R.M. 5.15.1.7(5) (May 1, 2004), available at 2007 WL 2646965.
15 See §§ 475.1 [ National Standards ] § 95.2 National Standards and 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation.
16 11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added).
17 11 U.S.C. § 101(10A)(A), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19 Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline. But see 11 U.S.C. § 101(10A)(B), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
18 No. 06-10322 C-13G, 2006 WL 2547102 (Bankr. M.D.N.C. Sept. 1, 2006).
19 11 U.S.C. § 1325(b)(1).
20 See §§ 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1 Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income, 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues, 475.1 [ National Standards ] § 95.2 National Standards and 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation.
21 This dislocation and timing issue is discussed further in § 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues.
22 11 U.S.C. § 101(10A), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
23 See 11 U.S.C. § 1324(b), discussed in § 502.1 [ Timing of Hearing on Confirmation ] § 115.2 Timing of Hearing on Confirmation after BAPCPA.
24 356 B.R. 519 (Bankr. E.D. Wash. 2006).
25 See below in this section, and see § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments.
26 See 11 U.S.C. § 707(b)(2)(A)(iii), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts.
27 11 U.S.C. § 707(b)(2)(A)(ii)(I).
28 See § 473.1 [ Accounting for Spouses ] § 94.3 Accounting for Spouses.
29 See § 468.1 [ Current Monthly Income: The Baseline ] § 92.3 Current Monthly Income: The Baseline.
30 “Dependent” appeared in § 1325(b) before the enactment of BAPCPA and was not uniformly defined by the courts. See § 165.2 [ Debtor or Dependent ] § 91.4 Debtor or Dependent.
31 See, e.g., http://www.irs.gov/businesses/small/article/0,,id=173385,00.html (defining dependents as “those allowed as exemptions on the taxpayer’s most recent year income tax return” for purposes of the new National Standards for Out-of-Pocket Health Care.). See § 475.1 [ National Standards ] § 95.2 National Standards.
32 354 B.R. 340 (Bankr. D.N.H. 2006).
33 See § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17 Other [Necessary] Expenses—Optional Telephones and Services.
34 No. 07-60534-RCM, 2007 WL 2329695 (Bankr. W.D. Tex. Aug. 13, 2007) (unpublished).
35 No. 06-02464-JW, 2006 WL 4128358 (Bankr. D.S.C. Sept. 18, 2006) (unpublished).
36 2006 WL 4128358, at *1.
37 See I.R.M. 5.15.1.10 (May 9, 2008); I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965. See, e.g., In re Boyd, 378 B.R. 81, 84 (Bankr. M.D. Pa. 2007) (Thomas) (“[T]he term ‘Other Necessary Expense issued by the Internal Revenue Service,’ as found in the applicable section of the Bankruptcy Code, is a term of art requiring me to reference IRS source material for explanation. Reference can be found in the Financial Analysis Handbook of the Internal Revenue Manual (5.15.1) at 5.15.10.”).
38 Notwithstanding legislation in 1998 requiring national guidelines for tax collection standards—see 26 U.S.C. § 7122(d)(1) and (2)—and the incorporation of the National Standards, Local Standards and Other [Necessary] Expense categories into bankruptcy by BAPCPA, the IRS persists in the untenable position that the National Standards, Local Standards and Other [Necessary] Expense categories are not subject to § 553 of the APA and can be changed by the Treasury Department without notice or opportunity for comment. See Matthew Stephenson & Kristin Hickman, The Administrative Law of Borrowed Regulations: Legal Questions Regarding the Bankruptcy Law’s Incorporation of IRS Standards, 1 Norton Bankr. L. Adviser 1 (2008).
39 See I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.
40 See I.R.M. 5.15.1.10 (May 9, 2008).
41 See below in this section, and see I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646065.
42 See below in this section, and see § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11 Other [Necessary] Expenses—Health Care. The Health Care category may have been eliminated in the May 9, 2008, version because of the addition of National Standards for Out-of-Pocket Health Care expenses issued by the IRS on October 1, 2007, and (perhaps) effective in bankruptcy cases on January 1, 2008. See § 475.1 [ National Standards ] § 95.2 National Standards.
43 See § 475.1 [ National Standards ] § 95.2 National Standards.
44 See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation.
45 Pub. L. No. 109-8, 119 Stat. 23 (2005). See § 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues.
46 For example, compare I.R.M. 5.15.1.10(3) as it read on May 1, 2004, to I.R.M. 5.15.1.10(3) as it read on May 9, 2008:
The amount allowed for necessary or conditional expenses depends on the taxpayer’s ability to full [sic] pay the liability within five years and on the taxpayer’s individual facts and circumstances. If the liability can be paid within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses.
I.R.M. 5.15.1.10(3) (May 1, 2004), available at 2007 WL 2646965.
The amount allowed for excessive necessary or conditional expenses depends on the taxpayer’s ability to full [sic] pay the liability plus projected accruals within five years and on the taxpayer’s individual facts and circumstances. If the liability plus accruals can be paid within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses.
I.R.M. 5.15.1.10(3) (May 9, 2008) (emphasis added).
47 See § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11 Other [Necessary] Expenses—Health Care.
48 See, e.g., the elimination of “cell phones” in the May 9, 2008, version of the category Optional Telephones and Telephone Services, discussed in § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17 Other [Necessary] Expenses—Optional Telephones and Services.
49 See, e.g., the substitution of “guaranteed” for “secured” on May 9, 2008, in the category Repayment of loans made for payment of Federal Taxes, discussed in § 477.17 [ Other [Necessary] Expenses—Repayment of Loans to Pay Federal Taxes ] § 95.20 Other [Necessary] Expenses—Repayment of Loans to Pay Federal Taxes; the elimination of college tuition in the May 9, 2008, discussion of the category Court-Ordered Payments, discussed in § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments.
50 No. 07-60534-RCM, 2007 WL 2329695 (Bankr. W.D. Tex. Aug. 13, 2007) (unpublished).
51 2007 WL 2329695, at *2.
52 342 B.R. 304 (Bankr. W.D. Mo. 2006).
53 See Optional Telephones, discussed in § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17 Other [Necessary] Expenses—Optional Telephones and Services.
54 342 B.R. at 311. Accord In re Redmond, No. 07-80634-G3-13, 2008 WL 1752133 (Bankr. S.D. Tex. Apr. 14, 2008) (Letitia Clark) (Without discussion of the category of Other Necessary Expenses for student loans and without discussion whether student loan would be “payment for debt” excluded from monthly expenses by § 707(b)(2)(A)(ii)(I), debtor failed to prove that direct payment of student loan “outside the plan” is reasonably necessary to support of debtor or debtor’s dependents for purposes of projected disposable income test.); In re Scurlock, 385 B.R. 814, 816–17 (Bankr. M.D.N.C. 2008) (Carruthers) (“The debtor bears the burden of demonstrating that [telecommunication] expenses are actual, reasonable, and necessary expenses for themselves. . . . Debtor did not present any documentary evidence . . . . Debtor testified that the $276.00 included charges for internet and telephone . . . . [T]he bill included charges for at least one premium cable channel, Showtime. . . . [T]he Debtor failed to meet her burden of demonstrating that her $276.00 telecommunication expense is actual, reasonable, and necessary.”); In re Barnes, 378 B.R. 774, 780 (Bankr. D.S.C. 2007) (Waites) (“[T]elecommunication expense is an expense that must be actual, reasonable, and necessary. . . . $220.00 per month for cable, internet, and telephone services is not so out of the ordinary to make the expense unreasonable.”); In re Plumb, 373 B.R. 429, 440 (Bankr. W.D.N.C. 2007) (Other Necessary Expense deduction for telecommunication expenses must be actual, reasonable and necessary. “[Section] 707(b)(2)(A)(ii)(I) allows debtors to deduct their actual expenses under this category. . . . [T]he debtors bear the burden of demonstrating that these expenses are actual, reasonable, and necessary expenses for themselves (rather than for a household of ten people). . . . The debtors have failed to meet that burden.”); In re Napier, No. 06-02464-JW, 2006 WL 4128358, at *2 (Bankr. D.S.C. Sept. 18, 2006) (unpublished) (Debtors with CMI greater than applicable median family income are allowed reasonable and necessary telecommunication costs, including $175 per month for cellular telephones. “Debtors are allowed to deduct their actual expense for telecommunication services from disposable income as an ‘other necessary expense.’ . . . Pursuant to § 1325(b)(2) and (3), this expense must be reasonable and necessary. Debtors bear the burden of demonstrating that this expense is actual, reasonable, and necessary. . . . Mrs. Napier testified that Debtors pay . . . $25.00 per month for a land based telephone line; $60.00 per month for a cellular telephone; and between $80.00 and $100.00 per month for internet access. Mrs. Napier works from home and relies upon internet access in her employment. The Court finds that these expenses are actual, reasonable, and necessary and therefore allows Debtors $175.00 per month in telecommunication expenses.”); In re Edmunds, 350 B.R. 636, 645 (Bankr. D.S.C. 2006) (“A second category of allowed expenses are those ‘actual’ expenses incurred by Debtors, which are designated as ‘Other Necessary Expenses.’ . . . [T]hese expenses must be reasonable. . . . Debtors bear the burden of demonstrating that these expenses are actual, reasonable, and necessary expenses and therefore Debtors’ expenses should be considered in light of Debtors’ Schedules J and other relevant evidence.”).
55 366 B.R. 889 (Bankr. E.D. Wis. 2007).
56 366 B.R. at 892. Accord In re Lara, 347 B.R. 198, 204 (Bankr. N.D. Tex. 2006) (“In deciding whether an expense is an allowable Other Necessary Expense, the Court concludes that the Debtors bear the initial burden of proving that a requested expense is (i) their actual monthly expense, (ii) within one of the categories identified as an Other Necessary Expense by the IRS, and (iii) necessary for their health and welfare or for the production of income. Once the Debtors satisfy this burden, the burden of going forward with the evidence shifts to the Trustee.” Telecommunication expenses were allowed for two cell phones and high-speed Internet access but denied for second dial-up Internet access that was not “necessary for the health and welfare of the Debtors or for their production of income.”).
57 See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts.
58 See § 363.4 [ Three: Don’t Trust Judges ] § 3.4 Three: Don’t Trust Judges.
59 See § 165.1 [ Reasonably Necessary for Maintenance or Support ] § 91.3 Reasonably Necessary for Maintenance or Support.
60 See, e.g., I.R.M. 5.15.1.10(3) (May 9, 2008), quoted above in this section.
61 I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.
62 See § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11 Other [Necessary] Expenses—Health Care.
63 See § 477.7 [ Other [Necessary] Expenses—Education ] § 95.10 Other [Necessary] Expenses—Education.
64 See § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11 Other [Necessary] Expenses—Health Care. Note: Health Care disappeared as a category of Other [Necessary] Expenses on May 9, 2008. Compare I.R.M. 5.15.1.10 (May 9, 2008) with I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.
65 See § 477.12 [ Other [Necessary] Expenses—Unsecured Debts ] § 95.15 Other [Necessary] Expenses—Unsecured Debts.
66 See § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments.
67 See 11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3 Priority Claims Added or Changed by BAPCPA, 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments, 498.1 [ Domestic Support Obligations Must Be Current ] § 113.3 Domestic Support Obligations Must Be Current, 519.1 [ Domestic Support Obligations ] § 136.21 Domestic Support Obligations after BAPCPA and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5 Domestic Support Obligations: § 523(a)(5).
68 See § 477.7 [ Other [Necessary] Expenses—Education ] § 95.10 Other [Necessary] Expenses—Education.
69 I.R.M. 5.15.1.10 (May 9, 2008). Substantially similar language appeared in I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965. See § 477.7 [ Other [Necessary] Expenses—Education ] § 95.10 Other [Necessary] Expenses—Education.
70 See, e.g., discussion of Charitable Contributions in §§ 477.3 [ Other [Necessary] Expenses—Charitable Contributions (Donations to Tax Exempt Organizations) ] § 95.6 Other [Necessary] Expenses—Charitable Contributions and 487.2 [ Charitable Contributions ] § 99.6 § 1325(b)(2)(A)(ii): Charitable Contributions (Again?).
71 See discussion of “Unsecured Debts” in § 477.12 [ Other [Necessary] Expenses—Unsecured Debts ] § 95.15 Other [Necessary] Expenses—Unsecured Debts.
72 See Matthew Stephenson & Kristin Hickman, The Administrative Law of Borrowed Regulations: Legal Questions Regarding the Bankruptcy Law’s Incorporation of IRS Standards, 1 Norton Bankr. L. Adviser 1 (2008).
73 See §§ 475.1 [ National Standards ] § 95.2 National Standards and 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation.
74 See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts.
75 See § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1 Total Priority Debts and Divide by 60.
76 11 U.S.C. § 707(b)(2)(A)(i).
77 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2 Netting Issues, Including Exclusion of Payments for Debts.
78 See § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments.
79 11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3 Priority Claims Added or Changed by BAPCPA and 519.1 [ Domestic Support Obligations ] § 136.21 Domestic Support Obligations after BAPCPA.
80 See § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments for further discussion of this question.
81 See §§ 440.1 [ New and Changed Priority Claims ] § 73.3 Priority Claims Added or Changed by BAPCPA and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6 Treatment of Priority Claims Changed by BAPCPA.
82 See 11 U.S.C. § 707(b)(2)(A)(iv), discussed in § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1 Total Priority Debts and Divide by 60.
83 I.R.M. 5.15.1.10 (May 9, 2008). These conditions were different in the May 1, 2004, version of the Internal Revenue Manual. See I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965, discussed in § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments.
84 See § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8 Other [Necessary] Expenses—Court-Ordered Payments.
85 See § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1 Total Priority Debts and Divide by 60.
86 See § 440.1 [ New and Changed Priority Claims ] § 73.3 Priority Claims Added or Changed by BAPCPA.
87 See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts.
88 The debtor would have to win the argument that the secured debt must be paid to maintain possession of property necessary for the support of the debtor or a dependent for purposes of 11 U.S.C. § 707(b)(2)(A)(iii)(II). See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts.
89 See § 477.11 [ Other [Necessary] Expenses—Secured or Legally Perfected Debts ] § 95.14 Other [Necessary] Expenses—Secured or Legally Perfected Debts.
90 See § 477.12 [ Other [Necessary] Expenses—Unsecured Debts ] § 95.15 Other [Necessary] Expenses—Unsecured Debts.
91 See § 477.15 [ Other [Necessary] Expenses—Student Loans ] § 95.18 Other [Necessary] Expenses—Student Loans.
92 See § 477.17 [ Other [Necessary] Expenses—Repayment of Loans to Pay Federal Taxes ] § 95.20 Other [Necessary] Expenses—Repayment of Loans to Pay Federal Taxes.
93 See 11 U.S.C. § 707(b)(2)(A)(ii)(II), discussed in § 481.1 [ Elderly, Ill or Disabled ] § 95.24 Elderly, Ill or Disabled.
94 See § 477.6 [ Other [Necessary] Expenses—Dependent Care ] § 95.9 Other [Necessary] Expenses—Dependent Care.
95 See § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11 Other [Necessary] Expenses—Health Care.
96 See § 475.1 [ National Standards ] § 95.2 National Standards.
97 11 U.S.C. § 707(b)(2)(A)(ii)(IV), discussed in § 483.1 [ Education Expenses ] § 95.26 Education Expenses.
98 See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2 Netting Issues, Including Exclusion of Payments for Debts for further discussion of netting or subtracting of expenses within the disposable income calculation.
99 See § 36.21 Form 122C-2: Disposable Income Calculation and discussion beginning at § 95.5 Other [Necessary] Expenses—Accounting and Legal Fees.
100 See § 95.5 Other [Necessary] Expenses—Accounting and Legal Fees.
101 See § 36.21 Form 122C-2: Disposable Income Calculation, § 94.2 Netting Issues, Including Exclusion of Payments for Debts and discussion beginning at § 95.5 Other [Necessary] Expenses—Accounting and Legal Fees.
102 See discussion beginning at § 95.5 Other [Necessary] Expenses—Accounting and Legal Fees.
Ransom v. FIA Card Servs., N.A., __ U.S. __, 131 S. Ct. 716, 727, 178 L. Ed. 2d 603 (Jan. 11, 2011) (In dicta, in contrast to Local Standards expense amounts that cannot be exceeded, "[f]or the Other Necessary Expense categories, . . . the debtor may deduct his actual expenses, no matter how high they are.").
In re Enabnit, 490 B.R. 404, 410 (Bankr. N.D. Cal. Jan. 17, 2013) (Johnson) (Maintenance fees for timeshare fit no category of Other Necessary Expenses recognized by IRS, and there was no evidence the fees were necessary for the health or welfare of the debtors. "[U]nlike the secured payments on the timeshare, Debtors must show that expenses in [§ 707(b)(2)(A)(ii)(I)] are required for the health and welfare of Debtors. The Internal Revenue Manual ("IRM") lists sixteen categories of expenses which may be considered necessary under certain circumstances. See IRM § 5.15.1.10. It also provides that other expenses may be considered if they meet the necessary expense test, i.e. they provide for the health and welfare of the taxpayer or provide for the production of income. . . . The maintenance fees for Debtors timeshare do not appear to fit within any of the IRM's listed categories. Additionally, because Debtors did not offer any arguments or evidence that the maintenance fees for the timeshare, or the timeshare itself, is necessary for Debtors' health and welfare, Debtors did not carry their burden to show that these fees are permissible deductions under Other Expenses.").
In re Mansfield, No. 11-28949 EEB, 2012 WL 877105, at *3 (Bankr. D. Colo. Mar. 15, 2012) (unpublished) (Brown) (Categories specified as Other Necessary Expenses in IRS Manual do not include home maintenance. Debtor cannot claim additional $250 per month of home maintenance as an Other Necessary Expense. "[T]he Manual, rather than the form, must be consulted to determine what categories of expenses fit within the definition of an Other Necessary Expense. . . . 'Home maintenance' is not one of the specified Other Necessary Expenses.").
In re Davis, No. 10-47600 (DML), 2011 WL 5884015 (Bankr. N.D. Tex. Nov. 23, 2011) (Lynn) (Although not clear whether table in Internal Revenue Manual listing Other Necessary Expenses is inclusive or exclusive, additional deductions claimed by debtors for pool maintenance, savings, business lunches, dry cleaning, electricity, home warranty, septic service, trash and yard maintenance do not fall into any category specified by IRM. Although not allowable under § 707(b)(2)(A), these additional expenses may be considered special circumstances under § 707(b)(2)(B).).
In re Leach, No. 08-61028-13, 2009 WL 1010552, at *6 (Bankr. D. Mont. Feb. 26, 2009) (unpublished) (Kirscher) (Cost bases for two cars sold by debtors during six months before petition are not deductible "Other Expenses" on Form B22C. Debtors sold two cars during six months before petition and included in CMI a portion of the proceeds net of an adjusted cost basis. "[T]he Debtors' cost bases may not be deducted at Part VI, line 60 ('Other Expenses'), because those must qualify, according to the instructions at line 60, as additional deductions under § 707(b)(2)(A)(ii)(I) under the Internal Revenue Service's National or Local Standards, or Other Necessary Expenses under that subsection, and the facts are clear that the Debtors' cost bases are not ongoing postpetition expenses but rather were incurred prepetition on a single date.").
In re Martellaro, 404 B.R. 548, 561 (Bankr. D. Mont. Dec. 5, 2008) (Kirscher) (Continuing payment of nondischargeable student loan debt is not deductible as an "Other Necessary Expense" because it fails necessary expense test in Financial Analysis Handbook issued by IRS. "The Debtor's $150 payments on her student loan debts do not qualify as 'Other Expenses' under Section 5.15.1.10 of the IRS Financial Analysis Handbook because they do not meet the necessary expense test—they do not provide for the current health and welfare of the Debtor and/or her family and are not for the production of Debtor's current income. As far as can be discerned from the record the Debtor has completed her education and is employed. No evidence exists in the record that her $150 student loan debt repayments are a condition of her employment, or that the student loan repayments are required for a physically or mentally challenged child and no public education providing similar services is available.").
In re Carrasco, 395 B.R. 154 (Bankr. M.D. Fla. June 19, 2008) (Funk) (Citing In re Laplana, 363 B.R. 259 (Bankr. M.D. Fla. 2007), future tax refunds are property of the estate and are included in projected disposable income; plan cannot be confirmed that would vest future tax refunds in debtor.).
In re Riggins, No. 07-32167, 2008 WL 2129853, at *2 (Bankr. N.D.N.Y. May 20, 2008) (unpublished) (Cangilos-Ruiz) (Tax expense deduction for debtor with CMI greater than applicable median family income should be withholding amount adjusted to reflect anticipated tax refund. At Line 30 on Form B22C, debtor listed tax withholding as correctly calculated under state and federal tax regulations. At Line 13 of Schedule I, debtor listed $660 as additional monthly income calculated by dividing previous years' state and federal income tax refunds by 12. "[T]he court finds that if Debtor is able to propose plan payments based upon monthly net income attributable to tax refunds reported on Schedule I, then Debtor can also incorporate the reporting of tax refunds to offset tax expenses on Form 22C."). Accord In re Frock, No. 07-32765, 2008 WL 2128065 (Bankr. N.D.N.Y. May 20, 2008) (Cangilos-Ruiz).).
In re Law, No. 07-40863, 2008 WL 1867971, at *13 (Bankr. D. Kan. Apr. 24, 2008) (unpublished) (Karlin) (Amount IRS deducts from debtor's income pursuant to prepetition levy is not "court-ordered payment" for purposes of Other Necessary Expense allowance in § 707(b)(2)(A)(ii)(I); prepetition taxes being collected by levy are priority debt accounted for at Line 49 of Form B22C. "[A] wage levy is not a court ordered payment.").
In re Scurlock, 385 B.R. 814, 816-17 (Bankr. M.D.N.C. Feb. 19, 2008) (Carruthers) (Debtor failed to prove that $278 per month was reasonable and necessary for telecommunication expenses under Other [Necessary] Expenses category allowed by IRS. "The telecommunication expense falls under the category of 'actual' expenses incurred by debtors, which are specified as 'Other Necessary Expenses' on Form B22C, a category for which the IRS does not set out specific dollar allowances. . . . The debtor bears the burden of demonstrating that these expenses are actual, reasonable, and necessary expenses for themselves. . . . Debtor did not present any documentary evidence . . . . Debtor testified that the $276.00 included charges for internet and telephone . . . . [T]he bill included charges for at least one premium cable channel, Showtime. . . . [T]he Debtor failed to meet her burden of demonstrating that her $276.00 telecommunication expense is actual, reasonable, and necessary.").
In re Petro, 381 B.R. 233 (Bankr. M.D. Tenn. Jan. 23, 2008) (Paine) (Telecommunication services of $350 per month are allowed to debtors with CMI greater than applicable median family income based on evidence that family with four children used cell phones to stay in touch.), rev'd on other grounds, 395 B.R. 369 (B.A.P. 6th Cir. 2008) (Fulton, McIvor, Shea-Stonum).).
In re Saffrin, 380 B.R. 191, 193 (Bankr. N.D. Ill. Dec. 21, 2007) (Goldgar) ($1,000 per month for college expenses is not allowable within any category of Other Necessary Expenses specified by the IRS. "Section 707(b)(2)(A)(ii)(I) . . . permits a deduction for 'Other Necessary Expenses' only if those expenses are listed in the 'categories specified' in the Internal Revenue Manual. . . . The categories of 'other expenses' in the Internal Revenue Manual do not include expenses associated with a child's college education. Certainly, one of the 'categories specified' is 'education.' See Internal Revenue Manual § 5.15.1.10 at ¶ 3. But educational expenses are deemed 'necessary' only if the education producing the expenses 'is required for a physically or mentally challenged child and no public education providing similar services is available,' or if it is 'for the taxpayer and . . . [is] required as [a] condition of employment.' . . . [T]he expenses the [debtors] are incurring to send their daughter to the University of Illinois are not expenses related to the education of a physically or mentally challenged child, nor are they expenses for education required as a condition of employment.").
In re Zinser, Nos. 07-41304-RFN-13, 07-41863-DML-13, 2007 WL 3479604, at *2 (Bankr. N.D. Tex. Nov. 15, 2007) (unpublished) (Nelms) ("[T]he court will presume that a debtor calculates his or her future tax rate in good faith, absent a showing to the contrary. Nevertheless, if at the end of the 2007 tax season the debtor pays less than the amount he or she has estimated for 2007 taxes, then, in accordance with section 1329, the Trustee or the debtor's unsecured creditors may seek to modify the plan in order to compensate for the debtor's miscalculation.").
In re Boyd, 378 B.R. 81, 84 (Bankr. M.D. Pa. Nov. 6, 2007) (Thomas) (Referencing Internal Revenue Manual, $200-per-month contribution to adult child attending college and $240 per month for recreation expense are not allowable Other Necessary Expenses for purposes of § 707(b)(2)(A)(ii). "[T]he term 'Other Necessary Expense issued by the Internal Revenue Service,' as found in the applicable section of the Bankruptcy Code, is a term of art requiring me to reference IRS source material for explanation. Reference can be found in the Financial Analysis Handbook of the Internal Revenue Manual (5.15.1) at 5.15.10. . . . [T]he category 'Other Necessary Expenses' would not include college tuition payments for an adult child except to the extent that the 'tax' obligation could still be paid within five years. Of course, the analogy applicable here would not be tax, but unsecured debt. The Debtor's proposed plan would only pay a fraction of the unsecured claims.").
In re Barnes, 378 B.R. 774, 780 (Bankr. D.S.C. Oct. 26, 2007) (Waites) ("[T]elecommunication expense is an expense that must be actual, reasonable, and necessary. . . . $220.00 per month for cable, internet, and telephone services is not so out of the ordinary to make the expense unreasonable.").
In re Oltjen, No. 07-60534-RCM, 2007 WL 2329695, at *2 (Bankr. W.D. Tex. Aug. 13, 2007) (unpublished) (McGuire) (Cell phone and Internet deductions for a debtor with CMI greater than applicable median family income are reduced: higher amounts are not reasonable and necessary when debtor is supplying cell phone to younger sister who is not a dependent and debtor failed to prove reasonableness or necessity of Internet service. Debtor listed $45 as telephone expense, $150 as cell phone expense and $44 for Internet access. "Although she may consider her younger sister to be like a daughter, this does not allow Debtor to pay for her sister's cell phone expense. The Debtor provided no information regarding the actual cell phone cost for only her phone use . . . . The Trustee suggested that a reasonable expense would be $75 per month for cell phone use. The Court finds that this $75 expense is reasonably necessary for the maintenance or support of the Debtor. The Debtor provided no information . . . why she needs internet service or why an internet expense at this dollar level is reasonably necessary for her maintenance or support. The Trustee suggested a $25 per month expense for internet service. The Court finds that this $25 expense is reasonably necessary for the maintenance or support of the Debtor.").
In re Gehrke, No. 06-27265-svk, 2007 WL 2318479 (Bankr. E.D. Wis. Aug. 9, 2007) (unpublished) (Martin) (Applying In re Stimac, 366 B.R. 889 (Bankr. E.D. Wis. 2007), presumption in favor of expense deduction for income taxes based on previous tax year is overcome by evidence that debtors have increased income and withholding since previous year.).
In re Knight, 370 B.R. 429, 436 (Bankr. N.D. Ga. June 27, 2007) (Bonapfel) (Student loan debt falls within a category of Other Necessary Expenses issued by IRS but is excluded from deduction because a student loan is payment for debt; maintenance of payment on long-term nondischargeable student loan debt may be special circumstance for purposes of § 707(b)(2)(B). "The IRS includes student loans as one of several 'Other Necessary Expenses' in § 5.15.1.10 of the IRS Manual. Student loan payments thus qualify as 'Other Necessary Expenses' that are allowable expenses under the IRS standards incorporated into the 'means test' calculations in the first sentence of § 707(b)(2)(A)(ii)(I). . . . But they are also 'payments for debts.' And § 707(b)(2)(A)(ii)(I) expressly excludes 'payments for debts' as qualified expenses . . . . The clear language of the statute, therefore, precludes deduction of the student loan payments as a 'reasonably necessary' expenditure under § 707(b)(2)(A).").
In re Mullen, 369 B.R. 25, 35 (Bankr. D. Or. May 14, 2007) (Dunn) ("Debtors herein contend that one of the categories of expenses that they are allowed to deduct under 11 U.S.C. § 70[7](b)(2)(A)(ii), is federal, state and local taxes, referencing question 30 on Form B22C. Actually, this section references a deduction for the federal, state and local taxes actually paid. Trustee is correct that taxes actually paid are not equivalent to what is withheld from a debtor's paycheck for taxes. Tax refunds represent amounts overwithheld and thus, constitute additional income. Debtors' argument that the taxes are already captured in the disposable income calculations is misplaced.").
In re Stimac, 366 B.R. 889, 892-94 (Bankr. E.D. Wis. Mar. 29, 2007) (Kelley) (Other Necessary Expense for telecommunication services includes cell phone, which expense is deductible notwithstanding home telephone service included in Local Standards; tax deduction is presumed to be amount shown on last filed tax return, divided by 12 but is subject to proof of changed circumstances. "The Internal Revenue Manual provides that . . . Other Necessary Expenses 'must provide for the health and welfare of the [debtor] and/or his or her family or they must be for the production of income.' I.R.M. § 5.15.1.10.1. . . . [I]n addition to the 'basic home telephone service' included on Line 25A, debtors can take a Line 37 deduction for cell phone bills and other telecommunications expenses necessary for the health and welfare of the debtor (or the debtor's dependents) or for the production of income. . . . [B]ecause a cell phone used partially for work and partially for personal use is not 'basic home telephone service,' that full amount is not included in the Local Standards and can be deducted on Line 37 if it meets the health and welfare or employment test. . . . Debtors . . . are not entitled to use the amount of current withholding as their Line 30 deduction, unless that amount translates to the actual amount of taxes that will be incurred. . . . [T]he amount to be deducted on Line 30 will be presumed to be the amount of taxes the debtor actually paid, as evidenced by the most recent tax return filed, divided by twelve. However, the debtor may rebut this presumption by showing that the taxes paid in the most recent year would constitute a materially insufficient or inaccurate deduction, due to a change in circumstances . . . . [T]he debtor must adequately document these changed circumstances for the benefit of the trustee.").
In re Plumb, 373 B.R. 429, 440 (Bankr. W.D.N.C. Mar. 16, 2007) (Hodges) (Other Necessary Expense deduction for telecommunication expenses must be actual, reasonable and necessary. "[Section] 707(b)(2)(A)(ii)(I) allows debtors to deduct their actual expenses under this category. . . . [T]he debtors bear the burden of demonstrating that these expenses are actual, reasonable, and necessary expenses for themselves (rather than for a household of ten people). . . . The debtors have failed to meet that burden.").
In re Carlton, 362 B.R. 402, 411-12 (Bankr. C.D. Ill. Feb. 28, 2007) (Gorman) (The Other Necessary Expense for taxes allowed debtor with CMI greater than applicable median family income includes state and federal income taxes; the Other Necessary Expense for telecommunications services is not netted against basic home telephone service included in Local Standards for housing and utilities. "Basic home telephone service is already included at the line 25A deduction for Local Standards . . . . Line 25A is a standard deduction which covers home maintenance and utility expenses. The Debtors are entitled to the deduction regardless of whether their actual expenses in those categories are higher or lower than the standard. They are then also entitled to a deduction at line 37 for other types of telecommunication service expenses not included in line 25A. The line 37 deduction is separate and distinct from the line 25A deduction and there is no basis to require an offset based on actual Schedule J expenses. . . . If Congress had wanted to create the relationship between line 25A and line 37 deductions that the Trustee suggests, it knew how to do it. At line 42, an additional expense deduction is allowed for excess home energy costs. Reference is also made at line 42, however, to the Local Standard deduction at line 25A and the amounts claimed at line 42 must be proven to be amounts actually expended in excess of the standard amounts included at line 25A. The absence of similar language at line 37 suggests no intent to connect line 37 expenses with the standard expenses at line 25A."), on reconsideration, 370 B.R. 188 (Bankr. C.D. Ill. 2007).).
In re LaPlana, 363 B.R. 259, 266-67 (Bankr. M.D. Fla. Feb. 9, 2007) (Jennemann) (Deduction allowed for federal income taxes is actual tax liability, not historical withholding; appropriate for plan to require turnover of future tax refunds. "[E]ven assuming courts were bound by the historical disposable income calculated under the means test in determining Chapter 13 plan payments, the means test imposes an obligation of accuracy on the debtors. Debtors cannot over-estimate the amount of their tax withholdings in order to increase their tax obligations on the means test and then later reap the benefit by receiving an inflated tax refund when the more accurate tax returns are filed. . . . [T]he means test allows debtors to deduct the actual expenses for federal, state, and local taxes; it does not allow debtors to over-estimate or over-withhold. Rather, the expense must be the debtor's actual tax liability, no more and no less. . . . By requiring the turnover of these future tax refunds to the Chapter 13 Trustee, a court is simply correcting a debtor's error of over-estimating his or her tax liability made when completing the means test. By correcting the error, the amount of the debtor's disposable income automatically increases by the amount of the tax refund the debtor received, which amount rightfully should be paid to the debtor's creditors.").
In re Lawson, 361 B.R. 215, 222-23 (Bankr. D. Utah Jan. 25, 2007) (Boulden) (Above-median-income debtor is allowed by § 707(b)(2)(A)(ii)(I) to deduct actual tax expenses; correct measure at Line 30 of Form B22C is not amount withheld but debtor's best estimate of actual tax expenses. "[Section] 707(b)(2)(A)(ii)(I) allows above-median debtors to deduct the 'applicable' expenses . . . . [T]he Internal Revenue Manual deems taxes 'necessary if they are for current federal, FICA, Medicare, state and local taxes.' . . . [A]bove-median debtors are only permitted to deduct the average monthly tax expenses they actually incur for all federal, state, and local taxes. . . . [B]ecause disposable income in § 1325(b)(2) is determined in part by reducing 'current monthly income' by actually incurred future tax expenses as incorporated by § 707(b)(2)(A)(ii)(I), the Debtors must subtract their future average monthly expenses for tax liability actually incurred from their historical income as calculated on Form B22C. This Court is fully aware that this might lead to the same kind of curious results that may follow from its projected disposable income analysis in certain circumstances, but it takes more than a harsh or illogical result before a court is permitted to interpret a statute other than according to its own terms. . . . [A]bove-median debtors must make their best efforts to estimate their actually incurred tax expenses for purposes of line 30 on Form B22C, which must include all tax attributes to which such debtors would likely be entitled.").
In re Raybon, 364 B.R. 587, 590-92 (Bankr. D.S.C. Jan. 23, 2007) (Waites) (Estimate of actual expenses for taxes based on withholding amount is permissible when debtor also increases income by average of prior tax refunds received; court orders amendment to plan to require contribution of future tax refunds in excess of amount of income added to reflect refunds received in past. "Given the uncertainty of the amount of the tax refund and based upon the totality of facts of this case, the Court does not find that Debtor's estimate of her taxes to be [sic] incorrect based on the information available at this time. . . . To prevent the need for an immediate post-petition modification once the actual refund amount is known each year and in the interest of justice, the Court finds that Debtor shall provide Trustee with a copy of her state and federal tax returns within ten (10) days after submitting such returns to the applicable taxing authority. Debtor shall also submit all future state and federal income tax refunds to the Trustee during her applicable commitment period, less the $145.00 monthly credits provided for in Debtor's Schedule I. . . . These tax refunds shall not be considered to reduce Debtor's obligation under her chapter 13 plan but are in addition to Debtor's plan payments until such time as unsecured creditors are paid in full or Debtor's Plan is fully performed according to its terms.").
In re Meyer, 355 B.R. 837, 843-48 (Bankr. D.N.M. Dec. 5, 2006) (Starzynski) (Debtors with CMI greater than applicable median family income are not entitled to charitable deduction allowed to under-median debtors. "'Natural reading' of [§§ 1325(b) and 707(b)] is that debtors may treat charitable contributions . . . as reasonably necessary expenditures, except that debtors with incomes over the applicable state median income must instead look to § 707(b)(2)(A) and (B) to determine what they are allowed as reasonably necessary expenditures. Section 707(b)(2)(A)(ii) provides a specific itemization of what those reasonably necessary expenses may be. The itemization does not include charitable contributions. In consequence, Debtors, because of their over-median income, are not entitled to claim charitable contributions as necessary expenses in calculating their disposable income for their plan. . . . [T]he language is plain. . . . [T]here is no need to even consider the rules concerning surplusage . . . . Ignoring a portion of the statute . . . is not the answer. . . . [B]efore BAPCPA all chapter 13 debtors could deduct as reasonably necessary expenses qualifying charitable contributions. But that was then and this is now. . . . [T]his analysis does not constitute a ruling that Congress repealed [the Religious Liberty and Charitable Donation Protection Act of 1998] by implication or otherwise. It merely rules that Congress effectively limited its applicability in a certain well defined circumstance. . . . [T]he statute is not absurd . . . . [T]he UST has not submitted to the Court any explicit legislative history or other source . . . which demonstrates clearly that Congress specifically intended over-median debtors to be able to deduct charitable contributions. Congressional intent is obviously very important, but what that intent is will ordinarily be garnered from a reading of the statutory language . . . . If it then turns out that Congress did not write what it meant to say, it must be Congress that rewrites the statute to fix the mistake. . . . [A] chapter 13 plan which provides that these over-median debtors may take a charitable contribution deduction that the Code does not permit them to take cannot be confirmed."), on reconsideration, 357 B.R. 635 (Bankr. D.N.M. 2006) (Passage of Religious Liberty and Charitable Donation Clarification Act of 2006 (S. 4044) in which Congress amended § 1325(b)(3) to extend charitable deductions to Chapter 13 debtors with CMI greater than applicable median family income did not change outcome of this case because court applied law at time of this decision and 2006 Act contains no language that would make it retroactive.).
In re Tranmer, 355 B.R. 234, 252 (Bankr. D. Mont. Nov. 16, 2006) (Kirscher) (Citing In re Diagostino, 347 B.R. 116 (Bankr. N.D.N.Y. 2006), debtors with CMI greater than applicable median family income are not allowed an expense deduction for charitable contributions. "Section 1325(b)(3) requires, for above-median income debtors, application of the means test of § 707(b)(2)(A) and (B), which do not mention charitable contributions among their detailed list of expenses, and does not incorporate § 1325(b)(2)(A) and (B). . . . Congress did not incorporate Senator Russ Feingold's (D-Wisconsin) proposed amendment to include the charitable contribution provision of § 1325(b)(2)(A)(i) in determining amounts reasonably necessary to be expended under § 1325(b)(3).").
In re Casey, 356 B.R. 519 (Bankr. E.D. Wash. Oct. 27, 2006) (Williams) (Amount of court-ordered payments to an ex-spouse allowed at Line 33 of Form B22C is not actual monthly amount but is average over 60 months of all such payments; because court-ordered payments of $600 will cease on 24th month of plan, amount allowed at Line 33 is $600 times 24 divided by 60, which equals $224.39.).
In re Haley, 354 B.R. 340 (Bankr. D.N.H. Oct. 18, 2006) (Vaughn) (Telecommunication expenses allowed at Line 37 of Official Form B22C are limited to debtor and dependents of debtor; cellular telephone service for a parent or nondependent child are not included.).
In re Balcerowski, 353 B.R. 581, 582-88 (Bankr. E.D. Wis. Oct. 17, 2006) (Pepper) (Taxes are a category of Other Necessary Expenses for debtors with CMI greater than applicable median family income, but amount is best estimate of actual taxes that will be incurred, not amount that may have been withheld in past. "[T]he appropriate way to calculate the tax expense . . . is for the debtor to estimate, and subtract from his income, the actual tax he will incur, not the amount he has withheld from his wages. . . . [T]he amount a taxpayer chooses to withhold from his paycheck is not necessarily the actual tax expense he will incur. . . . The amount that the taxpayer gets back is not, therefore, an amount 'reasonably necessary to be expended.' . . . The Internal Revenue Service Manual . . . includes taxes in its 'Other Expenses' category. . . . [T]axes are necessary if they are 'current federal, FICA, Medicare, state and local taxes.' . . . BAPCPA allows an above-median income debtor to reduce his 'current monthly income' by the amount he must pay for those enumerated tax obligations. . . . [A] debtor cannot use his withholding amount as the tax expense amount he subtracts from his income on Form B22C. . . . [A]ccurately determining the amount of tax that a debtor 'actually incur[s]' is problematic. . . . [T]he debtor must subtract on line 30, as best he can estimate it, his actual tax expense." Citing In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006), the income side of the disposable income calculation is determined from Schedule I income; otherwise, there will be a disconnect between the actual tax expense and the income from which that tax expense is subtracted.).
In re Edmunds, 350 B.R. 636, 645 (Bankr. D.S.C. Sept. 18, 2006) (Waites) ("A second category of allowed expenses are those 'actual' expenses incurred by Debtors, which are designated as 'Other Necessary Expenses.' . . . [T]hese expenses must be reasonable. . . . Debtors bear the burden of demonstrating that these expenses are actual, reasonable, and necessary expenses and therefore Debtors' expenses should be considered in light of Debtors' Schedules J and other relevant evidence.").
In re Napier, No. 06-02464-JW, 2006 WL 4128358, at *2 (Bankr. D.S.C. Sept. 18, 2006) (unpublished) (Waites) (Debtors with CMI greater than applicable median family income are allowed reasonable and necessary telecommunication costs, including $175 per month for cellular telephones. "Debtors are allowed to deduct their actual expense for telecommunication services from disposable income as an 'other necessary expense.' . . . Pursuant to § 1325(b)(2) and (3), this expense must be reasonable and necessary. Debtors bear the burden of demonstrating that this expense is actual, reasonable, and necessary. . . . Mrs. Napier testified that Debtors pay . . . $25.00 per month for a land based telephone line; $60.00 per month for a cellular telephone; and between $80.00 and $100.00 per month for internet access. Mrs. Napier works from home and relies upon internet access in her employment. The Court finds that these expenses are actual, reasonable, and necessary and therefore allows Debtors $175.00 per month in telecommunication expenses.").
In re Crittendon, No. 06-10322 C-13G, 2006 WL 2547102 (Bankr. M.D.N.C. Sept. 1, 2006) (unpublished) (Stocks) (Because "as of the effective date of the plan" in § 1325(b)(1) applies to both subparagraph (A) and subparagraph (B), disposable income must be determined as of the effective date of the plan when applying § 707(b)(2)(A) and (B); deductions in categories specified as "Other Necessary Expenses" are "actual" expenses that may change between petition and confirmation date.).
In re Diagostino, 347 B.R. 116, 118-20 (Bankr. N.D.N.Y. Aug. 28, 2006) (Littlefield) (Charitable contributions are not allowable "Other Necessary Expense" for debtor with CMI greater than applicable median family income. "[W]here debtors are above the median income, the court must look to 11 U.S.C. § 707(b)(2)(A) and (B) to determine the debtors' reasonably necessary expenses. . . . There is no mention of charitable contributions in either subsection. While charitable contributions are not deemed a reasonably necessary expense under § 707(b)(2)(A) and (B), they may be considered as an Other Necessary Expense pursuant to § 5.15.1.10 of the Internal Revenue Manual. . . . There is nothing in the record indicating that the Debtors' charitable contributions provide for the health and welfare of the Debtors or are for the production of income. . . . [T]here is no evidence establishing the Debtors are required to make charitable contributions in the context of their employment or that either Debtor is a minister. Accordingly, applying the guidelines of the IRS . . . the Debtors' charitable contributions are not provided for under § 707(b)(2)(A) and (B) and do not meet the necessary expense test under 'Other Expenses.' . . . Whether tithing is or is not reasonable for a debtor in bankruptcy is for Washington to decide. . . . [C]onsistency and logic would demand the same treatment of all debtors under Title 11. Until Congress amends § 1325(b)(3), the court's hands are tied and the tithing principles that this court once applied pre BAPCPA have been effectively mooted.").
Baxter v. Johnson (In re Johnson), 346 B.R. 256 (Bankr. S.D. Ga. July 21, 2006) (Dalis) (Because income taxes are an Other Necessary Expense, a tax refund is not income for CMI purposes but is instead an expense deduction that is allowable to the extent of actual, necessary taxes; debtor that overwithholds income taxes in order to be entitled to a tax refund must adjust the actual expense allowable as an Other Necessary Expense for income taxes.).
In re Risher, 344 B.R. 833, 837 (Bankr. W.D. Ky. July 12, 2006) (Cooper) (The Other Necessary Expense deduction for federal, state and local taxes does not accurately capture overwithholding of income taxes that results in a tax refund; projected disposable income includes tax refunds even if not accurately accounted for on Form B22C. "[Q]uestion 30 on Form B22C . . . references a deduction for the federal, state and local taxes actually paid. . . . [T]axes actually paid are not equivalent to what is withheld from a debtor's paycheck for taxes. Tax refunds represent amounts overwithheld and thus, constitute aditional income. Debtors' argument that the taxes are already captured in the disposable income calculations is misplaced.").
In re Lara, 347 B.R. 198, 204 & n.6 (Bankr. N.D. Tex. June 28, 2006) (Houser) ("In deciding whether an expense is an allowable Other Necessary Expense, the Court concludes that the Debtors bear the initial burden of proving that a requested expense is (i) their actual monthly expense, (ii) within one of the categories identified as an Other Necessary Expense by the IRS, and (iii) necessary for their health and welfare or for the production of income. Once the Debtors satisfy this burden, the burden of going forward with the evidence shifts to the Trustee." $224.79 for term life insurance is allowed because evidence indicated this was actual amount spent on life insurance. Telecommunication expenses were allowed for two cell phones and high speed Internet access but denied for second dial-up Internet access that was not "necessary for the health and welfare of the Debtors or for their production of income." Because basic phone service is included in the Local Standards for housing and utilities, $83 per month for basic phone service was not allowed as an Other Necessary Expense for telecommunications. Although IRS Manual permits "other expenses . . . if they meet the necessary expense test—they must provide for the health and welfare of the taxpayer and/or his or her family or they must be for the production of income." $400 for additional transportation expenses based on the age, mileage and use of the debtors' cars was refused. "[T]he problem with the Debtors' argument is the language of § 707(b)(2)(A)(ii)(I) itself, which specifically provides that a debtor is entitled to deduct the debtor's 'actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service . . .' and the fact that there is no category of transportation expense in the IRS' list of Other Necessary Expenses. Accordingly, the Debtors are not entitled to an additional transportation expense allowance as an Other Necessary Expense." One hundred dollars for recreation expenses was also refused: "the Debtors offered no evidence in support of their contention that this expense is necessary for their health and welfare or their production of income, and/or . . . there is no category of recreation expense in the IRS' list of Other Necessary Expenses.").
In re Renicker, 342 B.R. 304, 311 (Bankr. W.D. Mo. May 15, 2006) (Venters) (Telecommunications expense could be analyzed as a special circumstance under § 707(b)(2)(B) but is more appropriately addressed as an Other Necessary Expense under § 707(b)(2)(A)(i). "The Debtors' $235 telecommunications expense can also be evaluated under § 707(b)(2)(B), but under the I.R.S. standards incorporated into § 707(b)(2)(A)(i), telecommunications expenses can be included in the calculation of disposable income if they are necessary and reasonable. The source of this standard is not the § 1325(b)(2) 'reasonably necessary' standard, though. The 'necessary' element is derived directly from the Internal Revenue Manual[,] which sets forth the definition and applicable standards for the 'Other Necessary Expenses' referred to in § 707(b)(2)(A)(i), and the 'reasonable' element is, the Court believes, implicit in all disposable income analyses. The Debtors in this case, however, have not provided the Court with any documentary or testimonial evidence that any additional telecommunications expenses, let alone $235 worth of such services, are necessary.").