Source: https://lundinonchapter13.com/Content/Section/95.16
Timestamp: 2019-08-23 00:44:24
Document Index: 343814902

Matched Legal Cases: ['§ 95', '§ 1325', '§ 707', '§ 707', '§ 707', '§ 507', '§ 707', '§ 707', '§ 707', '§ 707', '§ 1329', '§ 471', '§ 94', '§ 477', '§ 95', '§ 477', '§ 95', '§ 485', '§ 96', '§ 485', '§ 96', '§ 507', '§ 99', '§ 73', '§ 136', '§ 136', '§ 73', '§ 97', '§ 136', '§ 486', '§ 97', '§ 472', '§ 94', '§ 707', '§ 472', '§ 94', '§ 485', '§ 96', '§ 485', '§ 96', '§ 476', '§ 95', '§ 476', '§ 95', '§ 70', '§ 1325', '§ 1325', '§ 707', '§ 1325', '§ 707', '§ 707', '§ 1325', '§ 707', '§ 707', '§ 1325', '§ 1325']

Cite as: Keith M. Lundin, Lundin On Chapter 13, § 95.16, at ¶ ____, LundinOnChapter13.com (last visited __________).
The twelfth of 161 categories of Other [Necessary]2 Expenses specified by the IRS3 is “Taxes.”4 A Chapter 13 debtor with current monthly income (CMI)5 greater than applicable median family income6 is allowed a deduction for actual monthly expenses in the category Taxes specified by the IRS as part of the calculation of disposable income under § 1325(b)(2) and (3).7
“Taxes” is an important category of potential expenses because almost every individual debtor comes into Chapter 13 already owing taxes or will owe taxes during the three to five years of administration. The category Taxes is limited by § 707(b)(2)(A)(ii)(I) to actual 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.8 On its face, the term “Taxes” includes federal, state and local taxes of all kinds—income taxes, property taxes, ad valorem taxes, sales taxes, privilege taxes, use taxes and the like.
Courts tempted to consult the Internal Revenue Manual for interpretation of the Taxes category of Other [Necessary] Expenses9 will find that the Treasury Department allows a delinquent taxpayer an expense deduction for taxes if “it is for current federal, FICA, Medicare, state and local taxes.”10 The Internal Revenue Manual then offers this “Note[]/Tip[]”:
Current taxes are allowed regardless of whether the taxpayer made them in the past or not. Delinquent state and local taxes are allowable depending on the priority of the [federal tax lien] and/or Service agreement with the state and local taxing agencies.11
The Internal Revenue Manual not surprisingly contemplates an expense allowance for “current” taxes and “delinquent” taxes. The limitation with respect to the priority of delinquent state and local taxes quoted above from the Internal Revenue Manual appears nowhere in the Bankruptcy Code. There is, of course, no mention in the Internal Revenue Manual of delinquent federal taxes because delinquent federal taxes are the point of the whole exercise as far as the Internal Revenue Manual is concerned. In other words, the Internal Revenue Manual makes no expense allowance for payment of delinquent federal income taxes. This is one of many ironies that results from the poorly conceived wholesale incorporation of IRS collection standards into Chapter 13 practice.12
The Taxes category of Other [Necessary] Expenses overlaps at least three other categories of Other [Necessary] Expenses specified by the IRS and, perhaps more importantly, overlaps two separate statutory expense deductions allowed Chapter 13 debtors with CMI greater than applicable median family income. A fair number of debtors come into Chapter 13 cases subject to tax liens that will fall into the Secured or Legally Perfected Debts category of Other [Necessary] Expenses.13 Statutory liens for taxes are in this category. Prepetition taxes that are not secured by liens will be Unsecured Debts in a separate category of Other [Necessary] Expenses specified by the IRS.14 Prepetition tax obligations are sometimes addressed in domestic relations litigation and become Court-Ordered Payments—another category of Other [Necessary] Expenses specified by the IRS.15
Secured debts such as a home mortgage often include provisions for the payment of real estate taxes. Mortgage documentation will typically provide that unpaid taxes are a debt that is secured by the real property. A scheduled, contractually due secured debt for prepetition taxes would fall within the Taxes category of Other [Necessary] Expenses specified by the IRS but would also be separately deductible under § 707(b)(2)(A)(iii).16 Delinquent property tax debts are poorly managed by Official Form B22C.17
Most significantly, many prepetition tax debts will be priority claims in a bankruptcy case.18 Prepetition tax obligations that fall in the Taxes category of Other [Necessary] Expenses specified by the IRS are likely to also be priority debts separately allowed as an expense deduction (divided by 60) by § 707(b)(2)(A)(iv).19 There are no instructions in the Bankruptcy Code how to manage this substantial duplication. The Taxes category of Other [Necessary] Expenses specified by the IRS is broader in some ways and perhaps less broad in others than the taxes that would be entitled to priority under § 507(a)(8), but there will be substantial overlaps between the two expense allowances.
A related problem is the “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I). Detailed elsewhere,20 “[n]otwithstanding any other provision” of § 707(b)(2)(A)(ii)(I), monthly expenses “shall not include any payments for debts.”21 Arguably, any prepetition obligation to pay taxes would be a “debt” excluded from monthly expenses for a Chapter 13 debtor with CMI greater than applicable median family income by the “notwithstanding” sentence. This reading of the “notwithstanding” sentence threatens to drain the Taxes category of Other [Necessary] Expenses of all content—it is hard to conceive of a tax obligation that would fall in the category and yet not be a “debt” for purposes of the exclusion.
The Taxes category of Other [Necessary] Expenses is broader than the separate expense allowance for priority claims mentioned above. There will be taxes that are not entitled to priority because of the passage of time or other technical factors, and because nonpriority taxes would be “debts,” those taxes would also be excluded from monthly expenses within the Taxes category of Other [Necessary] Expenses by the “notwithstanding” sentence. The result is odd—prepetition, nonpriority tax debts would not be allowable at all as monthly expenses in the disposable income calculation.22
Official Form B22C is especially ambiguous with respect to the category of Other [Necessary] Expenses for Taxes specified by the IRS. At Line 30, Official Form B22C provides:
Other Necessary Expenses: taxes. Enter the total average monthly expense that you actually incur for all federal, state, and local taxes, other than real estate and sales taxes, such as income taxes, self-employment taxes, social security taxes, and Medicare taxes. Do not include real estate or sales taxes.
The exclusion of real estate and sales taxes at Line 30 is not consistent with the Bankruptcy Code. Real estate taxes may come back into the disposable income calculation on Official Form B22C at Line 47 but only if future payment of a secured claim includes taxes.23 Real estate taxes that are not included in a contractual debt payment are nowhere provided for on Official Form B22C but should be deductible at Line 30.
Note also that Line 25B of Official Form B22C contains the Local Standards Housing and Utilities allowance separately allowed by § 707(b)(2)(A)(ii)(I).24 The Local Standards Housing and Utilities allowance specified by the IRS includes property taxes.25 This is a curious picture: the Taxes category of Other [Necessary] Expenses provided for at Line 30 excludes real estate taxes and yet those same real estate taxes twice come back into the B22C calculation of disposable income—at Line 25B as part of the Local Standards Housing and Utilities allowance and again as a secured debt payment at Line 47. Delinquent real estate taxes might come into the B22C calculation a third time at Line 48 as an additional payment on a secured claim necessary to maintain possession of a house. And then (fourth time?), at Line 49 of Official Form B22C payments on prepetition priority claims—which might include delinquent real estate taxes—are again provided for (divided by 60).26 The net result is that bits and pieces of tax debt that would fall in the Other [Necessary] Expense category for Taxes specified by the IRS are spread out among Lines 25B, 30, 47, 48 and 49 of Official Form B22C with some of the overlapping allowances excluded by instructions but other overlaps not addressed at all.
Sales taxes are excluded at Line 30 of Official Form B22C and do not come back into the deductions allowed by the Form to calculate disposable income. Sales taxes are state or local taxes clearly within the contemplation of the category Taxes specified by the IRS. The Bankruptcy Code does not exclude sales taxes—only Line 30 of Form B22C contains that exclusion.
The Taxes category of Other [Necessary] Expenses quickly generated a substantial number of bankruptcy court decisions, most struggling with how to account for income taxes in the disposable income calculation. There is consensus that the Taxes category of Other [Necessary] Expenses includes state, federal and local taxes.27 The problem is how to predict the amount of those taxes in the disposable income calculation.
Because § 707(b)(2)(A)(ii)(I) limits the Other [Necessary] Expenses category for Taxes to “actual” taxes, Chapter 13 debtors have to determine “actual” taxes notwithstanding the reality that perfect estimation is not possible. A tax refund proves the inaccuracy of withholding for taxes during some prior period, but even adding tax refunds into income will not reliably determine actual taxes in the future. Debtors can produce tax returns for previous tax periods and demonstrate the “actual” taxes paid in the past, but again, this will only estimate actual taxes in the future.
The cases offer different methodologies to determine actual taxes in the category specified by the IRS. Perhaps a majority conclude that future tax refunds must be committed to funding the Chapter 13 plan to satisfy the statutory requirement that only “actual” taxes are deductible.28 The mechanism specified in the cases for capturing overwithholding is sometimes as simple as a requirement that future tax refunds or some portion thereof be paid to the Chapter 13 trustee.29 Some courts estimate this outcome by deducting the average of refunds in the past from withholding to determine “actual” taxes going forward.30 Other courts erect a presumption that taxes paid in the year previous to the year in which the petition was filed can be expensed, but that presumption is overcome with evidence that income or deductions have changed.31 A few courts accept the Chapter 13 debtor’s good faith or best estimate of actual taxes—subject to plan modification after confirmation under § 1329 if that estimate misses the mark.32
These cases are searching for precision with respect to the unknowable “actual” taxes that will be due from a Chapter 13 debtor. The Bankruptcy Code does not tell us whether “actual” taxes means a statement of historical experience or a best guess about the future. Chapter 13 debtors’ circumstances are too unstable for courts to demand a high level of accuracy with respect to the Taxes category of Other [Necessary] Expenses. For some debtors—those with steady jobs, good health and stable families—historical withholding adjusted to reflect historical tax refunds is a good estimate of future tax liability. For many Chapter 13 debtors, job instability, fluid family circumstances, health problems and the like render “actual” taxes a moving target. Tax refunds are often the soft collar around a Chapter 13 debtor’s budget that allows families to work through the inevitable financial bumps in a five-year effort at rehabilitation. Some flexibility is required in the management of the Taxes category of Other [Necessary] Expenses.
12 See § 471.1 [ Big Picture: Too Many Issues ] § 94.1 Big Picture: Too Many Issues.
13 See § 477.11 [ Other [Necessary] Expenses—Secured or Legally Perfected Debts ] § 95.14 Other [Necessary] Expenses—Secured or Legally Perfected Debts.
14 See § 477.12 [ Other [Necessary] Expenses—Unsecured Debts ] § 95.15 Other [Necessary] Expenses—Unsecured Debts.
16 See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts.
17 See below in this section, and see § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts.
18 See 11 U.S.C. § 507(a)(8), discussed in §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2 What Claims Are Priority Claims?, 292.1 [ Taxes ] § 136.2 Taxes before BAPCPA, 300.1 [ Secured Priority Claims? ] § 136.18 Secured Priority Claims before BAPCPA, 440.1 [ New and Changed Priority Claims ] § 73.3 Priority Claims Added or Changed by BAPCPA, 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1 Total Priority Debts and Divide by 60 and 513.1 [ Taxes ] § 136.3 Taxes after BAPCPA.
19 See § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1 Total Priority Debts and Divide by 60.
20 See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2 Netting Issues, Including Exclusion of Payments for Debts.
21 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.
22 But see § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts for discussion of the expense allowance for the payment of debts secured by property that is necessary for the support of the debtor and the debtor’s dependents.
23 See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1 Average Monthly Payments on Account of Secured Debts for further discussion of this issue.
24 See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation.
25 See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3 Local Standards: Housing and Transportation.
27 See, e.g., In re Carlton, 362 B.R. 402 (Bankr. C.D. Ill. 2007) (The Other Necessary Expenses category for Taxes allowed debtor with CMI greater than applicable median family income includes state and federal income taxes.), on reconsideration, 370 B.R. 188 (Bankr. C.D. Ill. 2007); In re LaPlana, 363 B.R. 259, 266 (Bankr. M.D. Fla. 2007) (“[T]he means test allows debtors to deduct the actual expenses for federal, state, and local taxes.”); In re Lawson, 361 B.R. 215, 222 (Bankr. D. Utah 2007) (“[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.”); In re Balcerowski, 353 B.R. 581, 584 (Bankr. E.D. Wis. 2006) (“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.’”); In re Risher, 344 B.R. 833, 837 (Bankr. W.D. Ky. 2006) (“[Q]uestion 30 on Form B22C . . . references a deduction for the federal, state and local taxes actually paid.”).
28 In re Carrasco, 395 B.R. 154 (Bankr. M.D. Fla. 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 Mullen, 369 B.R. 25, 35 (Bankr. D. Or. 2007) (“‘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 LaPlana, 363 B.R. 259, 266–67 (Bankr. M.D. Fla. 2007) (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.”); Baxter v. Johnson (In re Johnson), 346 B.R. 256 (Bankr. S.D. Ga. 2006) (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. 2006) (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 additional income. Debtors’ argument that the taxes are already captured in the disposable income calculations is misplaced.”).
29 See, e.g., In re Michaud, Nos. 08-12888-JMD, 08-12903-JMD, 08-12949-JMD, 2008 WL 5448998, at *3–*7 (Bankr. D.N.H. Dec. 30, 2008) (Deasy) (Debtors with CMI greater than applicable median family income must predict future tax expense and, absent special circumstances, must pay future tax refunds to Chapter 13 trustee within 14 days of receipt; on case-by-case basis, debtors can prove need to retain part of a future tax refund and/or can move to retain some or all of a tax refund in a future year. “[T]ax expenses fall into the category of actual expenses, and debtors bear the burden of demonstrating that these expenses are actual, reasonable, and necessary. . . . [D]ebtors may not be able to accurately predict their tax liability for a five year period. Debtors’ inability to make such predictions regarding their actual tax liability does not relieve them, however, from the Bankruptcy Code’s requirement that they apply all their disposable income to fund a plan . . . . Because the amount withheld by debtors for payment of taxes does not necessarily correspond to their actual tax liability, the difference, i.e., the debtors’ tax refund, must constitute income under § 1325(b) and, in general, must be devoted to the plan. . . . [I]t is appropriate to allow debtors to retain some amount of a tax refund in order to provide the debtors with some cushion against unanticipated expenses that arise in the course of everyday life and to provide some flexibility to debtors as they attempt to create a budget for the duration of a three-to-five year plan. . . . [T]he amount of an income tax refund that may be retained depends upon the particular circumstances in a particular case and may involve consideration of the amount of the debtor’s tax refund, the amount of the refund in comparison to the total tax due, the debtor’s yearly income and expenses, the debtor’s overall budget, the number and nature of the debtor’s dependents, the amount being paid into the debtor’s plan, the dividend being paid to unsecured creditors, and the length of the debtor’s plan. . . . [I]t will depend upon the facts of a specific case and must be reviewed on a case-by-case basis at the time of confirmation. . . . In order to avoid annual postpetition modifications of chapter 13 plans upon the filing of a tax return reflecting a refund, debtors in this district shall be required to submit such tax refunds to the Trustee no later than fourteen days after the receipt of such a refund, as part of the funding of the debtor’s plan. . . . If the debtors believe that retention of some or all of the income tax refund payable to the Trustee is necessary for the maintenance and support of the debtors or their dependents within the meaning of the Bankruptcy Code, the debtors may make a motion, within thirty days after they file their tax return showing an entitlement to a tax refund, seeking an order modifying their obligations under their plan and the confirmation order. . . . Absent special circumstances being established by the debtor, confirmation of chapter 13 plans in this district that fail to contain a provision in the plan payment section of the plan, requiring the debtor to pay an appropriate portion of his or her tax refunds to the Trustee within fourteen days of receipt, shall be denied if an objection has been filed by the Trustee or an unsecured creditor under § 1325(b)(1).”).
30 See, e.g., In re Riggins, No. 07-32167, 2008 WL 2129853, at *2 (Bankr. N.D.N.Y. May 20, 2008) (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.”); In re Raybon, 364 B.R. 587, 590–92 (Bankr. D.S.C. 2007) (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.”).
31 In re Gehrke, No. 06-27265-svk, 2007 WL 2318479 (Bankr. E.D. Wis. Aug. 9, 2007) (unpublished) (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 Stimac, 366 B.R. 889, 893–94 (Bankr. E.D. Wis. 2007) (Tax deduction is presumed to be amount shown on last filed tax return, divided by 12, but is subject to proof of changed circumstances. “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.”).
32 See, e.g., 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 Lawson, 361 B.R. 215, 222–23 (Bankr. D. Utah 2007) (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 Balcerowski, 353 B.R. 581, 582–88 (Bankr. E.D. Wis. 2006) (“[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. . . . [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.”). But see In re Raybon, 364 B.R. 587, 590–92 (Bankr. D.S.C. 2007) (Estimate of actual expenses for taxes is permissible but “[t]o 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[.]”).
Baldwin v. Celli (In re Baldwin), No. 1:08-CV-385 (LEK), 2008 WL 5115238, at *3 (N.D.N.Y. Dec. 8, 2008) (unpublished) (Kahn) ("Actual tax" allowable as Other [Necessary] Expense for a debtor with CMI greater than applicable median family income is determined by subtracting 1/12th of previous year's federal and state income tax refunds from monthly withholding. "The method for calculating the tax amount for Line 30 should provide an accurate, actual tax expense figure without proving too onerous to administer. . . . [I]t is an 'educated estimate[ ] based on the best information available to the parties.' . . . '[A]ctual tax' on Line 30 should be computed by subtracting from the Debtors' monthly withholdings one-twelfth of the previous year's federal and state income tax refunds. . . . The debtor may rebut this conclusion . . . . [T]he Court agrees with Judge Littlefield that www.paycheckcity.com is not an appropriate method for calculating Line 30 tax expenses. The Court is 'unwilling to promote a . . . website as an official mechanism for calculating actual tax.'").
In re Christianson, No. 15-60288-fra13, 2015 WL 4761265, at *1 (Bankr. D. Or. Aug. 12, 2015) (Alley) (In a Chapter 13 case filed in January 2015 that will require 60 months of payments, debtors can keep 2014 tax refund only if they commit to pay 2019 tax refund to trustee. "Debtors' tax refunds attributable to 2014 were scheduled as a prepetition asset and would not be turned over to the Trustee for distribution through the Plan. . . . The Trustee's objection is that the Debtors' 60-month plan term will expire in January 2020, and the Debtors will not receive their 2019 tax refunds until after the Plan is complete. If the Debtors are not required to turn over their 2014 tax refunds to the Trustee, they would only be devoting four years of tax refunds to the five-year Plan. . . . Because the Debtors filed their bankruptcy petition in January 2015, the entire tax refund attributable to 2014 is a return of a pre-petition asset, received post-petition. If the Debtors do not wish to devote this tax refund to the Plan, then the tax refund to be received in 2020, attributable to the final year of the plan term in 2019, must be turned over to the Trustee for distribution to creditors.").
In re Wensel, No. BR 12-30207, 2013 WL 1397452, at *2-*3 (Bankr. D. Utah Apr. 5, 2013) (Thurman) (Averaging three years of past tax refunds to determine the amount of future refunds to include in projected disposable income is rejected in favor of requiring payment of actual future tax refunds to the trustee net of first $1,000. "Although tax refunds are considered projected disposable income by many courts, jurisdictions have developed differing, and sometimes creative methods, in accounting for tax refund income in chapter 13 plans. There are jurisdictions that require 100% of tax refunds be turned over to the Trustee. . . . [I]n other jurisdictions, courts require the IRS to send refunds directly to the Trustee. Other courts review each refund on a case-by-case basis, allowing for motions to modify for each year's returns. Others allow for a specified portion of the refund to be retained, with the balance turned over to the Trustee. Some jurisdictions allow for annualization of tax refunds based on actual tax liabilities. . . . [A]ll tax refunds are projected disposable income and should be turned over to the Trustee when received by the Debtor. However, recognizing a need for flexibility with unexpected expenses, the Court allows debtors to retain the first $1,000 of their tax refund, or up to $2,000 if the Debtor receives an Earned Income Credit ("EIC") or an Additional Child Tax Credit ("ACTC").").
In re Paliev, No. 11-17647-BFK, 2012 WL 3564031 (Bankr. E.D. Va. Aug. 17, 2012) (Kenney) (State personal property taxes are not included in Local Standards for transportation ownership or operation and thus are allowable additional deductions at Line 30.).
In re Murchek, 479 B.R. 521, 531-32 (Bankr. N.D. Iowa July 17, 2012) (Collins) (Future tax refunds are included in projected disposable income except in unusual cases; debtor has burden to prove both that this is unusual case and that future tax refunds are not known or virtually certain once trustee shows that there have been tax refunds in the past. Trustee objected to plan language that would exclude from projected disposable income tax refunds that were not known or virtually certain at confirmation. "An 'always' or 'never' label about whether tax refunds should be included as projected disposable income is no longer appropriate. . . . [A]fter Trustee . . . shows debtor has previously received tax refunds under similar circumstances—debtor must show unusual circumstances and then (and only then) the question becomes whether a refund or no refund is 'known or virtually certain to occur.' . . . Trustee's initial burden is satisfied by showing that Debtor previously received tax refunds under similar income circumstances . . . . Debtor must satisfy the ultimate burden by showing 'that despite the receipt of refunds in prior years' exceptional circumstances that will occur during the Plan make it known or virtually certain that a refund will or will not be received.").
In re Saleen, No. 11-61957-elp13, 2011 WL 6097256, at *6 (Bankr. D. Or. Dec. 6, 2011) (Perris) (Applying Hamilton v. Lanning, 560 U.S. 505, 130 S. Ct. 2464, 177 L. Ed. 2d 23 (June 7, 2010), evidence of increase in tax liability was insufficient to require adjustment in projected disposable income. "Computing tax liability is an inexact science at best. Debtors have not met their burden of showing either an incorrect initial computation or a Lanning change that requires an upward adjustment. . . . [T]o deviate from Line 30, a party would need to provide a mock return or other competent evidence based on known or virtually certain changes.").
In re Hilgendorf, No. 10-37111-svk, 2011 WL 353240, at *3 (Bankr. E.D. Wis. Feb. 2, 2011) (Kelley) (Debtors with CMI less than applicable median family income should use the same tax refund rules applicable to above-median income debtors under In re Stimac, 366 B.R. 889 (Bankr. E.D. Wis. Mar. 29, 2007) (Kelley)—either calculate tax expenses accurately and keep tax refunds or continue over-withholding and dedicate one-half of tax refunds to unsecured creditors. "Although Stimac involved above-median debtors, the proper deduction of tax liability does not change depending on whether the debtor's income is above or below the state median. Actual tax liabilities are among the 'other necessary expenses' that an above-median debtor is entitled to deduct under 11 U.S.C. § 707(b)(2)(A)(ii). And clearly taxes are a reasonably necessary expense for the maintenance and support of a below-median debtor and therefore deductible under 11 U.S.C. § 1325(b)(2)(A). Accordingly, the Stimac rule should apply equally in this case: either the Debtors can recalculate their disposable income by deducting their actual tax liabilities, increasing their monthly plan payments, and keeping their tax refunds; or they can dedicate one-half of their tax refunds to the payment of an additional dividend to unsecured creditors for the life of their plan. . . . The Debtors cannot, as they have proposed here, use the tax refunds to pay secured creditors, and thereby shorten the plan.").
In re Moore, 446 B.R. 458 (Bankr. D. Colo. Jan. 26, 2011) (Tallman) (Tax liability caused by payoff by Army of $50,000 student loan is properly accounted for with an elevated monthly amount at Lines 30 and 49 and is not a "special circumstance" of the sort contemplated by § 707(b)(2)(B) at Line 57. The "special circumstances" deduction of $2,385 per month at Line 57 was not appropriate when the debtor had included at Line 49 $165.39 per month to cover the additional taxes owed as a result of the $50,000 student loan payment by the Army. In addition, the Line 57 special circumstances deduction was disallowed because the debtor did not provide an itemized deduction or a detailed explanation as required by § 707(b)(2)(B).).
In re Malewicz, 457 B.R. 1 (Bankr. E.D.N.Y. Nov. 4, 2010) (Grossman) (No provision of Code or confirmed plan requires turnover to trustee of nonfiling spouse's share of joint tax refund. Nonfiling spouse's income is considered to determine projected disposable income, but that calculation only determines the debtor's plan payment—it does not afford the trustee any right to compel the nondebtor spouse to contribute tax refund to funding the plan.).
In re Skougard, 438 B.R. 738, 741-42 (Bankr. D. Utah Oct. 27, 2010) (Thurman) (Tax refunds in excess of $1,000 are included in disposable income and must be paid to trustee; in the future, debtors with Earned Income Credit or Additional Child Tax Credit can retain $2,000 from tax refunds. "The Court can find no authority in the Bankruptcy Code or the Federal Rules of Bankruptcy Procedure which specifically exempts or allows the debtors to retain any tax refund for discretionary use. All tax refunds are projected disposable income and should be calculated into plan payments. However, recognizing the need for some degree of flexibility and uncertainty in debtors['] income and expenses, . . . the Court requires tax refunds in excess of $1,000 each year be contributed to debtors' chapter 13 plans as disposable income. . . . Here, the Debtors and the Trustee are seeking a policy change which draws a distinction between the amount that above and below median income debtors may retain from their respective tax refund amounts. However, the Court is concerned with discrimination between debtors and instead believes the better way to distinguish which debtors would retain $2,000 instead of $1,000 is whether the debtors are receiving EIC and the ACTC. . . . [D]ebtors receiving EIC or the ACTC or both may retain $2,000 of their tax refunds.").
In re Barbutes, 436 B.R. 518 (Bankr. M.D. Tenn. Sept. 8, 2010) (Paine) (Citing Freeman v. Schulman (In re Freeman), 86 F.3d 478 (6th Cir. June 27, 1996) (Merritt, Boggs, O'Meara), and without discussion of CMI, when there was no evidence that tax refunds are needed for maintenance or support, future tax refunds are disposable income that must be dedicated to unsecured creditors.).
In re Grunauer, No. 10-11502-SSM, 2010 WL 2425945, at *3-*4 (Bankr. E.D. Va. June 9, 2010) (unpublished) (Mitchell) (Voluntary Addendum to plan that required debtor to turn over tax refunds in excess of $250 during life of plan is a good idea but is not required to satisfy projected disposable income test for a debtor with CMI greater than applicable median family income because taxes are already accounted for within a category of Other [Necessary] Expenses. "[T]ax refunds, as such, would not fall within the definition of projected disposable income for an above-median income debtor, since disposable income is determined by application of the chapter 13 'means test.' Of course, if the debtor receives a tax refund within the 6 months preceding the filing of the petition, the amount of the refund must be included in calculating CMI. And the claimed deduction under the means test for federal, state, and local taxes as Other Necessary Expenses must reflect the taxes that debtor actually incurs (not the withholdings). But provided those requirements are met, payment of tax refunds into the plan would not be necessary in order to satisfy the projected disposable income test. . . . [T]he court will direct the debtor to furnish tax returns to the trustee during the period of the plan. To the extent that the tax return discloses a substantial and unanticipated change in the debtor's financial situation, the trustee may seek modification of the plan to increase payments to unsecured creditors . . . . [N]othing in this opinion should be read as discouraging use of the Addendum, or a form of confirmation order with similar language, as a pragmatic and efficient means of resolving disposable income objections in those cases in which the trustee can make a showing that a debtor's withholdings exceed his or her expected tax liability.").
In re Brennecke, No. 09-34193, 2010 WL 1655899 (Bankr. E.D. Wis. Apr. 23, 2010) (unpublished) (McGarity) (To calculate tax expense deduction at Line 30 on Official Form B22C, starting point is Box 1 of debtors' annual W-2 Wage and Tax Statement, reduced by appropriate itemized deductions.).
In re Maxwell, No. 09-28215-D-13L, 2009 WL 9087769 (Bankr. E.D. Cal. July 28, 2009) (unpublished) (Bardwil) (Tax expense deduction of $1,200 per month exceeds actual tax expenses by $500 per month and must be reduced to satisfy projected disposable income test.).
In re Michaud, 399 B.R. 365, 371-76 (Bankr. D.N.H. Dec. 30, 2008) (Deasy) (Debtors with CMI greater than applicable median family income must predict future tax expense and, absent special circumstances, must pay future tax refunds to Chapter 13 trustee within 14 days of receipt; on case-by-case basis, debtors can prove need to retain part of a future tax refund and/or can move to retain some or all of a tax refund in a future year. "[T]ax expenses fall into the category of actual expenses, and debtors bear the burden of demonstrating that these expenses are actual, reasonable, and necessary. . . . [D]ebtors may not be able to accurately predict their tax liability for a five year period. Debtors' inability to make such predictions regarding their actual tax liability does not relieve them, however, from the Bankruptcy Code's requirement that they apply all their disposable income to fund a plan . . . . Because the amount withheld by debtors for payment of taxes does not necessarily correspond to their actual tax liability, the difference, i.e., the debtors' tax refund, must constitute income under § 1325(b) and, in general, must be devoted to the plan. . . . [I]t is appropriate to allow debtors to retain some amount of a tax refund in order to provide the debtors with some cushion against unanticipated expenses that arise in the course of everyday life and to provide some flexibility to debtors as they attempt to create a budget for the duration of a three-to-five year plan. . . . [T]he amount of an income tax refund that may be retained depends upon the particular circumstances in a particular case and may involve consideration of the amount of the debtor's tax refund, the amount of the refund in comparison to the total tax due, the debtor's yearly income and expenses, the debtor's overall budget, the number and nature of the debtor's dependents, the amount being paid into the debtor's plan, the dividend being paid to unsecured creditors, and the length of the debtor's plan. . . . [I]t will depend upon the facts of a specific case and must be reviewed on a case-by-case basis at the time of confirmation . . . . In order to avoid annual postpetition modifications of chapter 13 plans upon the filing of a tax return reflecting a refund, debtors in this district shall be required to submit such tax refunds to the Trustee no later than fourteen days after the receipt of such a refund, as part of the funding of the debtor's plan. . . . If the debtors believe that retention of some or all of the income tax refund payable to the Trustee is necessary for the maintenance and support of the debtors or their dependents within the meaning of the Bankruptcy Code, the debtors may make a motion, within thirty days after they file their tax return showing an entitlement to a tax refund, seeking an order modifying their obligations under their plan and the confirmation order. . . . Absent special circumstances being established by the debtor, confirmation of chapter 13 plans in this district that fail to contain a provision in the plan payment section of the plan, requiring the debtor to pay an appropriate portion of his or her tax refunds to the Trustee within fourteen days of receipt, shall be denied if an objection has been filed by the Trustee or an unsecured creditor under § 1325(b)(1).").