Opinion ID: 1351814
Heading Depth: 1
Heading Rank: 5

Heading: Incorporation of IRM Analysis

Text: The IRM approach is characterized as such because courts following it use the methodology of the IRM as an interpretive guide for the means test. Decisions favoring the IRM view generally reason that we should look not only to the Local Standards themselves (which are simply dollar amounts) in conducting a debtor's means test, but also to the manner in which the IRM uses the Local Standards in the revenue collection process. See, e.g., Ransom, 380 B.R. at 805-06. IRS agents use the Local Standards as caps on what a delinquent taxpayer may claim as living expenses when calculating what the taxpayer can pay back to the government. See IRM § 5.15.1.7 (stating, regarding the local standards, that [t]axpayers will be allowed the local standard or the amount actually paid, whichever is less) (emphasis in original). Under IRS methodology, if a taxpayer has no car payment, the taxpayer is entitled only to the transportation operation deduction, not the ownership deduction. See id. (If a taxpayer has a car, but no car payment [sic] only the operating cost portion of the transportation standard is used to figure the allowable transportation expense.). As the Ninth Circuit BAP explained in Ransom: because the IRS Manual prohibits the debtor from asserting the vehicle ownership expense deduction when he or she has no loan or lease payments on a vehicle, [courts taking the IRM approach] reason that § 707(b)(2)(A)(ii)(I) does not allow such a deduction either. Ransom, 380 B.R. at 806. However, while the IRM provides a useful methodology to IRS agents for determining a taxpayer's ability to pay the IRS, we agree with other plain language courts that there is no indication that Congress intended that methodology to be used in conducting the means test. As an initial matter, section 707(b)(2)(A)(ii)(I) makes reference only to the amounts specified in the Local Standards; the statute does not incorporate the IRM or the Financial Analysis Handbook, or even refer to them. See 11 U.S.C. § 707(b)(2)(A)(ii)(I) (making no reference to the IRM, the Financial Analysis Handbook or their methodologies). The legislative history of section 707(b)(2)(A)(ii)(I) confirms that the provision's silence with regard to the IRM and IRS methodology was deliberate. A prior version of a bill can be useful in interpreting a bill that was subsequently enacted. See, e.g., In re Lifschultz Fast Freight Corp., 63 F.3d 621, 631 (7th Cir.1995) (the fact that the final enacted version of a bill omitted a provision contained in earlier unpassed versions of the bill evidenced a significant and clearly deliberate choice by Congress). A prior version of the BAPCPA which was never passed defined projected monthly net income under the means test to require a calculation of expenses as follows: (A) the expense allowances under the applicable National Standards, Local Standards, and Other Necessary Expenses allowance (excluding payments for debts) for the debtor ... in the area in which the debtor resides as determined under the Internal Revenue Service financial analysis for expenses in effect as of the date of the order for relief. H.R. 3150, 105th Congress (1998) (emphasis added). The phrase as determined under the Internal Revenue Service financial analysis was later removed and replaced by the current language, which states that the debtor should deduct the applicable monthly expense amounts specified under the National and Local Standards. 11 U.S.C. § 707(b)(2)(A)(ii)(I). This change indicates Congress's intent that courts not be bound by the financial analysis contained in the IRM and supports the conclusion that courts should look only to the numeric amounts set forth in the Local Standards. See Kimbro, 389 B.R. at 526; In re Fowler, 349 B.R. 414, 419 (Bankr.D.Del.2006). Because the statute incorporates only the amounts of the Local Standards and does not incorporate IRM procedures or methodology, and because the legislative history of the statute indicates that Congress intentionally omitted any reference to IRM financial analysis, we believe that using IRM methodology in conducting the means test is misguided. See In re Simms, No. 06-1206, 2008 WL 217174,  (Bankr.N.D.W.V. Jan.23, 2008) (No basis exists for the court to allow the National or Local Standards to be spliced based on what an IRS field agent would do when dealing with a delinquent taxpayer.). In addition to the fact that neither the statutory text nor history support using IRM methods in the means test, there are also practical reasons why it is inappropriate to look to the IRM, namely that the substantial discretion allowed to a revenue officer under the IRM is inconsistent with the purpose of the means test to adopt a uniform, bright-line test that eliminates judicial discretion. As explained in Kimbro : Congress intended that there be uniform and readily-applied formula for determining when the bankruptcy court should presume that a debtor's chapter 7 petition is an abuse and for determining an above-median debtor's disposable income in chapter 13. By explicitly referring to the National and Local Standards, Congress incorporated a table of standard expenses that could be easily and uniformly applied; Congress intended that the court and parties simply utilize the expense amount from the applicable column based on the debtor's income, family size, number of cars and locale. The amounts are entered into the means test form and a determination of disposable income is accomplished without judicial discretion. The clear policies behind the means test were the uniform application of a bright-line test that eliminates judicial discretion. Plainly, Congress determined that these policies were more important than accuracy. However, if the IRM were used to determine the amounts of expenses ... the means test would of necessity again be a highly discretionary test, because under the IRM, a revenue officer is afforded significant discretion in determining a taxpayer's ability to pay a tax debt. Kimbro, 389 B.R. at 527-28. If courts were to interpret section 707(b)(2)(A)(ii)(I) as incorporating the highly discretionary procedures revenue officers use under the IRM, the means test would be similar to the disposable income determination used before BAPCPA, when bankruptcy judges had a great deal of discretion in determining a debtor's net disposable income. See id. at 530. It was clearly Congress's intent to eliminate such discretion when it enacted BAPCPA. See In re Spraggins, 386 B.R. 221, 223-25 (Bankr.E.D.Wis.2008) (stating that it was Congressional intent to employ a bright-line test for disposable income by removing bankruptcy court `value judgments' concerning the debtor's lifestyle); In re Pearl, 394 B.R. 309, 314 (Bankr.N.D.N.Y.2008) (Congress's intent was to was to eliminate the discretion of the courts in determining what expenses are reasonable). We thus are further convinced that it is inappropriate to look to the IRM for guidance in applying the means test. In sum, because we believe that reference to IRM methodology is inconsistent with the statutory language, history, and purpose, we do not turn to it in interpreting the means test. 3. Policy We also believe that policy considerations support allowing the ownership deduction to debtors who own their cars outright. It is common sense that there are costs associated with vehicle ownership apart from loan or lease payments. (And of course, in some sense, debt payments are not really ownership costs at all.) These non-debt costs include depreciation, insurance, licensing fees and taxes. See Kimbro, 389 B.R. at 531 (reasoning that every vehicle owner incurs ownership expenses, and that is so regardless of debt or lease payments). We see no reason why these expenditures are not contemplated by the ownership deduction. It is true that non-debt ownership expenses may be sporadic oraside from replacement costssubstantially less than the ownership deduction amounts (which in this case are $471 for the first car and $332 for the second car). However, monthly car payments can be comparatively small as well. See, e.g., In re Clark, No. 07-23390, 2008 WL 444565,  (Bankr.E.D.Wis. Feb. 14, 2008) (noting, in considering this issue, that one of the debtor's car payments was only $79.17). The Clark court posited a possible explanation: it reasoned that Congress must have had a reason for allowing the ownership deduction in calculating the means test formula for debtors with modest [car] payments, perhaps as some courts have posited, because the debtors may need replacement transportation during the course of [bankruptcy proceedings]. Debtors who own their cars outright would have the same potential need for vehicle replacement, so we believe that they are similarly entitled to the deduction even though the deduction amount may exceed their actual costs. See id.; see also Eugene Wedoff, Means Testing in the New 707(b), 79 Am. Bankr.L.J. 231, 257 (2005) (recognizing that allowing the ownership deduction to debtors who own their cars outright reflects the reality that a car for which the debtor no longer makes payments may soon need to be replaced (so that the debtor will have actual ownership expenses)....). Limiting the deduction to debtors who make car payments would also produce arbitrary and unfair results. The debtor who completes his last car payment just before filing would not be allowed the deduction, while the debtor who has one car payment remaining a few days after filing would be allowed to take it. As Bankruptcy Judge Eugene Wedoff commented in his article exploring the BAPCPA means test: Allowing the ownership deduction to debtors who own their vehicles outright avoids arbitrary distinctions between debtors who have only a few car payments left at the time of their bankruptcy filing and those who finished making their car payments just before the filing. Wedoff, 79 Am. Bankr.L.J. at 258. We also think it unfair to punish debtors who choose to drive older or cheaper vehicles that they own rather than borrow money to obtain newer or more expensive cars, especially in light of the fact that one of BAPCPA's purposes was to make it more difficult to discharge consumer debts. Finally, we acknowledge that courts following the IRM approach believe that our reading is inconsistent with one of the main purposes of BAPCPA: that creditors [] be repaid when possible. See, e.g., Ransom, 380 B.R. at 808; In re Howell, 366 B.R. 153, 157 (Bankr.D.Kan.2007) ([D]enying debtors the ownership allowance when they have no ownership expense (i.e. loan or lease payments) is entirely consistent with one of the apparent objectives of BAPCPA: to ensure that debtors actually pay what they are capable of paying to unsecured creditors.). While we agree that the repayment of creditors is among the purposes of BAPCPA, our concern on this front is lessened considerably because our decision to allow the ownership deduction to a debtor who owns his car outright does not necessarily mean that the debtor's case will not be dismissed. See Ragle, 395 B.R. at 399 (citing In re Zaporski, 366 B.R. 758, 768 (Bankr. E.D.Mich.2007)). Permitting a debtor to take the deductioneven where that deduction puts the debtor's current monthly income below the presumptive abuse thresholddoes not insulate his case from dismissal. Instead, it simply means that the debtor's petition is not presumed abusive. See Fowler, 349 B.R. at 421. The UST can still request dismissal, as he has done in this case, under section 707(b)(3), either for bad faith or based on the totality of circumstances (which can take into consideration a debtor's actual income and expenses). See Zaporski, 366 B.R. at 768.