§ 95.12     Other [Necessary] Expenses—Involuntary Deductions
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 95.12, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The eighth of 161 categories of Other [Necessary]2 Expenses specified by the IRS3 is “Involuntary Deductions.”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 Involuntary Deductions specified by the IRS as part of the calculation of disposable income under § 1325(b)(2) and (3).7

[2]

“Involuntary Deductions” is the cryptic name of a category of potential expenses of uncertain content. It could mean deductions from a debtor’s income that are forced on the debtor by a court, a statute or a rule or whenever some lack of volition is indicated. For example, a garnishment or levy that is reducing a debtor’s income at the petition would be an Involuntary Deduction. Although not involving court orders, state and local taxes are deductions from a debtor’s income with respect to which the debtor has little or no discretion. Union dues, mandatory pension, health and welfare contributions or charges for uniforms or equipment could be Involuntary Deductions from a debtor’s income.

[3]

Courts inclined to consult the Internal Revenue Manual for interpretation of the Involuntary Deductions category of Other [Necessary] Expenses8 will find this limitation on when a delinquent taxpayer is allowed expenses for Involuntary Deductions: “If it is a requirement of the job; e.g. union dues, uniforms, work shoes.”9 The IRS limitation of Involuntary Deductions to job- and work-related items is found nowhere in the Bankruptcy Code.

[4]

The Involuntary Deductions category specified by the IRS overlaps at least two other expense deductions allowed Chapter 13 debtors with CMI greater than applicable median family income. Discussed above,10 there is a separate category of Other [Necessary] Expenses specified by the IRS for “Court-Ordered Payments.” Garnishments and other forms of levy by state or federal courts would easily fall within both the Involuntary Deductions and Court-Ordered Payments categories of Other [Necessary] Expenses. Similarly, there is a separate category specified by the IRS for Taxes.11 Deductions from income for state and federal taxes such as withholding arguably fit into both the category for Taxes and the category for Involuntary Deductions. The Bankruptcy Code does not specify how these overlapping expenses should be managed in the disposable income calculation.

[5]

Official Form B22C manages the Involuntary Deductions category of Other [Necessary] Expenses at Line 31:

Other Necessary Expenses: involuntary deductions for employment. Enter the total average monthly deductions that are required for your employment, such as mandatory retirement contributions, union dues, and uniform costs. Do not include discretionary amounts, such as voluntary 401(k) contributions.
[6]

The instructions at Line 31 embrace the “for employment” limitation found in the Internal Revenue Manual but not found in the Bankruptcy Code. “Mandatory retirement contributions” are not specifically mentioned in the Internal Revenue Manual but logically fall within the Involuntary Deductions category specified by the IRS. The exclusion of “discretionary amounts” at Line 31 perhaps is intended to define by negative implication the “involuntary” nature of the category, although the concepts “involuntary” and “discretionary” may not always be coextensive. There is no instruction at Line 31 to exclude involuntary deductions that overlap the Other [Necessary] Expense category for Taxes at Line 3012 or the Other [Necessary] Expense category for Court-Ordered Payments at Line 33.13

[7]

It is likely that some Involuntary Deductions will be “debts” excluded from monthly expenses by the “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I).14 For example, a prepetition wage garnishment or levy almost assuredly would be a “debt” that would fall within the category of Other [Necessary] Expenses for Involuntary Deductions specified by the IRS. Payments on that debt—by garnishment or otherwise—would be excluded from monthly expenses by the “notwithstanding” sentence. A deduction from wages to retire the cost of uniforms or other equipment previously obtained by the debtor would be a “debt” within the category of Involuntary Deductions that would not be deductible. This result is required by the “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I) but is not reflected in the instructions at Line 31 of Official Form B22C.


 

1  Prior to May 9, 2008, the IRS specified 16 categories of Other [Necessary] Expenses in the Internal Revenue Manual. See I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965. The May 9, 2008, version of the Internal Revenue Manual eliminated the “Health Care” category of Other [Necessary] Expenses, leaving only 15 categories. See I.R.M. 5.15.1.10 (May 9, 2008), discussed in §§ 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories and 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11  Other [Necessary] Expenses—Health Care.

 

2  The word “Necessary” 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 § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

3  See § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

4  I.R.M. 5.15.1.10 (May 9, 2008). The specification of this category of Other [Necessary] Expenses by the IRS was the same prior to May 9, 2008. See I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.

 

5  See 11 U.S.C. § 101(10A), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

6  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).

 

7  See § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

8  Good reasons not to consult the Internal Revenue Manual for guidance in bankruptcy cases are discussed in §§ 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues, 475.1 [ National Standards ] § 95.2  National Standards, 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation and 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

9  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.

 

10  See § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8  Other [Necessary] Expenses—Court-Ordered Payments.

 

11  See § 477.13 [ Other [Necessary] Expenses—Taxes ] § 95.16  Other [Necessary] Expenses—Taxes.

 

12  See § 477.13 [ Other [Necessary] Expenses—Taxes ] § 95.16  Other [Necessary] Expenses—Taxes.

 

13  See § 477.5 [ Other [Necessary] Expenses—Court-Ordered Payments ] § 95.8  Other [Necessary] Expenses—Court-Ordered Payments.

 

14  See § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.