§ 95.19     Other [Necessary] Expenses—Internet Provider/E-mail
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 95.19, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The fifteenth of 161 categories of Other [Necessary]2 Expenses specified by the IRS3 is “Internet Provider/E-mail.”4 Chapter 13 debtors with current monthly income (CMI)5 greater than applicable median family income6 are allowed a deduction for actual monthly expenses in the category Internet Provider/E-mail specified by the IRS as part of the calculation of disposable income under § 1325(b)(2) and (3).7

[2]

The Internet Provider/E-mail category of potential expenses for Chapter 13 debtors with CMI greater than applicable median family income seems straightforward enough. Internet provider expense would be any actual expense the debtor incurs for access to the Internet. E-mail expenses could describe expenses included in access to the Internet or could be separate expense that is included in a package of services. This is where problems begin: as Internet, cell phone and other telecommunication services are bundled and unbundled by providers, debtors will have actual expenses that overlap and intermingle. A $99-per-month cell phone package may include access to the Internet, and the debtor may or may not have separate charges by an Internet service provider and/or by an entity that provides e-mail services. The Bankruptcy Code simply provides that Chapter 13 debtors with CMI greater than applicable median family income can deduct actual monthly expenses in the category Internet Provider/E-mail for the debtor, for the dependents of the debtor and for the spouse of the debtor in a joint case if the spouse is not otherwise a dependent.8

[3]

The Internet Provider/E-mail category of Other [Necessary] Expenses specified by the IRS overlaps with at least two other expense allowances available to Chapter 13 debtors with CMI greater than applicable median family income. There is a separate category of Other [Necessary] Expenses specified by the IRS for “Optional Telephones and Telephone Services.”9 Prior to rewriting on May 9, 2008, this category of Other [Necessary] Expenses specified by the IRS included cell phone service.10 Also, § 707(b)(2)(A)(ii)(I) allows Chapter 13 debtors with CMI greater than applicable median family income a Local Standards Housing and Utilities allowance that was modified by the IRS on October 1, 2007, to include expenses for cell phones.11 On May 9, 2008, the Internal Revenue Manual was revised to eliminate the reference to cell phones in the category of Other [Necessary] Expenses for Optional Telephones and Telephone Services.12 The result is that actual expenses for Internet Provider/E-mail overlapped the Optional Telephones and Telephone Services category of Other [Necessary] Expenses until May 9, 2008, and continue to overlap the Local Standards Housing and Utilities allowance to the extent the debtor has actual expense for cell phones that includes access to the Internet and/or e-mail. There is no clue in the Bankruptcy Code how to account for this overlap. It is impossible to determine what portion of the Local Standards Housing and Utilities allowance is allocable to cell phone—much less to determine what portion of that cell phone allocation then overlaps the category of Other [Necessary] Expenses for Internet Provider/E-mail.13

[4]

Resort to the Internal Revenue Manual for illumination14 produces the following sparse comment with respect to allowance of expenses in the category Internet Provider/E-mail: “If it meets the necessary expense tests—generally for production of income.”15 Two things about this fragment from the Internal Revenue Manual deserve comment. Detailed elsewhere,16 the “necessary expense test” is a creature of the Internal Revenue Manual that limits the discretion of IRS agents in negotiations with delinquent taxpayers. There is no “necessary expense test” applicable to Chapter 13 debtors in § 707(b)(2)(A)(ii)(I). The phrase “generally for the production of income” is partially redundant of the necessary expense test.17 Of course, there is no “production of income” predicate to the allowance of actual expenses in the categories of Other [Necessary] Expenses specified by the IRS in § 707(b)(2)(A)(ii)(I). In other words, the Internal Revenue Manual limits the availability of expenses for Internet Provider/E-mail in ways that are not applicable to Chapter 13 debtors.

[5]

Official Form B22C further convolutes the management of expenses in the category Internet Provider/E-mail specified by the IRS. This is one of the categories of Other [Necessary] Expenses specified by the IRS that the forms drafters omitted from Official Form B22C.18 At Line 37 of Official Form B22C, there is an expense deduction for “Telecommunication Services” that lists “Internet service” as an included expense. Unfortunately, Line 37 lumps together the category of Other [Necessary] Expenses specified by the IRS for Optional Telephones and Telephone Services19 with the category of Other [Necessary] Expenses specified by the IRS for Internet Provider/E-mail. The result is not consistent with the Bankruptcy Code or the Internal Revenue Manual.

[6]

This lumping together on Official Form B22C confuses debtors and seems to be confusing the courts. Chapter 13 debtors with CMI greater than applicable median family income are allowed actual expenses for Optional Telephones and Telephone Services separate and distinct from actual expenses for Internet Provider/E-mail. In the categories of Other [Necessary] Expenses published by the IRS on May 9, 2008, the category Optional Telephones and Telephone Services no longer includes cell phones, but Internet Provider/E-mail remains a separate category which could include part of a bundle of cell phone services. After October 1, 2007,20 and at least21 until May 9, 2008, cell phones appear in the Local Standards Housing and Utilities allowance and in the Optional Telephones and Telephone Services category of Other [Necessary] Expenses—without any change to the Internet Provider/E-mail category.

[7]

The bankruptcy court in In re Scurlock22 disallowed a debtor’s claim of $276 a month for telecommunication expenses that included charges for Internet and telephone without acknowledging that portions of these expenses fell in separate categories of Other [Necessary] Expenses and without mentioning that the Local Standards Housing and Utilities allowance was also in play. The Scurlock court required the debtor to prove reasonableness and necessity of Internet and telephone expenses in addition to demonstrating that these expenses were “actual”—a mixing of standards from the Bankruptcy Code and the Internal Revenue Manual that is not supported by the Bankruptcy Code.

[8]

This confusing approach to the separate categories of Other [Necessary] Expenses appears also in In re Barnes,23 in which cable, Internet and telephone services were evaluated together as telecommunication expenses and allowed in the amount of $220 per month. In In re Oltjen,24 telephone, cell phone and Internet deductions were listed by the debtor—$45 for telephone expense, $150 for cell phone expense and $44 for Internet access—and then reduced by the court based on “suggestions” from the trustee—$75 was allowed for cell phone and $25 per month for Internet service. In In re Napier,25 the debtor testified to actual expenses of $25 per month for a land-based telephone, $60 for cellular telephone and between $80 and $100 per month for Internet access; the court allowed “$175 per month in telecommunication expenses”—approximately equal to the sum of the debtor’s actual expenses.

[9]

The point of this account of the cases is that there is no obvious good reason why Official Form B22C pushes together several separate categories of Other [Necessary] Expenses when doing so complicates the overlapping and duplication of expenses in the Bankruptcy Code itself. The Form can’t resolve the fact that cell phones are addressed by several different expense allowances, that Internet access and e-mail may or may not be included in cell phone service and lumping all of these different categories into a single “Telecommunication Services” on one line of Form B22C has misled some courts to analyze these separate categories as if they are one. Chapter 13 debtors with CMI greater than applicable median family income are allowed their actual expenses for Internet Provider/E-mail because there is a separate category of Other [Necessary] Expenses specified by the IRS for Internet Provider/E-mail and the Bankruptcy Code states that actual expenses in that category are allowed. The reasonableness or necessity of bundled “telecommunication services” for purposes of Line 37 of Form B22C is analysis not driven by the Bankruptcy Code that is encouraged by the mistaken construction of 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 § 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 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

8  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

9  See § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17  Other [Necessary] Expenses—Optional Telephones and Services.

 

10  See §§ 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories and 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17  Other [Necessary] Expenses—Optional Telephones and Services.

 

11  See §§ 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation and 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17  Other [Necessary] Expenses—Optional Telephones and Services. There is controversy whether the modified Local Standards Housing and Utilities allowance issued by the IRS on October 1, 2007, was effective in bankruptcy cases on October 1, 2007, or instead on January 1, 2008, as stated in a “Disclaimer” posted by the IRS. See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

12  See I.R.M. 5.15.1.10 (May 9, 2008), discussed in § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17  Other [Necessary] Expenses—Optional Telephones and Services.

 

13  See also §§ 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.

 

14  There are many good reasons why consulting the Internal Revenue Manual to interpret expense deductions in Chapter 13 cases is a bad idea. See §§ 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.

 

15  I.R.M. 5.15.1.10 (May 9, 2008). An identical comment appeared in I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.

 

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

 

17  The IRS states the necessary expense test as requiring an expense to “provide for the health and welfare of the taxpayer and/or his or her family or . . . be for the production of income.” See I.R.M. 5.15.1.10(1) (May 9, 2008); I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.

 

18  See § 477.1 [ Other [Necessary] Expenses—In General; All Categories ] § 95.4  Other [Necessary] Expenses—In General; All Categories for further discussion of this phenomenon.

 

19  See § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17  Other [Necessary] Expenses—Optional Telephones and Services.

 

20  There is controversy whether the effective date of the IRS changes to the Local Standards Housing and Utilities allowance that included cell phones was October 1, 2007, or January 1, 2008. See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

21  See § 477.14 [ Other [Necessary] Expenses—Optional Telephones and Services ] § 95.17  Other [Necessary] Expenses—Optional Telephones and Services.

 

22  385 B.R. 814 (Bankr. M.D.N.C. 2008).

 

23  378 B.R. 774 (Bankr. D.S.C. 2007).

 

24  No. 07-60534-RCM, 2007 WL 2329695 (Bankr. W.D. Tex. Aug. 13, 2007) (unpublished).

 

25  No. 06-02464-JW, 2006 WL 4128358 (Bankr. D.S.C. Sept. 18, 2006) (unpublished).