§ 95.2     National Standards
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 95.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

To calculate disposable income1 for a Chapter 13 debtor with current monthly income (CMI)2 greater than applicable median family income,3 “amounts reasonably necessary to be expended—” are determined in accordance with § 707(b)(2)(A) and (B).4 There are at least 10 classes of “monthly expenses” described in § 707(b)(2)(A)(ii)5 that are included in “amounts reasonably necessary to be expended” and are deductible from CMI on the way to disposable income. Subclause (I) of § 707(b)(2)(A)(ii) densely describes the following important expense deduction:

The debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards . . . 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.6
[2]

The first thing to notice about the quoted portion of § 707(b)(2)(A)(ii)(I) is that it is mandatory—the debtor’s monthly expenses shall be the applicable monthly expense amounts specified under the National Standards (Local Standards7 and Other [Necessary]8 Expenses9) issued by the IRS. There is nothing here about “presumptions” or “starting points”—this component of the expenses that a Chapter 13 debtor with CMI greater than applicable median family income may deduct from CMI is not negotiable; it simply is the applicable amount specified under the National Standards issued by the IRS.

[3]

The second thing to notice about § 707(b)(2)(A)(ii)(I) is that the statute allows the debtor’s “applicable” monthly expense amounts specified under the National Standards issued by the IRS. Applicable has special meaning in this context because, as demonstrated below, the monthly expense amounts specified under the National Standards issued by the IRS are found in tables that must be interpreted to identify the precise entry that is “applicable” to an individual Chapter 13 debtor. In contrast, elsewhere in the first sentence of § 707(b)(2)(A)(ii)(I)—and throughout § 707(b)(2)(A)—the statute uses the word “actual” to describe other expense amounts allowed as reductions of CMI in the calculation of disposable income for a debtor with CMI greater than applicable median family income.10

[4]

The third and perhaps most remarkable thing about subclause (I) in § 707(b)(2)(A)(ii) is the incorporation of “National Standards . . . issued by the Internal Revenue Service.”11 “National Standards” is a term of art used by the Treasury Department in its Internal Revenue Manual.12 Part 5 of the Internal Revenue Manual deals with the process within the IRS for collecting delinquent taxes.13 Chapter 15 of Part 5 of the Internal Revenue Manual, titled “Financial Analysis,” contains a “Financial Analysis Handbook.”14 The Financial Analysis Handbook contains detailed instructions for IRS agents about negotiating installment payment agreements with delinquent taxpayers and evaluating Offers in Compromise.

[5]

To estimate the ability of a delinquent taxpayer to pay taxes, the IRS developed “allowable expenses.” Based on what the Internal Revenue Manual describes as a “necessary expense test,”15 the IRS identified three types of necessary expenses:16 National Standards, Local Standards17 and Other Expenses.18

[6]

Subclause (I) of § 707(b)(2)(A)(ii) mandates that a debtor’s monthly expenses shall be the “expense amounts specified under the National Standards.” The expense amounts specified under the National Standards are issued by the IRS in “Allowable Living Expense Tables (Collection Expense Standards)” attached as an exhibit to the Financial Analysis Handbook.19 When you go looking for this exhibit, you will find that the Allowable Living Expense Tables are “web based” and are located by following URLs specified by the IRS. At this writing, the search for the National Standards Tables begins at http://www.irs.gov/individuals/article/0,,id=96543,00.html.20 When you follow that link, you will be redirected to the National Standards Tables at http://www.irs.gov/businesses/small/article/0,,id=104627,00.html.

[7]

As the links attest, the National Standards are internal guidelines intended to bring some consistency to the collection practices of IRS agents. The National Standards are not rules or regulations of the sort familiar to lawyers and judges. The National Standards are not vetted through the Administrative Procedures Act and can be issued, changed or withdrawn altogether by the IRS without notice to anyone outside the Treasury Department.

[8]

This is exactly what happened on October 1, 2007. As detailed below,21 in the middle of the night, the Internal Revenue Service issued modified National Standards and Local Standards.22 The October 1, 2007, changes to the National Standards were significant—including the creation of an entirely new National Standards Out-of-Pocket Health Care Expenses, the elimination of income ranges for existing National Standards and the elimination of separate tables for Alaska and Hawaii.23

[9]

Physically, because the National Standards Allowable Living Expense Tables are “web-based,” the October 1, 2007, changes were accomplished by the IRS by simply overwriting the existing URLs with a new set of tables. This makes all good sense to the IRS because they have one set of National Standards guidelines for all revenue agents and they intend for any changes to the Allowable Living Expense Tables to apply immediately and universally. So, if you followed the online access instructions on the IRS Web pages on September 30, 2007, at http://www.irs.gov/businesses/small/article/0,,id=104627,00.html, you would have found National Standards Allowable Living Expense Tables organized by number of persons and based on gross monthly income. If you had gone to that same URL on October 2, 2007, you would find an entirely different set of National Standards tables for “Food, Clothing and Other Items” organized by number of persons but with no mention of income ranges.

[10]

The problems here for bankruptcy practitioners are daunting. The National Standards tables issued by the IRS before October 1, 2007, simply disappeared from the IRS Web site on October 1, 2007, and were replaced, destructively—at the same URLs—with new National Standards tables. The National Standards issued by the IRS and “in effect on the date of the order for relief” control for disposable income test purposes in a Chapter 13 case.24 Chapter 13 practitioners have to keep track of changes to the National Standards issued by the IRS to know what expense deductions are available based on when the case was filed.

[11]

And remember that the National Standards tables are an exhibit to the Internal Revenue Manual. The Manual itself is modified on a different schedule than the tables that are exhibits to the Manual. For example, the Internal Revenue Manual was not modified on October 1, 2007, to reflect the many substantial changes to the National Standards tables that took place on that date. The Internal Revenue Manual itself was modified with a revision date of May 9, 2008. In between October 1, 2007, and May 9, 2008, the Internal Revenue Manual discussed in detail National Standards that no longer existed, and the tables linked to the Internal Revenue Manual offered numbers, categories and organization that were not explained in the Internal Revenue Manual.

[12]

There was no announcement that the IRS would change the National Standards on October 1, 2007. The timing was lousy. For many months earlier in 2007, the Advisory Committee on Bankruptcy Rules of the Judicial Conference of the United States had studied, collected comments and then redrafted the Official Bankruptcy Form that incorporated the National Standards into bankruptcy practice—Official Form B22.25 A new Official Form B22C for use in Chapter 13 cases was published by the Advisory Committee in the Spring of 2007 and was scheduled to be approved by the Judicial Conference at its meeting on September 18, 2007.

[13]

Through back channels, members of the Advisory Committee heard that the IRS was contemplating (unspecified) revisions to its National Standards and Local Standards.26 On the eve of approval by the Judicial Conference, the Advisory Committee wisely withdrew its redraft of Official Form B22C—acknowledging that a revised form would be immediately rendered dysfunctional by changes to the Standards issued by the IRS.

[14]

Just to emphasize the point, the IRS did it again on March 1, 2008. The changes were less extensive than in October of 2007, but on March 1, 2008, the National Standards for Food, Clothing and Other Items were raised just a bit in the online tables—for a family of four persons, the total went from $1,331 in the October 1, 2007, National Standards to $1,370 in the March 1, 2008, standards. The “additional persons amount” went from $246 to $262. The new National Standards Out-of-Pocket Health Care—added to the National Standards on October 1, 200727—remained the same for debtors aged 65 and older ($144), but the under-65 amount rose from $54 to $57. As was true in October 2007, the March 1, 2008, changes to the National Standards were issued by the IRS without public notice or public comment—without compliance with § 553 of the Administrative Procedures Act. The changes simply appear almost magically at the same Internet location as the previous National Standards, overwritten to the same URLs.28 The effective date in bankruptcy cases of these successive versions of the National Standards tables is even more mysterious.29

[15]

These events illustrate the fragile and poorly conceived relationship between tax collection guidelines internal to the IRS and expense deductions allowed Chapter 13 debtors. The bankruptcy community will have to consult administrative law experts to sort out the incorporation of IRS Standards into Chapter 13 practice.30 There are many issues here, not the least of which is whether changes to the National Standards issued by the IRS are automatically “effective” in bankruptcy cases. Is it incumbent upon the Treasury Department to comply with the Administrative Procedures Act when it changes Standards that apply in bankruptcy cases?31 What version of the Standards applies in a particular bankruptcy case? Can the Treasury Department time-shift the effective date of Standards in bankruptcy cases? What do we do when the IRS issues new or changed Standards that were not contemplated at the enactment of BAPCPA and that are duplicative or inconsistent with other parts of the disposable income test?32 The IRS has amply demonstrated it will periodically change the Standards without regard to impact in bankruptcy cases.

[16]

There will be important battles whether bankruptcy courts should consult the Internal Revenue Manual when interpreting and applying the “expense amounts specified under the National Standards.”33 It is relatively simple to follow the links and collect the applicable expense amounts specified in the National Standards tables. There is temptation to delve further into the Financial Analysis Handbook for guidance through the innumerable places where tax collection standards are a poor fit or no fit with the disposable income test in Chapter 13 cases. The courts have fractured badly whether and to what extent it is appropriate to consider the IRS interpretation of its Standards for disposable income test purposes.34

[17]

And there is the very practical problem that the Internal Revenue Manual changes whenever the IRS wants to change it. The tax-collection-focused commentary in the Internal Revenue Manual becomes a target that constantly moves out of sight for bankruptcy practitioners.

[18]

For example, the provisions of the Internal Revenue Manual that offer commentary about the National Standards changed dramatically with the issuance of a new § 5.15.1.8 on May 9, 2008. Although the IRS has never specified effective dates in bankruptcy cases for revisions to the Internal Revenue Manual,35 it is arguable that the May 1, 2004, version of the Internal Revenue Manual would be the version to consult for Chapter 13 cases filed before May 9, 2008. If you looked at the Internal Revenue Manual before May 9, 2008, you would have found the following description of the expense items the IRS includes in its National Standards:

(1) National standards include the following expenses:
(a.) Apparel and services. Includes shoes and clothing, laundry and dry cleaning, and shoe repair.
(b.) Food. Includes all meals, home and away.
(c.) Housekeeping supplies. Includes laundry and cleaning supplies; other household products such as cleaning and toilet tissue, paper towels and napkins; lawn and garden supplies; postage and stationary [sic]; and other miscellaneous household supplies.
(d.) Personal care products and services. Includes hair care products, haircuts and beautician services, oral hygiene products and articles, shaving needs, cosmetics, perfume, bath preparations, deodorants, feminine hygiene products, electric personal care appliances, personal care services, and repair of personal care appliances.
(e.) Miscellaneous. A discretionary allowance of $100 for one person and $25 for each additional person in a taxpayer’s family.36
[19]

Not included in the above commentary is any mention of the new “National Standards: Out-of-Pocket Health Care Expenses” that was added to the Collection Financial Standards on October 1, 2007. A Chapter 13 debtor filing between October 1, 2007, and May 9, 2008, would have found an IRS National Standards table that included the Out-of-Pocket Health Care Expenses allowance, but there was no explanation for that new allowance in the Internal Revenue Manual. Searching around the IRS Web pages would have revealed the new Out-of-Pocket Health Care Expenses allowance,37 but formal incorporation into the Internal Revenue Manual came more than seven months later.

[20]

The May 9, 2008, version of the Internal Revenue Manual has a different description of the National Standards than that quoted above from the May 1, 2004, version. The description of the “Miscellaneous” portion of the National Standards allowance is no longer a per-person amount but instead became “a percentage of the other categories and is based on [Bureau of Labor Standards] data.”38 The May 9, 2008, version of the Internal Revenue Manual contained six new paragraphs of guidance for revenue agents:

 

 (4)
All deviations from the national standard expenses for food, clothing and other items must be verified, reasonable and documented in the case history.
 

 

 

 

 (5)
National Standards: Out of Pocket Health Care Expenses - These include medical services, prescription drugs, and medical supplies (e.g. eyeglasses, contact lenses). Elective procedures such as plastic surgery or elective dental work are generally not allowed.
 

 

 

 

 (6)
The out-of-pocket health care standard amount is allowed in addition to the amount taxpayers pay for health insurance.
 

 

 

 

 (7)
Taxpayers and their dependents are allowed the standard amount monthly on a per person basis, without questioning the amounts they actually spend. Taxpayer verification of out-of-pocket expenses is not required unless the amount claimed exceeds the standard.
 

 

 

 

 (8)
Taxpayers with no health insurance who claim more than the total allowed by the out-of-pocket health care standard, may be allowed more than the standard if they provide documentation to substantiate and justify the additional expenses.
 

 

 

 

 (9)
All deviations from the national standards for out-of-pocket health care expenses must be verified, reasonable and documented in the case history.39
 

 

 

[21]

The obvious point of this extended quotation from the Internal Revenue Manual is that the commentary in the Manual changes in material ways whenever the IRS changes its instructions to revenue agents with respect to the collection of delinquent taxes. Bankruptcy practitioners are at the mercy of the invisible authors of the Internal Revenue Manual when bankruptcy courts make the mistake of consulting the Internal Revenue Manual for the meaning of the National Standards expense allowances in the disposable income calculation. The commentary reproduced above is targeted at tax collection agents and has no obvious application in Chapter 13 cases. The IRS permits deviations from the National Standards under circumstances that are not consistent with the instruction in § 707(b)(2)(A)(ii)(I) that the “applicable” National Standards amount “shall” be allowed. What is the “applicable” amount if a revenue agent can allow variations from the National Standards that are “verified, reasonable and documented”? Who is the revenue agent in this picture?

[22]

As mentioned above, “amounts specified under the National Standards . . . issued by the Internal Revenue Service” are presented in tables available over the Internet.40 Corrupted versions of those tables can be found by following the links on the U.S. Trustee Program’s Web page.41 Bankruptcy practitioners are cautioned to use the IRS tables, not the reconfigured charts offered by the Department of Justice. The October 1, 2007, revisions demonstrate that the IRS can change the expense amounts specified under its National Standards at any time, for any reason (or no reason) and without notice to the public, much less notice to the bankruptcy community. The only safe approach to use of the National Standards in Chapter 13 practice is to find and use the tables actually issued by the IRS on its Web page. And don’t assume that the numbers you pull today from the National Standards tables will be the same the next time you look. Even if you have recently consulted the tables, you should check the tables each time.42

[23]

There is an uncodified provision of BAPCPA stating the “sense of Congress” that the Secretary of the Treasury has authority “to alter the Internal Revenue standards established to set guidelines for repayment plans as needed to accommodate their use under § 707(b) of Title 11.”43 At this writing, the Secretary of the Treasury has not altered the National Standards for use in Chapter 13 cases. But the IRS has issued a truly strange series of “Disclaimers” apparently intended to address (or not) the effective date in bankruptcy cases for the National Standards issued by the IRS.

[24]

Prior to October 1, 2007, if a bankruptcy practitioner consulted the IRS Web pages to determine the National Standards allowance for Allowable Living Expenses, the first thing he or she would have seen was this italicized statement: “Disclaimer: IRS allowable expenses are intended for use in calculating repayment of delinquent taxes. Expense information for use in bankruptcy calculations can be found on the website for the U.S. Trustee Program.44 This disclaimer could have been interpreted as a statement that the IRS National Standards Allowable Living Expenses were not for use at all in bankruptcy cases—instead, bankruptcy practitioners should look to the U.S. Trustee Program for National Standards allowances. Of course, the Bankruptcy Code requires use of the National Standards “issued by the Internal Revenue Service . . . as in effect on the date of the order for relief.”45 The Bankruptcy Code does not suggest that the IRS can delegate creation of the National Standards expense information for use in bankruptcy cases to the Justice Department’s U.S. Trustee Program or to anyone else. Notice also that there is no effective date language in the quoted Disclaimer from the National Standards as issued by the IRS prior to October 1, 2007.

[25]

Mentioned above, the IRS substantially revised the National Standards on October 1, 2007—redesigning the National Standards tables,46 adding a new National Standards Out-of-Pocket Health Care Expenses allowance47 and changing many of the specific expense amounts allowed. New National Standards tables were posted to the Internet by the IRS on October 1, 2007, with this remarkably different Disclaimer:

Disclaimer: IRS Collection Financial Standards are intended for use in calculating repayment of delinquent taxes. These National Standards are effective on October 1, 2007 for purposes of federal tax administration only. Expense information for use in bankruptcy calculations can be found on the website for the U.S. Trustee Program. For bankruptcy purposes, the effective date for the standards will be January 1, 2008, to allow for the orderly administration of the bankruptcy laws.48
[26]

The October 1, 2007, Disclaimer by the IRS was problematic given that § 707(b)(2)(A)(ii)(I) mandates that bankruptcy practitioners use the National Standards issued by the IRS and not a reproduction or reconfiguration by the Justice Department. And what should bankruptcy practitioners make of the time-shifting by the IRS of the effective date for the National Standards issued on October 1, 2007, but not effective in bankruptcy cases until January 1, 2008? Does the Bankruptcy Code give the Department of Treasury the authority to time-shift the effectiveness of National Standards issued by the IRS?

[27]

This picture gets more curious on March 1, 2008. On March 1, 2008, new National Standards were posted to the Internet by the IRS. As mentioned above, the changes were material but less extensive than on October 1, 2007. The March 1, 2008, National Standards issued by the IRS contain a third version of the Disclaimer:

Disclaimer: IRS Collection Financial Standards are intended for use in calculating repayment of delinquent taxes. These National Standards are effective on March 1, 2008 for purposes of federal tax administration only. Expense information for use in bankruptcy calculations can be found on the website for the U.S. Trustee Program.49
[28]

This Disclaimer seems to say that the March 1, 2008, National Standards issued by the IRS are only effective for tax administration purposes—that is, not effective at all in bankruptcy cases. Does this mean that the October 1, 2007, National Standards remain effective in bankruptcy cases? Remember that the October 1, 2007, Disclaimer by the IRS very precisely stated that the new National Standards were effective on October 1, 2007, “for purposes of federal tax administration only” but then recited that for bankruptcy purposes, “the effective date for the standards will be January 1, 2008, to allow for the orderly administration of the bankruptcy laws.”

[29]

Section 707(b)(2)(A)(ii)(I) is precise that the National Standards “in effect on the date of the order for relief” are the source of applicable expense amounts. This language suggests that changes to National Standards issued by the IRS would change the monthly expense amounts allowed Chapter 13 debtors for disposable income test purposes based on the date of the bankruptcy filing.

[30]

But what does “in effect” mean in this context? The October 1, 2007, National Standards were certainly issued by the IRS, and those new standards were immediately “in effect” for purposes of tax collection. What do bankruptcy practitioners do when the IRS declares an effective date “for purposes of federal tax administration only” as it did on March 1, 2008? Can the IRS issue new National Standards that are never effective in bankruptcy cases?

[31]

The revised National Standards issued on October 1, 2007, were immediately substituted for the prior verison on the IRS’s Web page notwithstanding the Disclaimer that “the effective date for the standards will be January 1, 2008, to allow for the orderly administration of the bankruptcy laws.” The pre–October 1, 2007, National Standards issued by the IRS were no longer available on the IRS Web page. This is of no moment to the IRS because its new National Standards were effective immediately with respect to agents of the IRS and the collection of taxes. Bankruptcy practitioners had a broken path: the IRS “issued” new National Standards that the Treasury Department says were not “effective” in bankruptcy cases until January 1, 2008, but the prior—and, arguably, still “effective”—National Standards issued by the IRS were no longer available from the IRS Web page. The same thing happened on March 1, 2008—the new National Standards were destructively posted to the IRS Web page with the same URL as the previous National Standards tables with the result that bankruptcy practitioners could no longer find the prior National Standards tables on the IRS Web page.

[32]

Without critical discussion, one of the few cases to address the issue concluded that the effective date of National Standards for purposes of bankruptcy cases can be time-shifted by the IRS and the version declared effective by the IRS on the petition date controls. In In re Bentley,50 the Chapter 13 case was filed on November 16, 2007—after the October 1, 2007, changes by the IRS but before the January 1, 2008, effective date in the Disclaimer posted by the IRS to the Internet. The Chapter 13 trustee objected to confirmation, arguing that the National Standards used to compute permissible monthly expenses under § 707(b)(2)(A)(ii)(I) should be the National Standards on the “effective date” of the plan, which could not be earlier than the confirmation hearing scheduled for February 4, 2008—after the January 1, 2008, effective date declared by the IRS. Without addressing whether National Standards “issued” by the IRS on October 1, 2007, could be time-shifted by the IRS for bankruptcy purposes to January 1, 2008, the bankruptcy court in Bentley had the following to say about changes to the National Standards by the IRS during a Chapter 13 case:

[I]n the event the National Standards for permissible monthly expenses change between the date of the filing of the petition and the effective date of the plan, the permissible monthly expenses shall still be those in effect as of the date of the filing of the petition, much the same as the settled law that permissible exemptions are those in effect on the date of the filing of the petition.51
[33]

The Bentley court undoubtedly reads the Bankruptcy Code correctly that it is the National Standards “in effect” at the bankruptcy petition that control expense allowances—notwithstanding that those Standards are changed by the IRS after the date of the petition. But Bentley assumed without deciding that the IRS can issue new National Standards and declare an effective date in bankruptcy that is different from the date on which the new standards are issued and “in effect” for tax collection purposes.

[34]

These are not idle questions. The differences between the National Standards issued by the IRS before and after October 1, 2007, are financially significant. At this writing, for a debtor under age 65 with three dependents, the new National Standards Out-of-Pocket Health Care Expenses allow a monthly expense deduction of either $216 or $228.52 Over the life of a 60-month plan—and 60 months is the applicable commitment period required of all Chapter 13 debtors with CMI greater than applicable median family income53—$216 per month becomes $12,960 and $228 per month becomes $13,680 that the new National Standards take off the table in disposable income analysis. In some cases, that will be $12,960 or $13,680 right out of the pockets of unsecured creditors. Determining when the National Standards issued by the IRS are in effect in Chapter 13 cases will be important to debtors and creditors.

[35]

Prior to October 1, 2007, the National Standards issued by the IRS were organized based on number of persons and “gross monthly income.” For example, there was a table for “One Person National Standards Based on Gross Monthly Income” that listed expense amounts for each of the five categories described above based on gross monthly income ranging from “less than $833” to “$5,834 and over.” Chapter 13 debtors selected the correct table and the correct gross monthly income range to determine the “amount specified” under the National Standards issued by the IRS.

[36]

The National Standards for Food, Clothing and Other Items issued by the IRS on October 1, 2007, is fundamentally different. The new table eliminates the use of income ranges and instead presents the National Standards expenses based only on number of persons. Gone are separate National Standards tables for Alaska and Hawaii—there is now one set of tables for the entire country.

[37]

Prior to October 1, 2007, there was no chart for National Standards Out-of-Pocket Health Care. The table for the new National Standards Out-of-Pocket Health Care Expenses was separately posted to the Internet by the IRS.54 In its original October 1, 2007, form, the National Standards Out-of-Pocket Health Care Expenses allowance was stated as $54 per month for “under 65” and $144 per month for “65 and older.” In its March 1, 2008, iteration, the National Standards Out-of-Pocket Health Care Expenses allowance became $57 per month for “under 65” but remained $144 per month for “65 and older.” If the IRS disclaimer on October 1, 2007, is effective for bankruptcy purposes, the National Standards Out-of-Pocket Health Care Expenses allowance for an under 65 debtor was $54 from January 1, 2008, until the March 1, 2008, changes became effective. According to the IRS disclaimer, the March 1, 2008, changes to the National Standards Out-of-Pocket Health Care allowance were effective for tax administration purposes only. It is anyone’s guess whether the $57-per-month amount became effective in bankruptcy cases and, if so, when.

[38]

The new National Standards Out-of-Pocket Health Care Expenses amount is described by the IRS as a per-person amount: “Taxpayers and their dependents are allowed the standard amount monthly on a per person basis, without questioning the amounts they actually spend.”55 If this statement by the IRS has purchase in bankruptcy cases, Chapter 13 debtors will multiply the out-of-pocket allowances by the sum of the debtor and the debtor’s dependents. This deduction would be available for a debtor’s spouse who is a dependent of the debtor even when the spouse is not a codebtor.56

[39]

There is substantial overlap between the new National Standards Out-of-Pocket Health Care Expenses and other amounts separately allowed as expense deductions for a Chapter 13 debtor with CMI greater than applicable median family income. Prior to May 9, 2008,57 there was a category of Other [Necessary] Expenses for Health Care specified by the IRS58 that included out-of-pocket medical expenses allowed Chapter 13 debtors by § 707(b)(2)(A)(ii)(I).59 Also in § 707(b)(2)(A)(ii)(I), debtors are allowed “reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor, or the dependents of the debtor.”60 Under § 707(b)(2)(A)(ii)(II), a debtor’s monthly expenses include “the continuation of 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.”61

[40]

In its description of the National Standards Out-of-Pocket Health Care Expenses, the IRS states that the new standard is intended to cover medical services, prescription drugs and medical supplies—the same health care expenses allowed by the separate Health Care category of Other [Necessary] Expenses. Health savings accounts are often used to pay out-of-pocket health care expenses. Actual expenses for the care of a medically needy family member are likely to include out-of-pocket health care expenses.

[41]

Obviously, the IRS added the new National Standards Out-of-Pocket Health Care Expenses without regard to the existing content of § 707(b)(2)(A) and without accommodation for bankruptcy practice. No provision of the Bankruptcy Code requires netting or subtracting to correct for the resulting overlapping expense deductions.62

[42]

It is quite likely that Out-of-Pocket Health Care Expenses will include “debts” incurred by Chapter 13 debtors before and after the petition. Detailed elsewhere,63 there is an enigmatic provision of § 707(b)(2)(A)(ii)(I) that states: “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.”64 Some courts and the drafters of Official Form B22C have concluded that Chapter 13 debtors must net or subtract “payments for debts” from other allowances in § 707(b)(2)(A)(ii) to determine deductible expenses for purposes of the disposable income test. If that logic is applied to the new National Standards Out-of-Pocket Health Care Expenses, Chapter 13 debtors may be required to net or subtract health-related debts from the new National Standards expense amount. Given the multiple duplications of expense allowances with respect to health care expenses,65 disallowing National Standards Out-of-Pocket Health Care Expenses for “debts” would have the circular effect of encouraging debtors to claim those disallowed expenses as health care deductions in one or another of the overlapping allowances. This is the game that results when a statute is constructed without attention to overlaps and duplications.

[43]

Section 707(b)(2)(A)(ii)(I) states that the amounts specified under the National Standards are selected based on “the area in which the debtor resides,” the “date of the order for relief” and a number of persons—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.”66 Prior to October 1, 2007, to select the correct National Standards, the area in which the debtor resided was relevant if the debtor lived in Alaska or Hawaii.

[44]

After October 1, 2007, the National Standards for Food, Clothing and Other Items and for Out-of-Pocket Health Care Expenses are tables with no geographic parameters. The instruction in § 707(b)(2)(A)(ii)(I) that National Standards are based on the area in which the debtor resides ceased to have meaning after the IRS modified its National Standards on October 1, 2007.

[45]

Picking the correct number of persons for the National Standards requires more guesswork. Section 1325(b)(3) triggers the use of § 707(b)(2)(A) and (B) to determine amounts reasonably necessary to be expended based on the size of a debtor’s “household.”67 “Household,” of course, is not the same as “persons” or “dependents.” The tables issued by the IRS for the National Standards are charted in terms of “persons”—a word that appears nowhere in § 707(b)(2)(A)(ii)(I) of the Bankruptcy Code.

[46]

In its current iteration, Official Form B22C at Line 24 instructs Chapter 13 debtors with CMI greater than applicable median family income to enter the “total” amount from the IRS National Standards “for the applicable household size.”68 Prior to January 2008, Line 24 of Official Form B22C instructed debtors to select National Standards allowances based on “family size and income level.” It is not obvious which version of Line 24 is less accurate of the statutory requirement to count the debtor and the dependents of the debtor.

[47]

As mentioned above, prior to October 1, 2007, the National Standards were charted by the IRS based on number of “persons” and “gross monthly income.” As revised on October 1, 2007, the National Standards for Food, Clothing and Other Items are in tables based on number of persons only. If the IRS commentary is relevant, it says, “[T]he total number of persons allowed for National Standards should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.”69 With respect to the new National Standards Out-of-Pocket Health Care Expenses, the IRS commentary uses interchangeably “dependents” and “persons . . . allowed as exemptions.”70

[48]

More relevantly, § 707(b)(2)(A)(ii)(I) counts the debtor and the dependents of the debtor, but the treatment of the debtor’s spouse varies depending on whether the Chapter 13 case is a joint case and on whether the spouse is a dependent. “Dependent” is not defined by the Bankruptcy Code and may or may not mean the same thing as dependent for tax purposes or “person[] . . . allowed as exemption[].” Prior to BAPCPA, the word “dependent” in § 1325(b)(2)(A) was sometimes interpreted more broadly than “dependent” in the Internal Revenue Code.71 Reading § 707(b)(2)(A)(ii)(I) as the controlling source, if the debtor’s spouse is a dependent (however defined), then the debtor’s spouse would be counted as a person for purposes of selecting the proper National Standards table without regard to whether the spouse is a joint debtor. If the debtor’s spouse is not a dependent, and the case is not a joint case, the debtor’s spouse is probably not counted as a person for purposes of selecting the correct National Standards.

[49]

Perhaps because of too many conflicting signals in the statute and forms—even before the October 1, 2007, changes further confused the issue—reported decisions disagree about how to count persons for purposes of the National Standards. In In re Napier,72 the bankruptcy court rejected the argument that § 707(b)(2)(A)(ii) expenses were increased by including boarders who lived in the debtor’s household but were not dependents. The court reached this conclusion by straightening out the language in § 707(b)(2)(A)(ii)(I):

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.73
[50]

In contrast, the bankruptcy court in In re Plumb74 cited the inconsistent use of “family size” and “household” in § 707(b)(2)(A) and Official Form B22C as an excuse to expand the rule for counting persons—elevating form over statute in the process:

Section 707(b)(2)(A)(ii) . . . limits [National Standards] deductions to 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.” . . . In contrast, Lines 24 and 25A of Form B22C specifically instruct debtors to calculate the relevant expense based on applicable “family size” rather than number of dependents, which clearly conflicts with the language in the statute. However, in this instance, the court defers to Form B22C because of the specificity of the instructions on the form and because it recognizes the actual living situation of many families. . . . [T]o calculate the Allowable Living Expense and housing and utilities . . . based on family size is appropriate given . . . that Form B22C requires debtors to take into consideration regular contributions to their household expense on Line 7 when calculating current monthly income. . . . [I]t is clear from Form B22C that Congress did not intend to limit the “family size” on Lines 24 and 25A to the dependents of the debtors. . . . Section 707(b)(2)(A)(ii)(II) refers to household member and family member alternatively. . . . Thus, it appears Congress and the drafters of Form B22C meant two separate things by “household size” and “family size.” And Congress essentially defined family in the parenthetical in § 707(b)(2)(A)(ii)(II) as including “parent, grandparents, siblings, children, and grandchildren of the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case who is not a dependent.” . . . Consequently, for purposes of this case, the court finds that the debtors are required to calculate the expenses on Lines 24 and 25A for their applicable family size. Based on the definition of family in § 707(b)(2)(A)(ii)(II), the debtors’ applicable family size would include themselves and the seven children, grandchildren, and great-grandchildren . . . but would exclude the fiancé.75
[51]

Prior to the October 1, 2007, revisions by the IRS, debtors had to determine “gross monthly income” to select the correct National Standards amount. Gross monthly income may be a term of art for tax purposes, but it is not an amount readily available in Chapter 13 practice. No provision of the Bankruptcy Code or Rules requires a Chapter 13 debtor to calculate gross monthly income. Schedule I to Official Form 6 instructs the debtor to calculate “total monthly income,” but Schedule I does not produce “gross monthly income” contemplated by the IRS in its pre–October 1, 2007, National Standards. The use of “net” monthly figures from Official Form 6 would dramatically understate the monthly expense allowances specified under the (superseded) National Standards.

[52]

The Report of Income in Part I of Official Form B22C76 also will not have the correct numbers because that Form is based on CMI—typically, an average of income for the six months before the petition.77 Section 707(b)(2)(A)(ii)(I) focuses on the date of the petition. Also, Part I of Official Form B22C nets out some expenses (perhaps inappropriately)78 to determine CMI. Gross monthly income for purposes of selecting a pre–October 1, 2007, National Standards amount sounds like income before all expenses.

[53]

One reported decision concludes that gross monthly income means current monthly income for purposes of the National Standards issued before October 1, 2007. In In re Casey,79 Form B22C showed CMI of $4,965. Schedule I to Official Form 6 showed monthly income of $6,761. The bankruptcy court rejected use of the higher monthly income amount from Schedule I to select an expense allowance from the IRS National Standards, opting instead to equate gross monthly income and CMI:

Neither Form B22C nor BAPCPA utilize [sic] actual monthly income to determine disposable income. . . . [T]he IRS table refers to “gross income” and Form B22C does not specifically refer to “gross income.” . . . The calculation of the amount of a debtor’s “current monthly income,” which results in the calculation of a debtor’s disposable income, is to be made by use of Form B22C. Debtors may not “mix and match” forms. Debtor attempts to manipulate the calculations required by Form B22C and BAPCPA in his favor by using the amount of his actual monthly income rather than “current monthly income” as required by BAPCPA. The expenses under Form B22C are related to the income reflected on Form B22C, not some other amount of income reflected on a different form and which is defined differently than the income on Form B22C.80
[54]

To count persons and to calculate gross monthly income, Plumb and Casey conclude that the instructions in Official Form B22C are not consistent with the language of § 707(b)(2)(A)(ii)(I), yet both courts allow the Form to trump the statute. Perhaps it would have been sensible for Congress to align the counting rule for persons in subclause (I) of § 707(b)(2)(A)(ii) with the expansive notion of “immediate family” in subclause (II) of § 707(b)(2)(A)(ii),81 but the statute doesn’t do so. CMI defined in § 101(10A)82 is not the same as “gross monthly income” for tax purposes. Equating these words and concepts would have been logical but isn’t found in § 707(b)(2)(A)(ii)(I).

[55]

The October 1, 2007, revisions to the National Standards eliminate the income calculation issue in Casey, but counting persons remains a problem. If anything, the mixed use by the IRS of “persons,” “dependents” and “persons . . . allowed as exemptions” will increase attention to the ambiguities in the statute and inconsistencies between § 707(b)(2)(A)(ii)(I) and Official Form B22C. Given that the forms drafters must take a new look at Form B22C in light of the October 1, 2007, revisions to the National Standards and Local Standards, perhaps some of the inconsistent use of language will be eliminated.

[56]

To complete use of the pre–October 1, 2007, National Standards, once you have determined the appropriate number of persons and calculated the debtor’s gross monthly income, the “amount specified” is located by picking the right table and reading down the column that contains the debtor’s gross monthly income range. The “total” at the bottom of the column is the debtor’s monthly expense under the National Standards that is carried to Line 24 of Official Form B22C.

[57]

This process is different when the October 1, 2007, version of the National Standards applies. Once the number of persons is determined, one component of the applicable expense amount is the “total” at the bottom of the appropriate column of the National Standards for Food, Clothing and Other Items.83 The new National Standards Out-of-Pocket Health Care Expenses has a separate table with a monthly expense amount for each person under 65 years old ($54 or $57) and each person 65 years and older ($144). The applicable National Standards amount for Out-of-Pocket Health Care Expenses is determined by multiplying the amount in the table by the number of persons.84 The number carried to Line 24 of Official Form B22C is the sum of the National Standards expense amount for Food, Clothing and Other Items and the National Standards expense amount for Out-of-Pocket Health Care.

[58]

If the debtor can claim a spouse and/or dependents sufficient to exceed “four persons,” the National Standards direct a specified amount be added “for each additional person.” There is a “more than four persons” National Standards table for this purpose. In the pre–October 1, 2007, version, the more-than-four-persons National Standards were stated in gross monthly income ranges. The October 1, 2007, revision eliminates the income ranges and more simply provides that each person more than four adds $246 to the National Standards expense allowance for Food, Clothing and Other Items.85 The March 1, 2008, version of the National Standards for Food, Clothing and Other Items increased the additional person allowance to $26286—although, as explained above, the effective date of the March 1, 2008, increase is debatable.

[59]

A trip to the Justice Department’s U.S. Trustee Program Web page will further confuse bankruptcy practitioners with respect to the National Standards allowances in Chapter 13 cases. It can’t be overemphasized that the Bankruptcy Code instructs that only the National Standards issued by the IRS are allowed as monthly expenses in a Chapter 13 case.87 If you go to the “means testing” links on the U.S. Trustee Program Web page, you will find that the U.S. Trustee Program has created its own National Standards tables and presented the data in time ranges that obscure the effective date issues raised above. At this writing, the U.S. Trustee Program Web page presents National Standards expense deductions for “10/01/2008 or after; 3/17/2008 to 9/30/2008; 2/1/2008 to 3/16/2008” and so on back to “10/17/2005.”88

[60]

If you follow the U.S. Trustee Program links, at the 10/01/2008 link you will find the National Standards for Food, Clothing and Other Items and the National Standards for Out-of-Pocket Health Care Expenses amounts issued by the IRS on March 1, 2008. Notwithstanding the IRS Disclaimer that the March 1, 2008, National Standards were “for purposes of federal tax administration only,” the U.S. Trustee Program directs Chapter 13 debtors to use the March 1, 2008, amounts in current bankruptcy cases.

[61]

Curiously, the same numbers—the numbers issued by the IRS on March 1, 2008—are found by following the U.S. Trustee Program link for the dates “3/17/2008 to 9/30/2008, inclusive.” In other words, the U.S. Trustee Program instructs Chapter 13 debtors filing after March 17, 2008, to use the National Standards tables issued by the IRS on March 1, 2008, notwithstanding that the IRS did not declare an effective date in bankruptcy for the tables it issued on March 1, 2008.

[62]

Notice also that there is a 17-day gap between the March 1, 2008, issuance of new National Standards by the IRS and the inclusive date for use of those tables on the U.S. Trustee Program Web page. There is no explanation on the U.S. Trustee Program Web page with respect to this 17-day gap. The dollar amounts are different. For example, according to the IRS, prior to March 1, 2008, the additional person allowance for National Standards for Food, Clothing and Other Items was $246; that number became $262 on March 1, 2008, for purposes of federal tax administration only. The $262 amount appears on the U.S. Trustee Program Web page on March 17, 2008—a date with no connection whatsoever to any action by the IRS.

[63]

On the U.S. Trustee Programs’s Web page, there is an additional table not issued by the IRS titled “Bankruptcy Allowable Living Expenses—National Standards.” This second, smaller chart, indicates a combined allowance for food and clothing (apparel and services) that appears to be the sum of those two portions of the National Standards amounts specified by the IRS. The U.S. Trustee Program has then calculated “5 percent of food and clothing.”89

[64]

This 5 percent “Bankruptcy Allowable Living Expenses” is the additional amount separately allowed by § 707(b)(2)(A)(ii)(I) for “food and clothing of up to 5 percent of the food and clothing categories as specified by the National Standards issued by the Internal Revenue Service.”90 This separate additional allowance is reported at Line 44 on Official Form B22C.91 The statute requires that the debtor demonstrate the reasonableness and necessity of any additional allowance for food and clothing.92

[65]

It bears repeating that with respect to the National Standards, § 707(b)(2)(A)(ii)(I) is explicit that the debtor’s monthly expenses “shall be” the amounts specified by the IRS. The amounts allowed as monthly expenses to Chapter 13 debtors under the National Standards are not based on actual expenses of the debtor. Actual monthly expenses for many other classes of expenses are specifically addressed in § 707(b)(2)(A)(ii), but Chapter 13 debtors include in monthly expenses the amount specified in the National Standards without regard to the debtor’s actual expenses for apparel, food, personal care products and the like.93 For example, that the National Standards include “feminine hygiene products”94 does not mean that boy debtors get a smaller National Standards allowance than girl debtors.95

[66]

It is at least interesting that there is no mention at Line 24 of Official Form B22C that debtors should net out or subtract any “payments for debts” relating to expenses included in the National Standards. Mentioned above with respect to Out-of-Pocket Health Care Expenses and detailed elsewhere,96 there is a sentence in § 707(b)(2)(A)(ii)(I) that “[n]otwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.”97 Several courts have concluded that the exclusion of “payments for debts” from monthly expenses in clause (ii) of § 707(b)(2)(A) requires netting or subtracting payments on secured debts from the Local Standards for Housing and Transportation issued by the IRS.98 Many debtors will come into Chapter 13 cases with “payments for debts” relating to apparel, personal care, health care and the like. Some of those debts will be secured debts—especially after the BAPCPA amendments to § 1325(a).99 There is no suggestion at Line 24 of Form B22C that payments on account of secured or unsecured debts should be netted or subtracted from the National Standards if those debts relate to expenses included in the National Standards.100

[67]

Can a Chapter 13 debtor deduct actual expenses in excess of the amounts specified under the National Standards issued by the IRS? As noted above, § 707(b)(2)(A)(ii)(I) specifically allows a Chapter 13 debtor to claim up to 5 percent of additional expense for food and clothing.101 What about a debtor with allergies who needs an unusual amount of housekeeping supplies or a medically needy debtor with out-of-pocket medical expenses in excess of the monthly amount allowed by the October 1, 2007, National Standards? The Internal Revenue Manual permits a taxpayer to claim more than the National Standards amount if the taxpayer can substantiate and justify additional expense.102

[68]

That Congress specifically provided an additional 5 percent for food and clothing in § 707(b)(2)(A)(ii)(I) will suggest to some that no other additional allowances above the amounts specified in the National Standards are available to Chapter 13 debtors. This logic led the bankruptcy court in In re Tuss103 to refuse a Chapter 13 debtor’s claim of additional monthly expenses for food, clothing and personal care caused by work assignment away from home.104 Noting that the Internal Revenue Manual says that recreation expenses are already included in the “miscellaneous” expense component of the National Standards, the bankruptcy court in In re Boyd105 rejected a Chapter 13 debtor’s $240-per-month recreation expense in part based on the absence of evidence: “I have been offered no evidence on this record why the National Standards allowance is insufficient for these Debtors. They simply state that they spend more than the National allowance.”106 Boyd at least leaves the door open to the possibility that a Chapter 13 debtor could prove entitlement to an expense allowance in excess of that included in the National Standards on the right facts.

[69]

Don’t forget that § 707(b)(2)(B) is also applicable to Chapter 13 debtors with CMI greater than applicable median family income: “special circumstances” can justify additional expenses (or adjustments of CMI).107 A debtor with special dietary or other issues should consider claiming amounts in excess of the applicable National Standards, perhaps at Line 60 on Official Form B22C.108 Additional expense should be itemized, and the debtor should be prepared with documentation to support the additional expenses claimed.109


 

1  See § 466.1 [ In General ] § 92.1  In General.

 

2  11 U.S.C. § 101(10A), discussed in § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

3  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. § 1325(b)(3), discussed in § 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors.

 

5  11 U.S.C. § 707(b)(2)(A)(ii), discussed in §§ 467.1 [ Projected Disposable Income: All Debtors ] § 92.2  Projected Disposable Income: All Debtors and 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

6  11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added).

 

7  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

8  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.

 

9  See discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

10  See, e.g., the “actual” deduction for monthly expenses in the categories specified as Other [Necessary] Expenses issued by the IRS in 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.

 

11  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

12  http://www.irs.gov/irm.

 

13  http://www.irs.gov/irm/part5/index.html.

 

14  http://www.irs.gov/irm/part5/ch15s01.html.

 

15  The Internal Revenue Manual offers the following statement of the necessary expense test:

The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s and his or her family’s health and welfare and/or production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family needs [sic] to live.

I.R.M. 5.15.1.7(1) (May 9, 2008). This definition of the necessary expense test was the same in the prior version of the Internal Revenue Manual. See I.R.M. 5.15.1.7(1) (May 1, 2004), available at 2007 WL 2646962.

 

16  See I.R.M. 5.15.1.7(2) (May 9, 2008). The same three types of necessary expenses were identified in the prior version of the Internal Revenue Manual. See I.R.M 5.15.1.7(2) (May 1, 2004), available at 2007 WL 2646962.

 

17  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

18  See discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories.

 

19  See I.R.M. Exhibit 5.15.1-2 (May 9, 2008). See also I.R.M. Exhibit 5.15.1-2 (May 1, 2004). In the May 1, 2004, version of the Internal Revenue Manual, the Exhibit was differently titled as “Allowable Expense Tables (Collection Expense Standards).” The addition of “Living” to the name of this exhibit in the May 9, 2008, version of the Internal Revenue Manual is unexplained.

 

20  I.R.M. Exhibit 5.15.1-2 (May 9, 2008).

 

21  See below in this section, and see § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

22  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation for discussion of the October 1, 2007, changes to the Local Standards.

 

23  See below in this section.

 

24  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed below in this section and in §§ 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues and 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

25  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income, 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation and 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

26  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

27  See below in this section.

 

28  See http://www.irs.gov/businesses/small/article/0,,id=104627,00.html.

 

29  See below in this section.

 

30  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).

 

31  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 the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005), 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 §§ 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 for further discussion.

 

32  See below in this section, and see discussion beginning at § 95.3  Local Standards: Housing and Transportation.

 

33  The same can be said about the Local Standards and the categories of Other [Necessary] Expenses issued by the IRS. See § 95.3  Local Standards: Housing and Transportation and discussion beginning at § 95.4  Other [Necessary] Expenses—In General; All Categories

 

34  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation. See, e.g., In re Slusher, 359 B.R. 290, 309 (Bankr. D. Nev. 2007) (“Congress’ decision to use the IRS standards within the Bankruptcy Code strongly suggests that courts should look to how the IRS determined those standards; that is, as to how the IRS would have applied them in similar circumstances. . . . [I]f guidance is sought on the meaning of the IRS standards Congress incorporated into the Bankruptcy Code, practical reason would suggest that courts should consider the full manner by which the IRS uses these standards.”); In re Chamberlain, 369 B.R. 519, 525 (Bankr. D. Ariz. 2007) (“Nothing in the statute, Bankruptcy Rules or official forms refers a debtor to any IRS publications for additional rules or interpretation. The IRS is not an administrative agency that administers the Bankruptcy Code, so there is no basis for a Court to defer to its administrative expertise. In § 707(b) Congress adopted the Standards, not other IRS publications interpreting or applying them.”). 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).

 

35  In contrast, see the discussion below in this section and in § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation with respect to the “effective date” of changes to the tables for the National Standards and Local Standards amounts.

 

36  I.R.M. 5.15.1.8(1) (May 1, 2004), available at 2007 WL 2646963.

 

37  On October 1, 2007, the following description of the new Out-of-Pocket Health Care Expenses National Standards allowance appeared at http://www.irs.gov/individuals/article/0,,id=96543,00.html:

Out-of-Pocket Health Care standards have been established for out-of-pocket health care expenses including medical services, prescription drugs, and medical supplies (e.g. eyeglasses, contact lenses, etc.). The table for health care allowances is based on Medical Expenditure Panel Survey data and uses an average amount per person for taxpayers and their dependents under 65 and those individuals that are 65 and older. The out-of-pocket health care standard amount is allowed in addition to the amount taxpayers pay for health insurance.

 

38  I.R.M. 5.15.1.8(1)(e) (May 9, 2008).

 

39  I.R.M. 5.15.1.8(4)–(9) (May 9, 2008).

 

40  See http://www.irs.gov/businesses/small/article/0,,id=104627,00.html and

http://www.irs.gov/businesses/small/article/0,,id=173385,00.html.

 

41  Start at http://www.usdoj.gov/ust.

 

42  For example, on December 30, 2008, the IRS posted the following “Headliner” note: “The Internal Revenue Service is currently updating the Allowable Living Expense Standards, also known as Collection Financial Standards. Scheduled date of release is March 1, 2009. http://www.irs.gov/businesses/small/article/o,,id=201339,00.html.

 

43  Pub. L. No. 109-8, § 103(a), 119 Stat. 23 (2005).

 

44  http://www.irs.gov/businesses/small/article/0,,id=104627,00.html.

 

45  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

46  See below in this section.

 

47  See below in this section.

 

48  http://www.irs.gov/businesses/small/article/0,,id=104627,00.html (Oct. 1, 2007).

 

49  http://www.irs.gov/businesses/small/article/0,,id=104627,00.html (Mar. 1, 2008).

 

50  387 B.R. 422 (Bankr. W.D.N.Y. 2008) (Ninfo).

 

51  387 B.R. at 425.

 

52  See http://www.irs.gov/businesses/small/article/0,,id=173385,00.html. The “either” in this sentence is necessary because the National Standards Out-of-Pocket Health Care Expenses allowance issued by the IRS on October 1, 2007, was $54 for an individual under age 65, but that amount was changed to $57 in the tables issued by the IRS on March 1, 2008. As discussed in the text above, the October 1, 2007, National Standards table for Out-of-Pocket Health Care Expenses indicated that the allowance was not effective for bankruptcy purposes until January 1, 2008. The Disclaimer issued by the IRS on March 1, 2008, stated that the $57 amount was “for purposes of federal tax administration only”—raising the possibility that the $54-per-person amount remains effective in bankruptcy cases notwithstanding the issuance of the $57 amount on March 1, 2008.

 

53  See § 493.1 [ Applicable Commitment Period Calculation ] § 100.1  Applicable Commitment Period Calculation.

 

54  See http://www.irs.gov/businesses/small/article/0,,id=173385,00.html (Oct. 1, 2007).

 

55  http://www.irs.gov/businesses/small/article/0,,id=173385,00.html (Oct. 1, 2007).

 

56  See below in this section, and see § 473.1 [ Accounting for Spouses ] § 94.3  Accounting for Spouses.

 

57  On May 9, 2008, the IRS issued a new version of the Internal Revenue Manual. See §§ 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 for further discussion.

 

58  See I.R.M. 5.15.1.10 (May 1, 2004), 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.

 

59  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 and 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11  Other [Necessary] Expenses—Health Care.

 

60  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 478.1 [ Health and Disability Insurance ] § 95.21  Health and Disability Insurance.

 

61  11 U.S.C. § 707(b)(2)(A)(ii)(II), discussed in § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

62  See also §§ 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts and 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11  Other [Necessary] Expenses—Health Care.

 

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

 

64  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.

 

65  See also §§ 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.

 

66  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

67  See 11 U.S.C. § 1325(b)(3), discussed in § 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).

 

68  Official Form B22C is discussed in § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation. The December 2007 draft of Official Form B22C that was withdrawn by the Advisory Committee on Bankruptcy Rules in September 2007 revised Line 24 to substitute “household size and level of gross monthly income” for “family size and income level.”

 

69  http://www.irs.gov/businesses/small/article/0,,id=104627,00.html.

 

70  http://www.irs.gov/businesses/small/article/0,,id=173385,00.html.

 

71  See § 165.2 [ Debtor or Dependent ] § 91.4  Debtor or Dependent.

 

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

 

73  2006 WL 4128358, at *1. Accord In re O’Connor, No. 08-60641-13, 2008 WL 4516374 (Bankr. D. Mont. Sept. 30, 2008) (Kirscher) (For purposes of National Standards expenses, household size is reduced to eliminate non-dependent adult nephew living with debtors at the petition.); In re Law, No. 07-40863, 2008 WL 1867971, at *4–*7 (Bankr. D. Kan. Apr. 24, 2008) (Karlin) (Although “household” size is relevant to determining whether debtor has CMI greater than applicable median family income, § 1325(b)(3) permits expenses—including National Standards expenses—only with respect to the debtor, dependents of the debtor and the spouse of the debtor; a non-dependent adult child living with the debtor is not counted to determine National Standards expense deductions. “Debtor cannot claim expenses for his non-dependent adult son. The statutory language that allows debtors to claim a deduction for monthly expenses under the National Standards issued by the IRS clearly requires that those expenses must be ‘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.’ There is simply nothing in § 707(b)(2) that authorizes this Debtor to claim expenses for his non-dependent adult son who happened to be living in his home on the date of filing. . . . [T]he statutory provisions that govern the means test calculation only use the term ‘household’ when determining whether a debtor is an above median income debtor, or a below median income debtor. When it comes to determining the expenses allowed as an offset against a debtor’s income, however, Congress does not use the term ‘household.’ Instead, the Code, at §§ 707(b)(2) and 1325(b)(3), very consistently limits allowable expenses to those of the debtor, the debtor’s dependents, and the spouse of the debtor. . . . The Court declines to follow [In re Plumb, 373 B.R. 429 (Bankr. W.D.N.C. 2007)] . . . . [W]hen an official form is in conflict with statutory language, the court cannot choose to defer to the official form.”); In re Hays, No. 07-41285, 2008 WL 1924233, at *2 (Bankr. D. Kan. Apr. 29, 2008) (unpublished) (Karlin) (To determine applicable National Standards, household does not include non-dependent adults living in debtors’ home but does include grandchildren claimed as dependents on tax return. “[Section] 707(b)(2)(A)(ii)(I) limits allowed expenses for the means test calculation, for above median income debtors, to those of the debtor, the debtor’s spouse, and the debtor’s dependents, unless certain exceptions, such as those found in § 707(b)(2)(A)(ii)(II), apply. . . . Because the . . . Debtors cannot claim expenses for non-dependent adults living in their home, they may not include their 28-year-old daughter or the fiancé of their daughter in calculating household size, and thus expenses on the means test calculations. . . . [B]oth Debtors and their two grandchildren, who [sic] they claimed as dependents on their 2007 income tax return, can be appropriately included . . . and . . . the 28-year-old daughter and the fiancé may not be included, [but] the stipulation provided by the parties does not provide sufficient information to allow the Court to determine whether their 22-year-old daughter should be included in their household size.”).

 

74  373 B.R. 429 (Bankr. W.D.N.C. 2007) (Hodges).

 

75  373 B.R. at 437–38.

 

76  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

77  See § 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

78  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

79  356 B.R. 519 (Bankr. E.D. Wash. 2006) (Williams).

 

80  356 B.R. at 524–25.

 

81  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.

 

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

 

83  http://www.irs.gov/businesses/small/article/0,,id=104627,00.html.

 

84  http://www.irs.gov/businesses/small/article/0,,id=173385,00.html.

 

85  http://www.irs.gov/businesses/small/article/0,,id=104627,00.html (Oct. 1, 2007).

 

86  http://www.irs.gov/businesses/small/article/0,,id=104627,00.html (Mar. 1, 2008).

 

87  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed above in this section and in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

88  http://www.usdoj.gov/ustrustee/eo/bapcpa/meanstesting.html.

 

89  This additional 5% food and clothing amount was calculated on the U.S. Trustee Program Web pages in income ranges based on the National Standards amounts as they appeared prior to October 1, 2007. Following the date range links on the U.S. Trustee Program Web page shows different calculations apparently depending on the version of the National Standards the U.S. Trustee picked at the time. Don’t forget that the date ranges on the U.S. Trustee Program Web page are not necessarily the dates on which the IRS “issued” new National Standards. See above in the text.

 

90  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 480.1 [ Five Percent More Food and Clothing ] § 95.23  Five Percent More Food and Clothing.

 

91  See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

92  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 480.1 [ Five Percent More Food and Clothing ] § 95.23  Five Percent More Food and Clothing.

 

93  Ironically, this is the same rule stated by the IRS in its Internal Revenue Manual with respect to allowance of the National Standards amount. I.R.M. 5.15.1.8(2) (May 9, 2008) contains the following instruction to revenue agents: “Allow taxpayers the total national standard amount for their family size without questioning the amount actually spent.” See also I.R.M. 5.15.1.8(2) (May 1, 2004), available at 2007 WL 2646963 (“Allow taxpayers the total national standard amount for their income level.”).

 

94  See, quoted above, I.R.M. 5.15.1.8(1)(d) (May 9, 2008).

 

95  Remember this point when it is argued that a debtor gets less than the Local Standards Housing and Utilities allowance when the actual mortgage payment is less than the standards. See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

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

 

97  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.

 

98  See § 476.1 [ Local Standards: Housing and Transportation ] § 95.3  Local Standards: Housing and Transportation.

 

99  See, e.g., discussion of hanging sentence in 11 U.S.C. § 1325(a) beginning at § 75.1  In General: Modification Without § 506.

 

100  See discussion of netting issues in § 472.1 [ Netting Issues, Including Exclusion of Payments for Debts ] § 94.2  Netting Issues, Including Exclusion of Payments for Debts.

 

101  See § 480.1 [ Five Percent More Food and Clothing ] § 95.23  Five Percent More Food and Clothing.

 

102  See I.R.M. 5.15.1.8(3) (May 9, 2008) (“A taxpayer who claims more than the total allowed by the national standards must provide documentation to substantiate and justify as necessary those expenses that exceed the total national standard amounts.”). See also I.R.M. 5.15.1.8(3) (May 1, 2004), available at 2007 WL 2646963 (“A taxpayer that claims more than the total allowed by the national standards must substantiate and justify each separate expense of the total national standard amounts.”).

 

103  360 B.R. 684 (Bankr. D. Mont. 2007).

 

104  360 B.R. at 699 (“Form B22C at Line 24 cites the National Standard for food, clothing, household supplies, personal care and miscellaneous in the amount of $703 . . . . [T]hat is the cap allowed for food, clothing, housing supplies, personal care and miscellaneous under § 707(b)(2)(A)(ii)(I) and the applicable National Standards, and the categories for ‘Other Necessary Expenses’ allowed under § 707(b)(2)(A)(ii)(I) subsection do not include or provide an additional allowance for food, clothing and personal care as Tuss contends. Thus, his additional $261.85 expenses for those categories are not allowable. . . . Other provisions of § 707(b)(2)(A)(ii) specify allowed additional expenses such as an additional allowance of 5% for food and clothing, which Tuss claimed at Line 44.”).

 

105  378 B.R. 81 (Bankr. M.D. Pa. 2007) (Thomas).

 

106  378 B.R. at 85.

 

107  See 11 U.S.C. § 707(b)(2)(B), discussed in § 487.1 [ Additional Expenses or Adjustments to CMI ] § 98.1  Additional Expenses or Adjustments to CMI.

 

108  See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

109  See, e.g., In re Tuss, 360 B.R. 684 (Bankr. D. Mont. 2007) (Debtor failed to prove “special circumstances” for purposes of § 707(b)(2)(B) in support of an additional expense claim for $261.85 per month for food, clothing and personal care while on work assignment away from home.).