§ 95.9     Other [Necessary] Expenses—Dependent Care
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 95.9, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The fifth of 161 categories of Other [Necessary]2 Expenses specified by the IRS3 is “Dependent Care (For the care of the elderly, invalid, or handicapped).”4 A Chapter 13 debtor with current monthly income (CMI)5 greater than applicable median family income6 is allowed a deduction for actual monthly expenses in the category Dependent Care specified by the IRS as part of the calculation of disposable income under § 1325(b)(2) and (3).7

[2]

Dependent Care is a broad category of potential expenses. The parenthetical description indicates that dependency could be based on age, infirmity or physical or mental condition. “Dependent” care is different from and in some respects could be a broader concept than the separate category of expenses specified by the IRS for “Health Care.”8 The only limitation suggested by § 707(b)(2)(A)(ii)(I) is that actual expenses for Dependent Care are limited to “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.”9 Dependent Care would logically include the actual cost of assistance at home for an elderly, disabled or handicapped person, special equipment—such as a wheelchair or hospital bed—nursing home expenses and all the many rehabilitative and recuperative expenses of an elderly, injured or handicapped dependent. A debtor who pays actual expenses for assisted living, a nursing home or the like for an elderly parent could claim the Dependent Care deduction.

[3]

Courts inclined to look deeper into the Internal Revenue Manual for insight about the Dependent Care category of Other [Necessary] Expenses10 will be disappointed. The Internal Revenue Manual says nothing about the content of the Dependent Care category but only warns revenue agents to disallow Dependent Care expenses unless “there is no alternative to the taxpayer paying the expense.”11 The Bankruptcy Code allows “actual” expenses in the Dependent Care category without regard to whether there is an alternative to the debtor’s paying the expense.

[4]

Perhaps more troublesome, the category of expense for Dependent Care specified by the IRS overlaps with at least four other expense deductions allowed Chapter 13 debtors with CMI greater than applicable median family income. Section 707(b)(2)(A)(ii)(I) itself separately includes in monthly expenses “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.”12 There are new National Standards Out-of-Pocket Health Care Expenses applicable in Chapter 13 cases filed after January 1, 2008.13 There is a separate category of Other [Necessary] Expenses specified by the IRS for “Health Care.”14 And § 707(b)(2)(A)(ii)(II) separately allows 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.”15

[5]

To some extent, all four of these other allowable expense deductions overlap the category for Dependent Care specified by the IRS. This will especially be true in the gray area where the Health Care and Dependent Care categories both apply with respect to a dependent child or parent. Is physical therapy for an elderly parent or handicapped child “Dependent Care” or is it “Health Care”? Of course, it is both. The Bankruptcy Code offers no clue how these overlapping expenses should be managed in the disposable income calculation.

[6]

Official Form B22C is particularly unhelpful in its (non)management of the Dependent Care category of Other [Necessary] Expenses specified by the IRS. There is no mention of “Dependent Care” on Official Form B22C.

[7]

Instead, Health Care is addressed in several places, including at Line 36, but all references to Health Care are inaccurate of and under-inclusive of the Dependent Care category specified by the IRS. Health Care at Line 36 is a separate category of Other [Necessary] Expenses specified by the IRS.16 Line 36 directly addresses some of the overlaps of the various Health Care expense deductions allowed debtors with CMI greater than applicable median family income without any mention of “Dependent Care.”

[8]

But then at Line 40, Official Form B22C contains the following enigmatic expense allowance:

Continued contributions to the care of household or family members. Enter the total average actual monthly expenses that you will continue to pay for the reasonable and necessary care and support of an elderly, chronically ill, or disabled member of your household or member of your immediate family who is unable to pay for such expenses. Do not include payments listed in Line 34.
[9]

In some respects, this looks like the category for Dependent Care specified by the IRS—at least the phrase “elderly, chronically ill or disabled” resembles the phrase “elderly, invalid, or handicapped” in the parenthetical description of Dependent Care specified by the IRS. But a more careful look reveals that Line 40 is intended to reflect the separate expense allowance in § 707(b)(2)(A)(ii)(II) and does not capture the broader category of Dependent Care specified by the IRS.17 In other words, the forms drafters included at Line 40 the actual expenses of a debtor for care and support of an elderly, chronically ill or disabled household member allowed by § 707(b)(2)(A)(ii)(II) but omitted altogether the Dependent Care category of Other [Necessary] Expenses allowed by § 707(b)(2)(A)(ii)(I).

[10]

It has to be said that the expense allowance in § 707(b)(2)(A)(ii)(II) overlaps the Dependent Care category specified by the IRS. But the conditions in § 707(b)(2)(A)(ii)(II)—including a reasonable and necessary test—are not found in the category Dependent Care specified by the IRS. In addition, the care and support deduction allowed by § 707(b)(2)(A)(ii)(II) is limited to “the continuation of actual expenses paid by the debtor”—a condition that does not appear with respect to the Dependent Care category of Other [Necessary] Expenses. The Dependent Care category on its face allows expenses for the care of an elderly, invalid or handicapped dependent that are not included in the monthly expenses allowed by § 707(b)(2)(A)(ii)(II), but there is no place on Official Form B22C for these Dependent Care expenses.

[11]

Debtors with Dependent Care expenses that do not fit the instructions at Line 40 should consider adding an “Other Expense” claim at Line 60, keeping in mind that Line 60 expenses are not accounted for in the disposable income calculation at Line 59 on Form B22C.

[12]

It is possible that some Dependent Care expenses will be “debts” excluded from monthly expenses by the “notwithstanding” sentence in § 707(b)(2)(A)(ii)(I).18 For example, a debtor obligated to pay for nursing home care or assisted living for a dependent parent arguably has a “debt” that falls within the category of Other [Necessary] Expenses for Dependent Care specified by the IRS, but payments on this debt would be excluded from monthly expenses. Such a debt may come back into the disposable income calculation when it is the continuation of an actual expense that is reasonable and necessary for purposes of the separate expense deduction allowed by § 707(b)(2)(A)(ii)(II)19 or if the debt is secured and scheduled as contractually due at the petition for purposes of § 707(b)(2)(A)(iii).20


 

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

 

8  See § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11  Other [Necessary] Expenses—Health Care. The Health Care category of Other [Necessary] Expenses was eliminated by the IRS in the May 9, 2008, 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.

 

9  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.

 

10  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 for critical discussion of the use of the Internal Revenue Manual as guidance in bankruptcy cases.

 

11  I.R.M. 5.15.1.10 (May 9, 2008). See also I.R.M. 5.15.1.10 (May 1, 2004), available at 2007 WL 2646965.

 

12  11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 478.1 [ Health and Disability Insurance ] § 95.21  Health and Disability Insurance.

 

13  See 11 U.S.C. § 707(b)(2)(A)(ii)(I), discussed in § 475.1 [ National Standards ] § 95.2  National Standards. There is controversy whether the National Standards Out-of-Pocket Health Care Expenses were effective in Chapter 13 cases on October 1, 2007, or instead became effective on January 1, 2008.

 

14  See § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11  Other [Necessary] Expenses—Health Care. The Health Care category of Other [Necessary] Expenses was eliminated by the IRS in the May 9, 2008, 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.

 

15  11 U.S.C. § 707(b)(2)(A)(ii)(II), discussed in § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

16  See § 477.8 [ Other [Necessary] Expenses—Health Care ] § 95.11  Other [Necessary] Expenses—Health Care.

 

17  The separate expense allowance in § 707(b)(2)(A)(ii)(II) is discussed in § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

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

 

19  See § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

20  See § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.