by Despite higher actual vehicle operating costs, when calculating disposable income on the means test, above-median debtors must use the exact numerical values for expenses that are specified in the IRS’s National and Local Standards. Rodriguez v. Bronitsky (In re Rodriguez), No. 20-1085 (B.A.P. 9th Cir. Oct. 16, 2020).
When calculating their disposable income, the debtors listed on line 12 of Form 122C-2 of the “means test,” vehicle operating costs of $424.00 based on the applicable IRS Local Standards. On line 43 of the same form, under “special circumstances,” the debtors listed an additional $500.00 in vehicle operating expenses which they attributed to the husband’s high commuting costs. The trustee objected to the $500.00 expense deduction arguing that it was merely an attempt to circumvent the limit specified for vehicle operating costs in the Local Standards. The bankruptcy court sustained the objection (Objection Order). The court also rejected the debtors’ efforts to increase their vehicle operating expenses on line 12 by $500.00 above the Local Standards. The debtors filed an amended plan listing only the Local Standard deduction and raising the amount available to creditors by $500. The debtors then appealed the Objection Order.
As an initial matter, the trustee challenged the bankruptcy appellate panel’s jurisdiction, arguing that the debtor appealed only the interlocutory order sustaining the trustee’s objection. The panel found, however, that when the bankruptcy court entered the Confirmation Order it disposed of the issue of confirmability and thereby rendered the Objection Order final as well. The panel further found that even though the debtor’s appeal did not strictly state the basis for appeal as including the Confirmation Order, it was clear from the filings and arguments that the Confirmation Order was on appeal.
The panel also disagreed with the trustee’s argument that the Confirmation Order mooted the appeal. The panel found that the debtors followed the procedure endorsed in In re Sisk, 962 F.3d 1133 (9th Cir. 2020), when they amended their plan and appealed the final order of confirmation. In fact, the panel found that the debtors continued to be aggrieved by the Objection Order and, in the event of successful appeal, the bankruptcy court would be able to fashion a remedy.
Turning to the merits, the panel began with section 707(b)(2)(A)(ii)(I), which dispensed with the historic discretion bankruptcy courts applied to calculation of disposable income and established the formulaic means test as part of the BAPCPA amendments. That section provides that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses 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 . . . .”
In the Internal Revenue context, the Standards are used by the IRS as guidance when determining a taxpayer’s ability to pay delinquent taxes. The panel found, however, that “once Congress expressly incorporated the Standards into § 707(b)(2)(A)(ii)(I), this portion of the Manual was elevated and made authoritative in the chapter 13 context.”
The debtors argued that, despite the mandatory language in section 707(b)(2)(A)(ii)(I), the bankruptcy court retained discretion to adjust the vehicle operating costs to reflect actual expenses. They based this contention on the IRS Manual which makes clear that the Standards are mere guidelines allowing the IRS to deviate from strict adherence to the listed amounts. Specifically, the Manual permits the IRS to consider: 1. if the Standards are insufficient to provide for the taxpayer’s basic living expenses, 2. or if the taxpayer’s vehicle operating costs are higher than the Standards due to greater than average commuting costs.
The panel found the debtors’ reliance on the Manual to be misplaced, finding that, while the Manual may be referenced for aide in interpretation, any conflict between the Manual and the Code must be resolved in favor of the Code. The panel reasoned that the mandatory language of section 707(b)(2)(A)(ii)(I) speaks for itself: Congress did not incorporate the greater flexibility accorded the IRS in its determination of taxpayer finances. The fact that Congress distinguished between the National and Local Standards and “actual expenses” in other provisions of section 707, was further indication that Congress intended to make a distinction between the two.
The panel further found that its interpretation of the means test would not lead to absurd results despite the possibility that strict adherence to the Standards would sometimes yield expense deductions that were either too high or too low. The panel reasoned that “[b]y incorporating the IRS’s detailed series of average national and local living expenses, the means test is designed to produce relatively reliable estimates of a debtor’s overall reasonably necessary expenses.”
The panel further noted that its holding would not eliminate all flexibility to accommodate a debtor’s actual expenses in excess of the Standards. After all, the panel explained by way of clarification, the trustee need not be a “sumpsimus.” In the absence of creditor objection, the trustee need not object to a plan simply because the debtor claims expenses greater than the applicable Standards. Therefore, the trustee, to some extent, takes over the exercise of discretion removed from the court’s purview when Congress imposed the means test.
Finally, the panel concluded that its holding was in harmony with dictum in Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 75-76 (2011), where the Court stated: “If a debtor’s actual expenses exceed the amounts listed in the tables, for example, the debtor may claim an allowance only for the specified sum, rather than for his real expenditures.”
The panel affirmed.