DECISION DENYING CHAPTER 13 TRUSTEE’S OBJECTION TO CONFIRMATION
FACTUAL AND PROCEDURAL BACKGROUND
On July 11, 2007, Dеbtors Victor W. May and Marilyn R. May (“Debtors”) filed their joint chapter 13 bankruptcy petition and Official Form 22C indicating that their income is above the median income for households of their size in Ohio. This dispute pertains to a deduction taken by the Debtors on Form 22C which is used to calculate the Debtors’ disposable income and the payments that the Debtors are required to commit to their chapter 13 plan. On Line 29 of the form, the Debtors claimed a $332.00 deduction for an ownership expense on their second vehicle based on IRS Transportation Standards [Doc. 1, Official Form 22C, Line 29]. Ml parties agree that the Debtors’ second vehicle is unencumbered by liens.
*340 The chapter 13 Trustee objected to the Debtors’ deduction on Line 29 of the form and the United States Trustee (“UST”) filed a memorandum in support [Docs. 34 and 35]. 1 They argued that the Debtors should not be allowed to claim a “phantom” standardized deduction for a vehicle that the Debtors own outright and for which they have no financing expenses. Following a hearing held on December 18, 2007, the Debtors, chapter 13 Trustee and UST filed supplemental briefs [Docs. 47, 48 and 49, respectively] and the matter is now ready for determination.
LEGAL ANALYSIS
The issue in this case involves the calculation of a debtor’s reasonably necessary expenses related to vehicle ownership for purposes of calculating a debtor’s disposable income and, ultimately, the amount needеd to fund a chapter 13 plan. 2 More specifically, can debtors who own one or two cars but make no car payment take a standard expense deduction for vehicle ownership thus lowering the amount of “disposable income” or funds available to pay unsecured creditors over the life of the debtor(s)’s chapter 13 plan?
Historically, the calculation of a chapter 13 debtor’s monthly expenses to be subtracted from a debtor’s income as required in 11 U.S.C. § 1325(b)(2) was straightforward with courts given broad discretion to determine the reasonableness of any claimed expense. However, the formula changed with the enactment of the Bankruptcy Abuse Prevention and Consumer Protеction Act of 2005 (“BAPCPA”). “Following the enactment of BAPCPA, the Bankruptcy Code now divides debtors into two categories, based on whether their income is above or below median income for their state. For those below the median, the determination of reasonableness of expenses is largely unaffected by BAPC-PA. But for those above the median, BAPCPA imposes strict limitations on various categories of expenses.”
Babin v. Wilson (In re Wilson),
For above-median income debtors, such as the Debtors in this case, “[a]mounts reasonably necessary to be expended under [§ 1325(b)(2) ]” are to be “determined in accordance with subparagraphs (A) and (B) of section 707(b)(2)[.]” 11 U.S.C. § 1325(b)(3). Section 707(b)(2), which is also used as the “means test” formula to *341 determine abuse in a chapter 7 case, provides in relevant part:
The 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, 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. Such expenses shall include 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. Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts....
11 U.S.C. § 707(b)(2)(A)(ii)(I)-
The National and Local Standards referred to in § 707(b) (2) (A) (ii) (I) are certain expense allowances developed by the Internal Revenue Service (“IRS”) for the agency’s internal use in collection disputes with delinquent taxpayers. They are part of the Collection Financial Standards used by the IRS to provide a consistent guide for determining what a delinquent taxpayer can afford to pay when the agency evaluates offers-in-compromise and instаllment agreement proposals.
See In re Smith,
The focus of this case is the IRS’s Local Standards for Transportation which, postBAPCPA, provides debtors with their allowable expense amounts for vehicle ownership and use. The IRS’s Local Standards for Transportation are divided into two components: Operating Costs and Ownership Costs. The Operating Costs component is broken down by region, but the Ownership Costs component is given as a nationwide amount available for up to a maximum of two vehicles. The Ownership Costs table applicable on the date of the Debtors’ bankruptcy filing appeared like this on the IRS website: 4
Ownership Costs
Two Cars One Car
National
_ $471 -ee-oo o CO
The critical issue created by the language of § 707(b)(2)(A)(ii)(I) in conjunction with the use of this table is whether the amounts given in the table may be used as deductions by all debtors who own one or two cars or only by debtors who actually have car payments. The issue has divided courts across the nation with at least forty-three bankruptcy courts, four district courts, and three bankruptcy appellate panels weighing in on the issue to date.
5
See In re Sawicki,
A. Courts Disallowing Deduction
On one side of the debate are the courts holding that debtors may not deduct ownership expenses for vehicles that are unencumbered by liens. This is also the holding of many “appellate” courts, i.e. district courts and bankruptcy appellate panels, that have considered the issue to date.
See Grossman v. Sawdy,
Courts not allowing the deduction generally begin with the statutory language of § 707(b) which states that the debtor’s monthly expenses “shall be the debtor’s
applicable
monthly expense amounts specified under the National Standards and Local Standards....” 11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added). These courts define the term “applicable” to mean “capable of or suitable for being applied.”
See, e.g., Ransom,
In further support of their conclusion, these courts often consult IRS guidelines found in the Internal Revenue Manual (“IRM”) which explains how the IRS applies its standards to negotiations with delinquent taxpayers. According to the Financial Analysis Handbook, a section of the IRM:
The Transportation standards consist of nationwide figures for loan or lease payments referred to as ownership cost, and additional amounts for operating costs broken down by Census Region and Metropolitan Statistical Area.... If a taxpayer hаs a car payment, the allowable ownership cost added to the allowable operating cost equals the allowable transportation expense. If a taxpayer has no car payment only the operating cost portion of the transportation standard is used to figure the allowable transportation expense.
Internal Rev. Man. § 5.15.1.7(4B) (http:// www.irs.gov/irm/part5/chl5s01.html). This section of the IRM clarifies that the IRS requires a delinquent taxpayer to actually have a loan or lease payment before taking the vehicle Ownership Costs deduction. However, there is no statutory reference to the IRM in the Bankruptcy Code. While the use of the IRM is not mandated by or even referenced in the Code, courts relying on the IRM consider it at least instructive if not dispositive of how Congress intended the standards to be interpreted in bankruptcy.
Fokkena,
Finally, these courts reason that disallowing the deduction for debtors who have no car payment comports with the purposes of BAPCPA itself. “[T]hose amend
*344
ments were ‘intended to ensure that debtors repay creditors the maximum they can afford.’ ”
Wieland,
B. Courts Allowing the Deduction
On the other side of the debate are the courts allowing a debtor to take the vehicle ownership costs deduction even if the debt- or owns the vehicle free and clear of liens. Joining this group of bankruptcy courts is the Sixth Circuit Bankruptcy Appellate Panel which recently entered the fray and became the first appellate level court to allow the deduction for unencumbered vehicles.
Hildebrand v. Kimbro (In re Kimbro),
Courts allowing the deduction also begin with the language of the statute:
The 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....
11 U.S.C. § 707(b)(2)(A)(ii)(I) (emphasis added). They note that Congress decided that a debtor shall deduct his or her
“actual
monthly expenses” for “Other Necessary Expenses” but “the debtor’s
applicable
monthly expense
amounts”
for expenses found in the National and Local Standards.
Kimbro,
These courts further reject consideratiоn of the IRM and, in particular, the Financial Analysis Handbook, to aid interpretation of the standards. They note that if Congress wanted the IRM’s guidelines to be controlling, Congress could have explicitly referenced the IRM in the Bankruptcy Code.
Kimbro,
Congress may well have declined adoption of the IRM because the manual’s purpose is simply not applicable in bankruptcy.
In re White,
Finally, these courts conclude that allowing a debtor with no car payment to take a vehicle Ownership Costs deduction is neither unreasonable nor absurd.
White,
C. This Court’s Conclusion
While this court was drafting its decision, the Bankruptcy Appellate Panel for the Sixth Circuit (“BAP”) decided the
Kimbro
case in favor of allowing debtors to take the vehicle Ownership Costs deduction for their unencumbered vehicles pursuant to 11 U.S.C. § 707(b)(2)(A)(ii)(I).
As it has noted in prior decisions, the court’s first obligation when interpreting a statute is to apply its plain meaning.
In re Kolb,
Furthermore, viewing the statute holistically, this reading is the only one that provides meaning to the expense allowances provided in § 707(b) (2) (A) (ii) (I) and the separate secured debt allowance in § 707(b) (2) (A) (iii).
See In re Echeman,
Determining that § 707(b)(2)(A)(ii)(I) allows debtors to takе the fixed amount found in the IRS’s Local Standard rather than their actual monthly car payment does not end the debate because most courts agree that the Local Standards are not intended as “caps” when used in bankruptcy. 11 The real issue dividing courts is whether a car payment is required as a sort of trigger before a debtor can take the vehicle ownership costs deduction.
According to courts on one side, the language of § 707(b)(2)(A)(ii)(I), and especially the term “applicable,” limits the vehicle Ownership Costs deduction to those debtors that actually have a car payment. However, that view is not supported by the language of the statute. Section 707(b)(2)(A)(ii)(I) places no limitations on a debtor’s deductions beyond choosing the debtor’s applicable monthly expense amounts specified under National and Local Standards.
See Kimbro,
Even though the statute and the standard do not require a debtor to have a car payment, some courts turn to the IRM to support the requirement. Indeed, the IRM requires delinquent tax payers to actually have a car expense because it treats the amount in the Ownership Costs Standard as a cap on the taxpayer’s actual car expense. However, reliance on the IRM to interpret how the IRS standards should be used in bankruptcy is not authorized by the language of the statute.
Kimbro,
The flawed reliance on the IRM by judges to interpret the IRS standards is best underscored by the Local Standard for Ownership Costs itself. Courts relying on the IRM often adopt its interpretation of the standard to the extent it requires a debtor to have a car payment but reject its interpretation of the same standard as a cap on a debtor’s actual car expense.
See, e.g., Fokkena,
The court concludes that the language of § 707(b)(2)(A)(ii)(I) in conjunction with the IRS Local Standards for Transportation allows a debtor to take a deduction for vehicle ownership costs based on the number of vehicles owned regardless of whether the debtor pays a car payment for the vehicle(s). As other courts have recognized, this result is neither unreasonable nor absurd. Owners of vehicles have ownership costs beyond a car payment and Congress may well have intended the deduction to cover those costs for unencumbered vehicles.
Kimbro,
CONCLUSION
For the reasons stated above, the Objection to Confirmation filed by the chapter 13 Trustee is DENIED.
SO ORDERED.
Notes
. The chapter 13 Trustee originally objected to the Debtors’ chapter 13 plan for various reasons, including the Debtors' vehicle ownership deduction, in August of 2007 [Doc. 15]. Following that original objection, the chapter 13 Trustee, United States Trustee, and the Debtors engaged in a long period of negotiating their positions related to the vehicle ownership deduction, as well as other aspects of the Debtors' Form 22C and plan through the filing of many plan amendments, forms, briefs and memoranda. [See Docs. 15, 20, 25, 26, 28, 30, 31, 34 and 35], The analysis in these documents is repetitive and, consequently, the court only cites to the most recent filings of each party in this decision. It should also bе noted that, by the date of the hearing held on December 18, 2007, the only issue that remained for the court to determine was the Debtors' vehicle ownership deduction on Line 29 of the means test form. As such, this decision does not address any of the other issues raised by the chapter 13 Trustee in his original objection to the Debtors’ chapter 13 plan.
. “Disposable income” is calculated by determining a debtor's "current monthly income” and subtracting out "amounts reasonably necessary to be expended ... for the maintenance or support of the debtor or a dependent of the debtor[.]” 11 U.S.C. § 1325(b)(2). In order to have a chapter 13 plan approved over the objection of the trustee or creditоr, the debtor must submit all of his or her projected disposable income to unsecured creditors over the life of the plan. 11 U.S.C. § 1325(b)(1).
. An interesting note: at the top of the IRS website appears the following disclaimer, "IRS Collection Financial Standards are intended for use in calculating repayment of delinquent taxes. These 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.” The page redirects the user to the U.S. Trustee’s website, http://www.usdoj.gov/ ust/eo/bapcpa/meanstesting.htm where similar unofficial tables can be found as those on the IRS’s website, although the U.S. Trustee’s website allows the user to browse historical tables deemed applicable on a specific bankruptcy filing date. Unfortunately, when the IRS updates its tables, which it does on a regular basis, there is no methodology in place for deciding when and if those updates become applicable to bankruptcy cases. Also unclear is whether the appropriate place for a bankruptcy practitioner to find the applicable tables is the IRS’s website or the U.S. Trustee’s website with its unofficial tables organized based on internal decision-making as to when IRS updates become applicable to newly filed bankruptcy cases. Even more troubling, the IRS tables mandated for use in bankruptcy cases have not been subject to the rigors of § 553 of the Administrative Procedure Act including its notice and comment provisions, a general requirement of administrative rule-making. For two overviews of the complex problems associated with Congress’s decision to borrow an unrelated administrative agency’s internal standards to apply in bankruptcy cases, see Keith Lundin, Second Warning: New National Standards and Local Standards Issued by IRS — Maybe, 2008 No. 5 Norton Bankr.L. Adviser 3 (May 2008); Matthew Stephenson and Kristin Hickman, The Administrative Law of Borrowed Regulations: Legal Questions Regarding the Bankruptcy Law’s Incorporation of IRS Standards, 2008 No. 1 Norton Bankr.L. Adviser 1 (Jan.2008).
. As discussed in the previous footnote, the only method by which this court was able to locate historical IRS standards applicable on a specific bankruptcy filing date was to search the unofficial tables on the U.S. Trustee’s website. This poses a problem. The current official Ownership Costs table on the IRS's website gives a $489 allowance for "One Car” and a $978 allowance for "Two Cars.” However, the labeling of the table and how the allowances are figured has been modified on the U.S. Trustee’s website. The current "unofficial” Ownership Costs table on the U.S. Trustee's website provides a $489 allowance for the "First Car” and a $489 allowance for the "Second Car.” Based on these current differences and the inability of the court to search historical tables on the IRS's website, it remains unclear exactly what the official IRS’s Transportation Stаndards looked like on the date the debtors filed their bankruptcy petition in July of 2007. In this instance, the court does not believe (hat the differences between the tables on the IRS’s website and those on the U.S. Trustee's website have an impact on the meaning of the tables in terms of when a debtor may take the allowance. Nonetheless, it does highlight the fact that the IRS updates its standards regularly and the standards are modified further when transferred to the U.S. Trustee’s website for use in bankruptcy cases. None of these updates and modifications is subject to any clear regulatory controls or oversight which this court finds disturbing given the serious impact these standards now have on the bottom line in a chapter 13 bankruptcy сase — i.e. how much income a debtor in bankruptcy may retain to pay monthly expenses and how much must be paid over to creditors each month over the lifetime of a three or five year plan.
. Some of the courts have faced the issue in different contexts. For example, many of the cases involve the proper allowance of the vehicle ownership expense in determining abuse in a Chapter 7 context.
See, e.g., Wieland
v.
Thomas,
. Depending on whether the Debtor refers to the standards as they appear on the U.S. Trustee’s website or the IRS’s website, the labeling of the Ownership Costs table provides allowances for a “First Car” and a *345 “Second Car” or for "One Car” and "Two Cars.”
. One prior version of the bill stated: "(A) the expense allowances under the applicable National Standards, Local Standards, and Other Necessary Expenses allowance (excluding payments for debts) for the debtor ... in the area in which the debtor resides as determined under the Internal Revenue Service financial analysis for expenses in effect as of the date of the order for relief.” H.R. Rep. 105-540 (May 18, 1998), H.R. 3150, 105th Congress (1998).
. As one court noted, "... discerning the intended function of the IRS expense allowances is like trying to solve a riddle wrapped in a mystery inside an enigma....”
White,
. The language of 11 U.S.C. § 707(b)(2)(A)(iii) provides an expense allowance in Chapter 13 cases for:
(iii) The debtor’s average monthly payments on account of secured debts shall be calculated as the sum of—
(I) the total of all amounts scheduled as contractually due to secured creditors in each month of the 60 months following the date of the petition; and
(II) any additional payments to secured creditors necessary for the debtor, in filing a plan under chapter 13 of this title, to maintain possession of thе debtor's primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor’s dependents, that serves as collateral for secured debts;
divided by 60.
. A quizzical sentence in § 707(b)(2)(A)(ii)(I), "Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts,” has also been interpreted by some courts to support the netting process adopted by the Rules Committee on Form 22C.
See In re Hardacre,
.
But see In re Rezentes,
. As noted before, the table has been modified on the U.S. Trustee's website to provide the allowance based on a "First Car” and "Second Car.” However, the court feels that these innocuous changes to the labels do not have an impact on the court's analysis.
. Another example of the tenuous use of the IRM in bankruptcy is the additional $200 operating expense deduction some courts allow debtors to take for older unencumbered vehicles.
Wilson,