No Older Vehicle Expense Deduction for Above-Median Debtors

Posted by NCBRC - April 28, 2014

An above-median debtor may not take the older vehicle expense deduction of $200.00 when calculating his projected disposable income. In re Luedtke, No. 13-1313 (B.A.P. 9th Cir. April 9, 2014). The trustee objected to the chapter 13 debtor’s proposed plan because in his means test calculation, the debtor took both the standard vehicle operating expense deduction for the state of Montana and the older vehicle operating expense deduction of $200. The trustee argued that by taking this expense deduction the debtors failed to commit all of their projected disposable income to the plan as required by section 1325(b)(1)(B).

The bankruptcy court overruled the objection and confirmed the plan. In re Luedtke, No. 13-60098 (Bankr. D. Mont. June 17, 2013).

On appeal, the BAP for the Ninth Circuit reversed and remanded. The panel found that the issue turned on whether the expense deduction is properly considered a monthly expense under the IRS Standards as required by section 707(b)(2)(A)(ii)(I). That section provides:

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 . . . .

The Standards  referred to in this section are found in tables provided by the IRS.  Noting that there is substantial disagreement among courts as to whether the older vehicle operating expense may be deducted from income in the means test the court found that:

The older vehicle operating expense is not set forth in the expense amount schedules identified in the IRS’s Financial Analysis Handbook, [IRM Part 5, Chapter 15, Section 1] as the IRS’s National and Local Standards. Nor is it otherwise mentioned in the Financial Analysis Handbook, which identifies, describes and interprets the National Standards and Local Standards. Instead, the older vehicle operating expense is mentioned only in IRM Part 5, Chapter 8, which deals with compromise proposals received from delinquent taxpayers.

The panel found that while Chapter 8 incorporates Chapter 15, the incorporation was not “reciprocal.” Therefore, the older vehicle operating expense found in chapter 8 did not apply to chapter 15 National Standards.

The panel rejected the bankruptcy court’s finding that both Lanning and Ransom support the view that the older vehicle operating expense should be permitted under section 707(b)(2)(A)(ii)(I). The panel found that a bankruptcy court’s flexibility in interpreting expenses does not extend to supplementing the National and Local Standards with expenses found only in other aspects of IRS policy and procedure. (With respect to Lanning, the panel found that the operating expense did not represent a known or virtually certain change to the debtor’s expenses, but was, instead, a current expense that was expected to continue).

This decision explicitly contradicts its own dictum in Ransom v. MBNA Am. Bank, N.A. (In re Ransom), While the application of the $200.00 older vehicle operating expense deduction was not at issue in Ransom, the BAP noted in that case that the deduction provided a safety net for debtors who could not avail themselves of the ownership expense deduction stating: “Numerous safeguards are in place to protect both debtors and creditors. Debtors who own old or high mileage cars ‘free and clear,’ are entitled to an extra $200 per month operating expense.” 380 B.R. 799, 808 (B.A.P. 9th Cir. 2007). (quoting In re Carlin, 348 B.R. 795 (Bankr.D.Or.2006)). On appeal, the Ninth Circuit agreed with the quoted language from Carlin. 577 F.3d 1026, 1031 (9th Cir. 2009). Moreover, in affirming Ransom, the Supreme Court turned to the Collection Financial Standards as a tool for interpretation and application of the National and Local Standards. Ransom v. FIA Card Servs., N.A., 131 S.Ct. 716 (2011), (“The IRS also prepares supplemental guidelines known as the Collection Financial Standards, which describe how to use the [National and Local Standards] tables and what the amounts listed in them mean.”). Nonetheless, the Ninth Circuit BAP in Luedkte disavowed its own dictum in Ransom, finding that use of the older vehicle expense deduction would not be legitimate as an explanation of the National and Local Standards, but rather, would be an inappropriate supplement to those Standards.

Luedtke opinion


Post a Comment

You must be logged in to post a comment.