Case Law Topics

• Income: Business Expenses; Where to deduct business expenses on Form 22C? Does CMI = "gross" or "net" business income?

  This issue appears to be mostly confined to the Ninth Circuit but has spread to C.D. Ill.
  
  Determining Current Monthly Income (CMI) is a critical step in determining the length of a Chapter 13 plan. (Your plan must be 3 years if CMI is below the median for your state and 5 years if your CMI is above the median for the your state.)
  
  In the Ninth Circuit, and a few other courts in reported decisions, (C.D. Ill), Chapter 13 debtors are not allowed to deduct business expenses from their gross business income on Form 22C. Instead, they must take those expenses as a deduction, later in the form, to determined "Disposable Monthly Income".
  
  Shifting the expense deduction to a point after the CMI amount has been calculated results in a higher CMI, and far more self-employed people fall into the Above Median category, even if their NET business income is low or non existent.
  
  Even within these jurisdictions, the rule may well be different for Chapter 7 Form 22A versus Chapter 13 Form 22C, given that the override of the instructions in Form 22C was caused by a conflict with a Chapter 13 provision. No such conflict appears with the Chapter 7 form.
  
  see
  The Net Effect – Debtors with Business Income Are Permitted to Deduct Ordinary and
  Necessary Business Expenses in Calculating Current Monthly Income
  
  http://www.justice.gov/ust/eo/public_affairs/articles/docs/2008/abi_200810.pdf
  (argues that Wiegand and Ninth cir rule is problematic)
  
  "The Wiegand approach is arguably problematic. Section 707(b) permits debtors to deduct their “actual monthly expenses for the categories specified as Other Necessary Expenses” by the Internal Revenue Service. See 11 U.S.C. § 707(b)(2)(A)(ii)(I). The Internal Revenue Service, however, does not list business expenses as a specific category. See Internal Revenue Manual, Financial Analysis Handbook § 15.15.1.10, available at http://www.irs.gov/irm/part5/ch15s01 (stating that other expenses “may be considered if . . . they must be for the production of income” but not listing business expenses in a table of 15 “expense items”). Therefore, it appears that, because business expenses are not listed as a specific category, chapter 13 debtors may not deduct their business expenses under “Other Necessary Expenses” as the court advised. The Official Form 22C avoids this problem because it requires debtors to calculate current monthly income by subtracting ordinary and necessary business expenses from gross receipts. "

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