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Topic #24:

Keywords: business expenses . income .

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

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Chapter 13 > Current Monthly Income > Business Expenses

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

6 Cases , IssueID 24

Ch 7 Means Test
Form 22A, Line 04b
Ch 13 Means Test
Form 22C Line 3b

Topic Description:

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. "

Lines of Cases:

A:

Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir)

B::

Form 22C: Use net business income to determine CMI

Topic Background / Overview:

  • Type A = Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir)
  • Type B = Form 22C: Use net business income to determine CMI
  • Type E = "Everything Else"
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  • Cases A - Z

Cases for Zip , California Northern District Bankruptcy Court

Ninth Circuit Cases

� In re Wiegand (Drummond v. Wiegand)

9th Cir. BAP - 386 B.R. 238 - 2008-04-03 - 13 , Above

Google ID#: 1819255583183262088
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

Debtors may not exclude ordinary and neccessary business expenses on line 3b of Form 22C in determining their current monthly income., They must instead list gross receipts as income and deduct business expenses from the expenses part of the form to determine "disposable" monthly income. NOTE: Requiring self-employed people to list their gross, rather than net income in the first part of the form pushes many of them to be above the median income for their state.

Other Circuits

� In re Sharp

Bankr. C.D. Ill. - 394 B.R. 207; 213 - 2008-08-21 - 13 ,

Google ID#: 1061342756792521854
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

this Court will follow Wiegand, Arnold, and Bembenek and find that, in calculating current monthly income, a self-employed debtor must use gross business income and may not deduct business expenses in the calculation. Business expenses are, of course, deductible elsewhere in determining disposable income.

� In re Arnold

Bankr.M.D.Tenn. - 376 B.R. 652 - 2007-07-03 - 13 , N/A

Google ID#: 10771177250120055956
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

When there are business exepenses, they cannot be deducted on line 3b of Form 22C, they must be entered as an "Other Expenses" in part VI of the form. Below median income debtors can list their expenses on Schedule J.

� In re Upton

Bankr.S.D.Ohio - 363 B.R. 528 - 2007-03-14 - 13 , Above

Google ID#:
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

Above median income debtors should list business expenses as "Other Necessary Expenses" as specified in the Internal Revenue Service Financial Analysis Handbook

� In re Moates

Bankr.N.D.Tex. - 338 B.R. 716 - 2006-01-27 - 7 , N/A

Google ID#: 9891322369518807579
(Type E : )

statement of monthly income is only relevant if they have primarily consumer debts thereby making them potentially subject to the means testing required under section 707(b) of the Bankruptcy Code. Court agrees. If debts are primarily not primarily consumer debts, means test does not apply.

� In re Sharp

Bankr. C.D. Ill. - 394 B.R. 207; 213 - 2008-08-21 - 13 ,

Google ID#: 1061342756792521854
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

this Court will follow Wiegand, Arnold, and Bembenek and find that, in calculating current monthly income, a self-employed debtor must use gross business income and may not deduct business expenses in the calculation. Business expenses are, of course, deductible elsewhere in determining disposable income.

� In re Bembenek

Bankr.E.D.Wis. - 2008 WL 2704289 - 2008-08-21 - 13 ,

Google ID#: 1061342756792521854
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

Cited by In Re Sharp in following Wiegand and Arnold. All three cases hold that, to the extent the B22C form allows business expenses to be deducted in the initial calculation of current monthly income, the Code controls and the conflicting portions of the form must be disregarded.

� In re Wiegand (Drummond v. Wiegand)

9th Cir. BAP - 386 B.R. 238 - 2008-04-03 - 13 , Above

Google ID#: 1819255583183262088
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

Debtors may not exclude ordinary and neccessary business expenses on line 3b of Form 22C in determining their current monthly income., They must instead list gross receipts as income and deduct business expenses from the expenses part of the form to determine "disposable" monthly income. NOTE: Requiring self-employed people to list their gross, rather than net income in the first part of the form pushes many of them to be above the median income for their state.

� In re Arnold

Bankr.M.D.Tenn. - 376 B.R. 652 - 2007-07-03 - 13 , N/A

Google ID#: 10771177250120055956
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

When there are business exepenses, they cannot be deducted on line 3b of Form 22C, they must be entered as an "Other Expenses" in part VI of the form. Below median income debtors can list their expenses on Schedule J.

� In re Upton

Bankr.S.D.Ohio - 363 B.R. 528 - 2007-03-14 - 13 , Above

Google ID#:
(Type A : Ninth Cir: In Chapter 13, must list gross receipts on line 3 of form 22C and then report business expenses with other expenses (Wiegand, 9th Cir) )

Above median income debtors should list business expenses as "Other Necessary Expenses" as specified in the Internal Revenue Service Financial Analysis Handbook

� In re Moates

Bankr.N.D.Tex. - 338 B.R. 716 - 2006-01-27 - 7 , N/A

Google ID#: 9891322369518807579
(Type E : )

statement of monthly income is only relevant if they have primarily consumer debts thereby making them potentially subject to the means testing required under section 707(b) of the Bankruptcy Code. Court agrees. If debts are primarily not primarily consumer debts, means test does not apply.

All Cases A to Z

  • In re Arnold, 376 B.R. 652 , (Bankr.M.D.Tenn. ) 2007-07-03, #10771177250120055956
  • In re Bembenek, 2008 WL 2704289 , (Bankr.E.D.Wis. ) 2008-08-21, #1061342756792521854
  • In re Moates, 338 B.R. 716 , (Bankr.N.D.Tex. ) 2006-01-27, #9891322369518807579
  • In re Sharp, 394 B.R. 207; 213 , (Bankr. C.D. Ill. ) 2008-08-21, #1061342756792521854
  • In re Upton, 363 B.R. 528 , (Bankr.S.D.Ohio ) 2007-03-14, #
  • In re Wiegand (Drummond v. Wiegand), 386 B.R. 238 , (9th Cir. BAP ) 2008-04-03, #1819255583183262088

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