Monday, January 31, 2011
In Chief Counsel Advice (CCA), IRS has determined that payments received by health care professionals under a state's tuition reimbursement and recruitment incentive programs weren't excludible from gross income under Code Sec. 108(f)(4) , which was amended by the Patient Protection and Affordable Care Act (the Affordable Care Act, P.L. 111-148 ), to provide broadened student loan forgiveness relief effective for amounts received in tax years beginning after 2008. The payments didn't qualify for exclusion because individuals weren't required to have any outstanding educational loans to participate in the programs, and those who did weren't required to use the payments to discharge or repay such loans. However, IRS noted that if the programs were modified to provide for the repayment of existing educational loans, future payments under the programs might be eligible for exclusion. Background. Although a discharge of debt generally results in income to the debtor, income from cancellation of certain government and nongovernment student loans is excluded from gross income where the debt discharge is under a loan provision requiring the student to work for a certain period of time in certain professions for any of a broad class of employers. For loans made by a tax-exempt educational institution, the student's work must also fulfill a public service requirement. The discharge isn't excluded if it is on account of services performed for the lender. Before its amendment by the Affordable Care Act, Code Sec. 108(f)(4) provided for the exclusion of payments received under the National Health Service Corps (NHDC) Loan Repayment Program, and certain state loan repayment programs qualifying under section 338I of the Public Health Service Act. These provide student loan repayments to participants who provide medical services in a geographic area that the Public Health Service identifies as having a shortage of health-care professionals. The Affordable Care Act expanded the exclusion for amounts received under the NHDC or state loan repayment programs to include, effective for amounts received by an individual in tax years beginning after Dec. 31, 2008, any amount received by an individual under a state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas (as determined by the State). ( Code Sec. 108(f)(4) ) CCA 201104032 ________________________________________ UIL No. 108.00-00, 108.05-00 Gross income—exclusions. Headnote: Payments received by taxpayers under state's programs, as currently structured, are includable in their gross incomes under IRC Sec(s). 61(a) as compensation for services and aren't excludable from gross income under IRC Sec(s). 108(f)(4) , as amended. Reference(s): IRC Sec(s). 108 FULL TEXT: Number: 201104032 Release Date: 01/28/2011 Office of Chief Counsel Internal Revenue Service Memorandum Number: 201104032 Release Date: 1/28/2011 CC:ITA:B05:MFSchmit FILES-135502-10 UILC: 108.00-00, 108.05-00 date: September 24, 2010 to: Division Counsel (Acting) CC:WI Attn: Joanne B. Minsky from: Associate Chief Counsel (Income Tax & Accounting) CC:ITA:05 Attn: William A. Jackson /s/ W.A.Jackson subject: Tax Treatment of Payments Made Pursuant to Programs M and N ————————————————————————————————————————————————————————— ———————————————- This Chief Counsel Advice responds to your August 9, 2010, request for assistance regarding the above matter. This advice may not be used or cited as precedent. LEGEND: State A = ------------------ Program M = ——————————————————————————————————————— —————- Program N ————————————————————————————————————————-————————————————————- ISSUE Whether certain payments received by health care professionals (“Taxpayers”) pursuant to State A's Programs M and N, are excludable from the Taxpayers' gross incomes under section 108(f)(4) of the Internal Revenue Code (the “Code”) (as amended by section 10908 of the Patient Protection and Affordable Care Act of 2010). CONCLUSION Payments received by Taxpayers under State A's Programs M and N, as currently structured, are includable in their gross incomes under section 61(a) of the Code as compensation for services, and are not excludable from gross income under section 108(f)(4), as amended. FACTS State A has in effect a number of programs designed to attract health care professionals (including physicians, physician assistants, dentists, nurse practitioners, etc.) to perform services in health care shortage, rural, low-income, and other underserved areas of the State. Among these programs is Program M, a health professionals tuition reimbursement program, which provides participants with a payment in return for a service commitment of a certain number of years of practice in an eligible community practice area. The amount of the payment, described as a “tuition reimbursement,” is equal to a certain multiple of the State medical school's recent resident tuition cost. Additionally, State A maintains a health professionals recruitment incentive program, Program N. Under this program, participants are paid a certain incentive in return for their agreement to perform a period of service in a designated eligible service area of State A. Participants need not have outstanding student or other types of loans or indebtedness to participate in Programs M or N, and information available indicates that recipients may spend the incentives received under these programs as they wish. State A also maintains a State Loan Repayment Program, providing for the repayment of qualifying educational loans for health care professionals, in return for service commitments in eligible underserved or shortage areas of State A. This program, described in section 108(f)(4), is not at issue in this advice. LAW AND ANALYSIS Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided by law, gross income means all income from whatever source derived, including income from compensation for services, and income from the discharge of indebtedness. Under section 61, Congress intends to tax all gains or undeniable accessions to wealth, clearly realized, over which taxpayers have complete dominion.Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), 1955-1 C.B. 207. Section 108(f)(4), prior to its recent amendment by the Patient Protection and Affordable Care Act of 2010 (the “Act”), provided for the exclusion from income and employment taxes, of payments received under the National Health Service Corps Loan Repayment Program, and certain State loan repayment programs qualifying under section 338I of the Public Health Service Act. Section 10908 of the Act amended section 108(f)(4) to expand the exclusion to include amounts received by individuals under “any other State loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas (as determined by such State).” This provision is effective for amounts received by individuals in taxable years beginning on or after December 31, 2008. Section 108(f) of the Code addresses, generally, the tax treatment of (student) loans, in circumstances encompassing loan discharges, forgivenesses, refinancings and discharges, and certain repayments ( section 108(f)(4)). As presently structured, the programs considered here, Programs M and N, are not loan repayment or forgiveness programs: individuals participating in these programs need have neither student nor any loans to receive payments thereunder, and participants having loans need not use the proceeds to discharge or repay such loans. Rather, benefits paid to enrollees in these two programs represent employment incentives or compensation for agreeing to perform services for or as directed by the payor. As such, amounts received under these programs are not amounts received under a “State loan repayment or loan forgiveness program,” but rather represent income includable under section 61(a) of the Code. Accordingly, we conclude that the payments made to Taxpayers participating in State A's Programs M and N, as presently structured, are not within the exclusion described in section 108(f)(4) as amended. Were the Programs modified to provide for the repayment of existing educational loans, future payments under the Programs might be eligible for exclusion. We would be pleased to work with the Programs to achieve such a result. This writing may contain privileged information. Any unauthorized disclosure of this writing may undermine our ability to protect the privileged information. If disclosure is determined to be necessary, please contact this office for our views. Thank you for soliciting our views in this matter. If you have any questions concerning this advice, please contact Michael Schmit or William Jackson, at (202) 622-4960 Associate Chief Counsel Income Tax and Accounting /s/ William A. Jackson By__________________________ William A. Jackson Chief, Branch 5 Income Tax and Accounting Attachment: Copy of this memorandum
Friday, January 28, 2011
U.S. v. COLE, Cite as 107 AFTR 2d 2011-XXXX, 01/21/2011 UNITED STATES of America, Plaintiff-Appellee, v. Henry Cole, Defendant-Appellant. Case Information: Code Sec(s): Court Name: UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT, Docket No.: No. 09-4487, Date Argued: 10/29/2010 Date Decided: 01/21/2011. Disposition: HEADNOTE . Reference(s): OPINION ARGUED: Steven M. Klepper, KRAMON & GRAHAM, PA, Baltimore, Maryland, for Appellant. Joyce Kallam McDonald, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore, Maryland, for Appellee. ON BRIEF: Andrew Jay Graham, Max H. Lauten, KRAMON & GRAHAM, PA, Baltimore, Maryland, for Appellant. Rod J. Rosenstein, United States Attorney, A. David Copperthite, Assistant United States Attorney, Baltimore, Maryland, for Appellee. UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT, Appeal from the United States District Court for the District of Maryland, at Baltimore. Richard D. Bennett, District Judge. (1:08-cr-00144-RDB-1) Before NIEMEYER, DAVIS, and WYNN, Circuit Judges. OPINION Judge: DAVIS, Circuit Judge: PUBLISHED Affirmed by published opinion. Judge Davis wrote the opinion, in which Judge Niemeyer and Judge Wynn joined. Henry Cole appeals his convictions for filing false tax returns in violation of 26 U.S.C. § 7206(1) and evading taxes in violation of 26 U.S.C. § 7201. Cole, a real estate agent and investor, agreed with several others to purchase commercial properties in the Baltimore metropolitan area. Without his coventurers' knowledge, Cole secretly negotiated with the sellers of each property to increase the purchase price. He then arranged to have the difference ($2 million in the aggregate) paid to an entity only he controlled. He paid no income tax on this bounty. A jury accepted the Government's theory of the prosecution and rejected Cole's innocent version of his acts and omissions, which he vigorously supported with documentary evidence and witness testimony (including his own and that of his expert accountant, among others). On appeal, Cole asks us to overturn his convictions, principally on the ground that the proper tax treatment of the $2 million was ambiguous as a matter of law, rendering proof of his willfulness a legal impossibility. He also assigns error to the district court's admission of certain evidence and its denial of a continuance. We affirm. I. This prosecution for tax offenses arose from Cole's promotion of real estate investment partnerships in connection with which he clandestinely extracted commissions that he reported on his tax returns as capital gains offset by capital losses. We summarize the facts in the light most favorably to the Government's theory of the case and consistent with the jury's verdict. A. Cole was a real estate agent at the O'Conor, Piper & Flynn real estate brokerage (later consolidated into Coldwell Banker) (“OPF”). He also invested in real estate. As relevant to this case, Cole partnered with three doctors to purchase five office buildings during the period 2001 to 2003. Prior to the first disputed purchase, there existed a two-person partnership between Cole and Dr. David Miller. Dr. Miller testified as a witness for the defense that he had long had an understanding with Cole that Cole, who was to serve as the property manager for any of their purchased investments, would take “a 10% profit up front ... on any building that he bought or sold.” J.A. 635–36. Dr. Stanley Friedler, a friend of Dr. Miller's, paid a premium to buy into the venture in 2001. Shortly thereafter, Dr. Friedler solicited the participation of his friend, Dr. Selvin Passen, who invested in subsequent deals. Drs. Friedler and Passen contradicted Dr. Miller's apparently favorable view of Cole's business methods. Each testified for the prosecution, attesting to his understanding that the co-venturers had agreed to make equal capital contributions toward the purchase of commercial properties in return for equal returns, and that Cole specifically promised not to take a commission (over and above the customary broker commissions paid to OPF, which OPF shared with Cole) for finding and negotiating deals. In each of the five transactions presented at trial, after Cole had negotiated a purchase price with the seller on behalf of the specific co-venture, he asked the seller to increase the price by several hundred thousand dollars (ranging from $250,000 to $600,000). He then arranged, with one exception, to have funds representing the agreed increase paid at closing to an entity he controlled, B&N Realty. 1 The evidence of the contemporaneous treatment of the increased payments as commissions was substantial. First, the agreed increases in the sales prices of the investments, which totaled $2 million, were designated as commissions in the sales contracts, though several of the sellers testified that they were quite high for commissions. Second, Cole told Carol Wildesen, Esq., OPF's in-house settlement attorney who oversaw the disbursement of funds generated by the transactions, and John Evans, the OPF partner who oversaw sales associates, that they were commissions. Third, the checks Wildesen issued to Cole were labeled as commissions (as were the descriptions appearing in certain internal OPF documents). Fourth, in the course of civil litigation in 2006 between Friedler and Passen, on the one hand, and Cole on the other hand, Cole stated under oath that the disputed payments were commissions. J.A. 1128 (“[T]he commission and fees received by Cole were not material to Passen's and Friedler's decisions to invest in the properties [as] the commissions and fees werepaid by the sellers, not the investors .” (emphasis added)). 2 Cole had attorney Wildesen prepare separate settlement reports for the buyers and sellers in the subject transactions, a practice Wildesen testified was unusual. The payments to B&N Realty (Cole's alter ego) were listed only on the sellers' settlement reports. Friedler and Passen testified that they were wholly unaware of the secret payments to Cole. Indeed, Friedler testified that Cole urged him not to attend the settlement for the first property in which he invested. Each of the sales contracts negotiated by Cole identified the buyer as “Henry Cole and/or assigns.” Nevertheless, each of the sellers testified that Cole told them he was purchasing the buildings not just for himself, but also as an agent for his physician/co-venturers. The down payments were all paid with partnership funds or with checks written directly by the doctors or their spouses, and one of the buildings was financed in part by a $1 million note personally guaranteed by Cole, Miller, and Friedler. 3 In addition to the transactions summarized above, Cole arranged during the 2003 tax year for Dr. Passen's children to buy at a discount the $1 million note financing the third property. Passen testified that Cole was not to receive a commission on the purchase and sale of the note. Nonetheless, the evidence at trial showed that the seller sold the note for $98,200 less than Cole received from Passen's children, and Cole pocketed the difference. B. In April 2005, having learned a few months earlier of the Government's criminal investigation, Cole filed tax returns for the years 2001, 2002, and 2003, reporting no taxable income for each year. He had his accountant characterize the $2 million in payments he received in the transactions summarized above as “assignment fees” earned from the sale of his contractual right to make the purchases individually, and thus capital gains rather than ordinary income. In this fashion, he was able to offset completely the short-term capital gains income in each year with carry-forward losses. He entirely failed to report the $98,200 he received for arranging the sale of the $1 million note to Passen's children; he testified at trial that he “missed it” due to a bookkeeping error. J.A. 851. He did report approximately $15,000 of self-employment tax each year, though by the time of trial he had never paid the taxes. C. A grand jury issued a superseding indictment in September 2008 charging Cole in six counts: three counts for willfully filing false tax returns for tax years 2001, 2002, and 2003, in violation of 26 U.S.C. § 7206(1), and three counts for evading income taxes in the same years in violation of 26 U.S.C. § 7201. The indictment charged that, inter alia, Cole falsely claimed $2 million of ordinary income as capital gains. D. As mentioned above, to justify characterizing the $2 million as capital gains, Cole argued at trial that the amounts were proceeds from the assignment of the sales contracts to his co-venturers. Cole's expert accountant, James Wilhelm, testified that he believed the “underlying economics” of the transactions justified their treatment as assignments, J.A. 689, though he admitted that the sale of a contract would require (at minimum) that the buyer knew he was purchasing the contract rights. The Government, eliciting the above testimony from Friedler and Passen that they were unaware of the funds paid to Cole, citing the “commission” labels used in the relevant documents, and adverting to the totality of the direct and circumstantial evidence of Cole's suspicious methods, argued that the payments were disguised commissions, i.e., ordinary income and not capital gains. Over Cole's objection, the trial court admitted into evidence three forms Cole had submitted to the federal Bureau of Alcohol, Tobacco, and Firearms (“ATF”) in 1996 and 1998 in order to purchase firearms. The forms asked if the applicant was “an unlawful user of, or addicted to ... any ... narcotic drug, or any other controlled substance,” and Cole answered “No” on each. J.A. 1359–60, 1362. But, as Cole stipulated at trial, he was “addicted to narcotic pain medication at the time he purchased the[se] firearms,” and “prior to the purchase of the firearms, [he] had self-admitted to a hospital for drug addiction and was subsequently re-admitted for drug addiction treatment between 1996 and 1998.” J.A. 308. The Government also proffered evidence that Cole plead guilty in 2001 to possessing those firearms while “an unlawful user of or addicted to any controlled substance” in violation of 21 U.S.C. § 922(g)(3), but the trial court sustained Cole's objection to admission of the conviction. The district court also admitted evidence of Cole's “lavish spending” during the 2001–03 tax years and in subsequent years of non-reporting. Cole objected that the evidence was irrelevant because he would have had enough money to cover his lifestyle expenses even had he paid the taxes the Government alleged were due but unpaid. The trial court admitted the evidence, finding it relevant to Cole's motive to commit the tax offenses. In a special verdict form the jury largely adopted the Government's theory of the case, although it declined to find that Cole had fraudulently claimed charitable deductions and business expenses. Ultimately, the jury found Cole guilty on all six counts for willfully mischaracterizing the $2 million as capital gains each year and failing to report the $98,200 in income from the sale of the $1 million note. The material facts concerning Cole's health at the time he was denied a continuance are set out in Part IV. II. Cole was convicted under 26 U.S.C. § 7201, which makes it a crime to “willfully attempt[ ] in any manner to evade or defeat any tax imposed by [Title 26] or the payment thereof,” and 26 U.S.C. § 7206(1), which reaches one who “[w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.” Cole contends that the district court erred in denying his motion for judgment of acquittal. In this regard, he principally asserts that the proper characterization of the $2 million was uncertain as a matter of tax law and thus, under controlling precedent, he was incapable of achieving the mental state required under the statute, “willfulness,” as a matter of law. Questions of both the legal sufficiency of evidence to sustain a conviction and of tax law uncertainty are questions of law subject to de novo review. See United States v. Gallimore, 247 F.3d 134, 136 (4th Cir. 2001);United States v. Mallas , 762 F.2d 361, 364 [56 AFTR 2d 85-5045] n.4 (4th Cir. 1985). Having closely examined Cole's contentions, we conclude that because the two cases Cole relies on, United States v. Critzer, 498 F.2d 1160 [34 AFTR 2d 74-5180] (4th Cir. 1974), andMallas , speak only to legal, not tofactual , uncertainty in the treatment of income under federal tax law, they are wholly inapposite to this case and Cole's argument is wholly without merit. Critzer concerned the failure to report income from improvements on land within the Eastern Cherokee Reservation, which generated a tax law question “so uncertain that even co-ordinate branches of the United States Government plausibly reach directly opposing conclusions,” 498 F.2d at 1162. That is, despite the defendant's prosecution by the Department of Justice, the Department of the Interior continued to maintain that the income was not taxable. Id. at 1161–62. Likewise, Mallas concerned “novel questions of tax liability to which governing law offer[ed] no clear guidance,” 762 F.2d at 361 [56 AFTR 2d 85-5045], arising from a complex tax shelter that the Government claimed was illegal, id. at 362–63. We reversed the convictions, finding that “present authority in support of the [Government's] theory is far too tenuous and competing interpretations of the applicable law far too reasonable to justify these convictions.” Id. at 363. We particularly emphasized that, as the Government conceded, the relevant Treasury regulation simply “does not address the issue.” Id. at 364. The instant case presented no “novel questions of tax liability to which governing law offers no clear guidance.”Mallas , 762 F.2d at 361 [56 AFTR 2d 85-5045]. Rather, the jury here confronted a straightforward question of fact: did Cole sell the sales contracts to his partners for an aggregate of $2 million, or was that amount simply the sum of purloined (the Government says, as to the fifth sale at least, “embezzled”) funds Cole secretly extracted from the respective investment ventures? Resolution of this question hinged not at all on the legal definition of “commission,” “ordinary income,” “capital gains,” or on permissible methods of assignment, but rather on whether, in fact, the elements of a sale of capital assets were present. Most importantly, the jury was tasked with determining whether the doctors, the alleged buyers of these contracts, knew they were purchasing them from Cole. In sum, because the “ambiguity” urged by Cole is a quintessential question of fact, it was properly left to the jury to decide, based on the evidence presented, whether the funds Cole generated for himself were properly treated as ordinary income or capital gains. Plainly, the jury did not entertain a reasonable doubt as to the Government's proof of the negative: that Cole was not engaged in a sale of capital assets to his co-venturers who already owned an interest in the assets by virtue of their payment of the down payments needed to acquire the assets in the first place. As a distinct strand of his contention, Cole argues that the favorable testimony of his expert accountant, Wilhelm, should foreclose conviction under either statute as a matter of law. At trial, Wilhelm insisted that the payments were correctly characterized as “assignment fees,” and he persisted in this view even after he learned that Cole had not contributed to the down payments and had a zero basis in many of the contracts. Cole makes the odd contention that the Government's failure to object to this testimony under Federal Rule of Evidence 702 operated as a concession that the testimony met the rule's strictures, and thus that Wilhelm's opinion was “based upon sufficient facts,” was “the product of reliable principles and methods,” and that Wilhelm “applied the principles and methods reliably to the facts of the case.” See Fed. R. Evid. 702(1)–(3). Accordingly, Cole argues, the opinion of a single accountant, hired by a defendant, should suffice to establish the sort of legal uncertainty we found adequate to defeat a finding of willfulness inCritzer and Mallas. Indeed, Cole boldly invites us to “take this opportunity to announce a general rule that admissible Rule 702 evidence of actual correctness [of a tax characterization] precludes a finding of willfulness in tax prosecutions.” Br. of Appellant, at 45. We decline this invitation. Of course, even when an expert's methodology qualifies as “reliable” (and his testimony is thus admissible) for the purposes of Rule 702, the expert's resulting conclusions are by no means unassailable. 4 Here Wilhelm's conclusion was predicated upon the fact of a sale of contract rights between Cole and his partners; Wilhelm himself conceded that a sale would at least require that the partners have beenaware that they were purchasing Cole's rights. The jury was clearly entitled to find, as it did, that the Government's evidence conclusively negatived that possibility. Finally, asking us to blink at the evidence of the repeated contemporaneous descriptions of the disputed payments as commissions, Cole contends that if we look to “the objective economic realities of [the] transaction rather than ... the particular form the parties employed,”Boulware v. United States , 552 U.S. 421, 429 [101 AFTR 2d 2008-1065] (2008) (quoting Frank Lyon Co. v. United States, 435 U.S. 561, 573 [41 AFTR 2d 78-1142] (1978)), we must find that the $2 million in payments were assignment fees, not commissions. We disagree. To excuse a party's attempted tax evasion by giving him the benefit of a different transactional structure he concocts post factum would be to turn Frank Lyon on its head. Here, where the jury could easily have found that Colecould not have structured these transactions as assignments because his partners did not know and would not have approved of Cole's inflating sales prices to capture solely for himself $2 million in income, this argument entirely lacks merit. We readily conclude, therefore, that no complexity of tax law rendered Cole's prosecution untenable and that the jury's verdict finding beyond a reasonable doubt that Cole had willfully falsified the character of his income on his tax returns was amply supported by the evidence presented at trial. There was no error in the district court's denial of Cole's motion for judgment of acquittal. III. Cole next argues that the trial court violated Federal Rule of Evidence 404(b) when it admitted evidence that he: (1) provided false answers on three forms filed with ATF in 1996 and 1998; and (2) engaged in lavish spending before and after filing the tax returns in question. We review a trial court's rulings on the admissibility of evidence for abuse of discretion, and we will only overturn an evidentiary ruling that is “arbitrary and irrational.”United States v. Blake 571 F.3d 331, 346 (4th Cir. 2009). To that end, we “look at the evidence in a light most favorable to its proponent, maximizing its probative value and minimizing its prejudicial effect.” United States v. Udeozor, 515 F.3d 260, 265 (4th Cir. 2008) (quotingUnited States v. Simpson , 910 F.2d 154, 157 (4th Cir. 1990)). Federal Rule of Evidence 404(b) provides: Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident .... As we recognized in United States v. Queen, 132 F.3d 991, 995 (4th Cir. 1997), this court has been less than consistent in its application of Rule 404(b). But on the whole, “we have construed the exceptions to the inadmissibility of prior bad acts evidence broadly, and characterize Rule 404(b) as an inclusive rule, admitting all evidence of other crimes or acts except that which tends to prove only criminal disposition.” United States v. Powers, 59 F.3d 1460, 1464 (4th Cir. 1995) (internal quotation marks omitted). And we have set out a four-part test for prior-act evidence: (1) The evidence must be relevant to an issue, such as an element of an offense, and must not be offered to establish the general character of the defendant. In this regard, the more similar the prior act is (in terms of physical similarity or mental state) to the act being proved, the more relevant it becomes. (2) The act must be necessary in the sense that it is probative of an essential claim or an element of the offense. (3) The evidence must be reliable. And (4) the evidence's probative value must not be substantially outweighed by confusion or unfair prejudice in the sense that it tends to subordinate reason to emotion in the factfinding process. United States v. Johnson, 617 F.3d 286, 296–97 (4th Cir. 2010) (quoting Queen, 132 F.3d at 997). Parts (1)–(3) of the Queen test are requirements that must be satisfied for admission, but they also double as factors to be considered as probative value is weighed against unfair prejudice in the bundled Rule 403 analysis of part (4). A. Cole argues that the district court erred in admitting evidence that he falsely denied being an unlawful user of and addicted to controlled substances on 1996 and 1998 ATF forms he filed in order to purchase firearms. Cole argued that the ATF forms (and related testimonial evidence) should have been excluded as improper character evidence under Rule 404(b), but the district court held that, as the forms contained false statements made to an agency of the federal government, they were admissible because probative of “intent” and “absence of mistake” in this prosecution for tax offenses. The Government called Special Agent James Tanda, who introduced the three ATF forms, and Cole stipulated that at the time he completed the forms he was addicted to narcotic pain medication and had twice been treated as an in-patient for drug addiction. Immediately after the stipulation was read to the jury, the court gave a cautionary instruction. In light of the four-part test announced inQueen , 132 F.3d at 997, we think that the propriety of the district court's admission of the ATF evidence is a very close question. It is doubtful that Cole's prior false statements are probative of any “absence of mistake” in causing his accountant to treat as capital gains ordinary income. After all, Cole's defense of “good faith” or “inherent ambiguity” turned mainly on whether he provided all of the relevant information to his professional tax preparer so that a reasoned assessment of the proper treatment could be arrived at. On the other hand, there clearly was a defense of “mistake” asserted here as to the failure to report the income earned from the 2003 sale of the promissory note. In any event, the ATF forms injected Cole's drug addiction into a trial that was far removed from such a subject. Such evidence of major improprieties in Cole's personal life would in many cases likely have occasioned significant unfair prejudice. Nevertheless, even if there was an abuse of discretion in the admission of the ATF evidence, a conclusion we do not reach, we find that any such error was harmless. Manifestly, a conviction will not be overturned on account of an erroneous evidentiary ruling when that error is deemed harmless within the meaning of Federal Rule of Criminal Procedure 52(a). “[I]n order to find a district court's error harmless, we need only be able to say “with fair assurance, after pondering all that happened without stripping the erroneous action from the whole, that the judgment was not substantially swayed by the error.”” Johnson, 617 F.3d at 292 (quoting United States v. Brooks, 111 F.3d 365, 371 (4th Cir. 1997)). In this case, there was overwhelming evidence indicating that the $2 million obtained by Cole did not constitute proceeds from the sale of contracts. As already discussed, for example: (1) two of the three purported buyers testified that they were unaware Cole ever received these payments, and Cole arranged for the issuance of separate sellers' settlement reports in a transparent effort to hide the payments from his co-venturers; (2) the purported buyers were themselves the ones who provided the down payments on the contracts, which means that they already owned an interest in the contracts; (3) the sellers testified that Cole represented he was acting on behalf of the partnership, not alone; (4) the surreptitious payments to Cole were identified as commissions on the checks and related documents, and in discussions within OPF; and (5) Cole himself swore in his answers to interrogatories in related civil litigation that these amounts were “commissions and fees” that came from the sellers, not from his partners. Though the false statements on the ATF forms were at best only tenuously related to proof of the willful mischaracterization of income charged here and posed a genuine risk of prejudice, we are confident that “the judgment was not substantially swayed by the error” of admitting them. Id. The potential for substantial undue prejudice arising from the injection of a defendant's drug addiction into a trial involving dishonesty is real, but the jury properly had before it strong evidence of Cole's conversion of partnership funds when the fifth fee was made out to the partnership rather than to B&N, far more salient evidence of Cole's dishonest dealings with his partners. We further note that the district court followed admission of the ATF evidence immediately with a cautionary instruction and that the jury was not so prejudiced as to keep it from rejecting the allegations regarding fraudulent deductions for charitable denotations and business expenses under Counts one, three, and five. In sum, there was a veritable mountain of evidence against Cole bearing on the over-arching issue at trial: the existencevel non of his willful intent to evade taxes arising from his secretly-obtained remuneration in the real estate deals. Accordingly, we cannot plausibly say that an erroneous ruling on an ancillary evidentiary point “substantially swayed” the jury here. 5 B. Cole further contends that evidence of his “lavish spending” was admitted contrary to Rule 404. As the Government argues, however, such evidence does not appear to be character evidence governed by Rule 404. Regardless, the evidence was clearly probative of Cole's motive (e.g., wealth accumulation and maintenance) as the trial court held, and was simply not introduced “for the purpose of proving action in conformity [ ]with” the character of a lavish spender. Fed. R. Evid. 404(b). For these reasons we reject Cole's claims of prejudicial error under Rule 404(b). IV. Finally, Cole alleges error in the trial court's refusal to grant him a continuance. In considering a motion for continuance on the basis of health issues, a trial judge must “assess the degree to which a defendant's health might impair his participation in his defense, especially his right to be present at trial, to testify on his own behalf, and to confront adverse witnesses,” as well as whether “the proceeding is likely to worsen the defendant's condition.” United States v. Brown, 821 F.2d 986, 988 (4th Cir. 1987). The judge “may properly consider ... the medical evidence [and] the defendant's activities in the courtroom and outside of it,” among other things. Id. Denial of a motion for a continuance is reviewed for abuse of discretion, and the reviewing court is “not [to] review the medical information before the district courtde novo ; instead, [it is to] look to see whether the district court had sufficient evidence before it to support its decision.” Brown, 821 F.2d at 988. In addition, the appellant must also establish that prejudice resulted from the erroneous denial. United States v. Bakker, 925 F.2d 728, 735 (4th Cir. 1991). We have held that “[f]or a denial of a continuance to constitute an abuse of discretion, the medical repercussions must be serious and out of the ordinary; the impending trial must pose a substantial danger to a defendant's life or health.”Brown , 821 F.2d at 988. The issue of a continuance in this case arose very late in the proceedings. As Cole was to be cross-examined during the fourth week of trial, he moved for a mistrial and a continuance, and the court conducted a thorough hearing on the matter. The trial judge repeatedly emphasized that he had seen no documented medical evidence demonstrating that Cole was disoriented or incapable of focusing, and he asked defense counsel to point him to any such evidence. The judge also noted that he had not seen any indication of the alleged disorientation during trial, which included testimony from Cole. Defense counsel merely reported that Cole told them he was in pain, that he seemed to his counsel to have lost focus during his direct examination, and that an attending physician at the hospital had told one of them that Cole seemed confused. On this last point, the trial judge emphasized that Cole's confusion was nowhere noted on the hospital's report about Cole's earlier visit to the emergency room, and he explained that he could not simply accept counsel's oral representations as evidence. The trial judge, who showed commendable sympathy and flexibility throughout the hearing, made every effort to allow the defense opportunities to gather adequate evidence. As it was, the court had twice granted Cole mid-trial continuances, once after breaking his clavicle and again after a diagnosis of double pneumonia. There was no medical evidence —or evidence of any kind, aside from defendant's and defense counsel's unsupported claims —to support a finding that Cole was unable to continue trial after he had concluded his direct examination. This unsupported motion came as Cole was to be faced with cross-examination, at the end of a four-week trial comprising the testimony of 34 witnesses. The trial court acted well within its broad discretion in denying Cole another continuance. V. We have considered the remaining issues raised on appeal by Cole (e.g., the alleged cumulative effects of the district court's rulings) and find them to lack merit. Accordingly, for the foregoing reasons, the judgment is AFFIRMED. 1 Payment was made to B&N Realty in all but the fifth, final transaction. Counsel to the seller in the fifth transaction objected to Cole's request, citing concerns that B&N was in no way connected to the transaction. Instead, the seller paid the increased amount directly into the purchasers' partnership account and Cole subsequently directed the partnership's bookkeeper to issue a check to him, which Cole then deposited into his personal account. Cole complains on appeal that the Government improperly referred to this withdrawal of funds from the partnership account as an “embezzlement.” We discern no reversible error in this regard. 2 To be sure, during the tax years at issue, Cole earned significant commission income (apparently close to or exceeding a quarter of a million dollars in each year) as a real estate agent and he appropriately reported such earnings on his belatedly-filed tax returns. The gist of the prosecution's theory of this case was that Cole tried to disguise additional commission income, i.e., ordinary income, generated by his negotiation of increased sales prices for the co-venturers' real estate investments, as “assignment fees,” i.e., capital gains. 3 The down payments for the first three properties came from partnership accounts, to which the doctors had contributed hundreds of thousands of dollars, and the third building was financed, in part, by a $1 million note guaranteed by Cole, Miller, and Friedler. The down payment on the fourth property was funded entirely by Passen and Friedler. The down payment on the fifth and final purchase was raised through a $75,000 check from Friedler directly to OPF and monies taken from the management entity related to the fourth property. It appears to be undisputed that Cole contributed little, if any, capital to any of the ventures. 4 As the district court correctly instructed the jury (without objection) when Wilhelm took the stand to testify: This witness will be qualified as an expert with respect to tax preparation and tax matters as a CPA. Just as I previously indicated, I think as to [the Government's expert], this is a time when a person has been qualified as an expert that they are permitted to give, he is permitted to give his opinion on a matter unlike other witnesses.Again it's up to the jury to accept or reject any opinions that are presented . But expert witnesses are permitted to give their opinions. Other witnesses are not. This gentleman has been qualified as an expert. So Mr. Wilhelm is allowed to give his opinion on certain federal tax matters. J.A. 662 (brackets and emphasis added). 5 The Government argues that any Rule 404(b) error is harmless for the simple reason that Cole went on to testify, thus opening the door to evidence attacking his credibility, like the false statements on the ATF forms. But as we explained in Johnson, where an erroneous admission is made during the Government's case-in-chief that damages defendant's character, it is often “impossible to make a post-hoc assessment as to whether [the defendant] would have testified without” the erroneous admission. 617 F.3d at 299 n.7. © 2011 Thomso
Thursday, January 27, 2011
Despite calls for simplifying the tax laws, they have actually been made much more complicated in the last few years. Year after year, there have been numerous tax changes that even some professionals have a tough time keeping up with. This filing season is no different. The 2010 Form 1040 reflects a number of new tax breaks. Some are straightforward. Others are complex. Some present choices. But they all provide an opportunity to save money. Be aware of the new tax breaks for this filing season so that you can take full advantage of them. This is a listing of the key changes for this filing season: (1) Roth IRA rollovers no longer restricted. You can now make a qualified rollover contribution to a Roth IRA, regardless of the amount of your modified adjusted gross income. (2) Income from Roth rollover can be spread out. Half of any income that results from a rollover or conversion to a Roth IRA from another retirement plan in 2010 is included in income in 2011, and the other half in 2012, unless you elect to include all of it in 2010. (3) Self-employed health insurance deduction. Effective March 30, 2010, a self-employed person who paid for health insurance may be able to include in his self-employed health insurance deduction any premiums he paid to cover his child who was under age 27 at the end of 2010, even if the child was not his dependent. Also, health insurance costs for a taxpayer and his family are deductible in computing 2010 self-employment tax. (4) Small business health insurance credit. There's a new tax credit for an eligible small employer who makes qualifying contributions to buy health insurance for his employees. This credit is very complex but it can yield substantial tax savings. In general, the credit is 35% of premiums paid and can be taken against regular and alternative minimum tax. (5) Limits on personal exemptions and itemized deductions ended. You no longer lose part of your deduction for personal exemptions and itemized deductions, regardless of the amount of your adjusted gross income. (6) Personal casualty and theft loss limit reduced. Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of the $500 limit that applied for 2009). This yields larger deductions and thus greater tax savings for affected individuals. (7) Corrosive drywall damage. A taxpayer who paid for repairs to his personal residence or household appliances because of corrosive drywall that was installed between 2001 and 2008 may be able to deduct those amounts as casualty losses under a special safe harbor crafted by the IRS. (8) Homebuyer credit. An eligible first-time homebuyer (and a long-term resident treated as a first-time homebuyer) may be able to claim a first-time homebuyer credit for a home that was purchased in 2010. To qualify, the home must have cost $800,000 or less. You generally cannot claim the credit for a home you bought after April 30, 2010. However, you may be able to claim the credit if you entered into a written binding contract before May 1, 2010, to buy the home before July 1, 2010, and actually bought the home before October 1, 2010. (9) Adoption credit. The maximum adoption credit is $13,170 per eligible child for both non-special needs adoptions and special needs adoptions. In addition, the adoption credit is refundable, i.e., you get the credit even if it exceeds your taxes. (10) Gifts to charity. The provision that excludes up to $100,000 of qualified charitable distributions (distributions to a charity from an Individual Retirement Account) has been extended. If you elect, a qualified charitable distribution made in January of 2011, will be treated as made in 2010. (11) Enhanced small business expensing (Section 179 expensing). To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation. For 2010, you generally may expense up to $500,000 of qualifying property placed in service during the tax year. This annual limit is reduced by the amount by which the cost of property placed in service exceeds $2,000,000. (12) Special depreciation allowance. Businesses that acquire and place qualified property into service after September 8, 2010 can now claim a depreciation allowance in the placed-in-service year equal to 100% of the cost of the property. Businesses that acquired qualified property from January 1, 2010 through September 8, 2010 can claim a bonus first-year depreciation allowance of 50% of the cost of the property. (13) Cellular telephones. Cellular telephones (cell phones) and other similar telecommunications equipment have been removed from the categories of “listed property.” This means that cell phones can be deducted or depreciated like other business property, without onerous record keeping requirements. (14) Carryback of general business credits. Generally, a business's unused general business credits can be carried back to offset taxes paid in the previous year, and the remaining amount can be carried forward for 20 years to offset future tax liabilities. However, for 2010, eligible small businesses can carry back unused general business credits for five years instead of just one. (15) Luxury auto limits. First-year luxury auto limits for vehicles first placed in service in 2010 are $11,060 for autos and $11,160 for light trucks or vans (for vehicles ineligible for bonus depreciation, or if the taxpayer elects out, $3,060 and $3,160, respectively).
Wednesday, January 26, 2011
2010 Tax Relief Act creates a 100% writeoff for heavy SUVs used entirely for business Although generous tax breaks for gas-consuming heavy SUVs have in the past raised the ire of Congress, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) actually made tax breaks for these assets even more generous. Although it may be an unintended result, the limited-time 100% bonus depreciation allowance for qualified property under Code Sec. 168(k) allows taxpayers that buy a new heavy SUV and use it entirely for business to write off the entire purchase price in the placed-in-service year. Background. For tax years beginning in 2010 and 2011, taxpayers generally may elect under Code Sec. 179 to expense up to $500,000 of the cost of eligible personal property used in the active conduct of a trade or business. However, depreciation dollar caps apply to the combined allowable deduction under Code Sec. 179 and MACRS depreciation for “passenger autos.” ( Code Sec. 280F(a)(1) ; Code Sec. 280F(d)(1) ) The dollar caps apply to passenger autos, i.e., four-wheeled vehicles manufactured primarily for use on public streets, roads, and highways, and rated at an unloaded gross vehicle weight (GVW) of 6,000 pounds or less. (Certain types of vehicles, such as ambulances, are excepted.) For a truck or van, the 6,000-pound test is applied to the truck's or van's gross (loaded) vehicle weight. ( Code Sec. 280F(d)(5)(A) ; Reg. § 1.280F-6(c) ) The first-year dollar caps for vehicles bought and placed in service in 2010 were $3,060 for passenger autos and $3,160 for trucks or vans (the 2011 limits haven't been released yet). For passenger autos that are eligible for bonus first-year depreciation under Code Sec. 168(k) , (i.e., generally, new vehicles acquired and placed in service after Dec. 31, 2007 and before Jan. 1, 2013), the regular first-year dollar cap on depreciation and Code Sec. 179 expensing is increased by $8,000. ( Code Sec. 168(k)(2)(F) ) Thus, for example, unless the taxpayer elects out of bonus depreciation, the enhanced first-year dollar caps for eligible passenger autos placed in service in 2010—including those trucks and vans that are treated as passenger autos for purposes of the dollar-cap rules (see above)—are $11,060 for autos and $11,160 for the trucks and vans. Heavy SUVs—those with a GVW rating of more than 6,000 pounds—are exempt from the luxury auto dollar caps because they fall outside of the definition of a passenger auto in Code Sec. 280F(d)(5) . To deal with this “SUV tax loophole,” the American Jobs Creation Act of 2004 ( P.L. 108-357 ) imposed a limit on the expensing of heavy SUVs. Under Code Sec. 179(b)(6) , not more than $25,000 of the cost of a heavy SUV placed in service after Oct. 22, 2004 may be expensed under Code Sec. 179 . These rules apply, with some exceptions, to SUVs rated at 14,000 pounds GVW or less. Also, because heavy SUVs are exempt from the luxury auto dollar caps, the balance of the heavy SUV's cost may be depreciated under the regular rules that apply to 5-year MACRS property. Before the 2010 Tax Relief Act, if the heavy SUV was new and acquired after 2007 and before 2011 by the taxpayer for use in its trade or business (and it was otherwise eligible for bonus depreciation), the taxpayer also could, in the placed-in-service year, write off 50% of the cost of the heavy SUV that wasn't expensed and claim a regular 20% first-year depreciation allowance for the balance of the cost. example : A calendar year taxpayer bought a $50,000 heavy SUV in June of 2010 and used it 100% for business in 2010. It may write off $40,000 of the cost of the vehicle on its 2010 return, as follows: ... $25,000 expensing deduction, plus ... $12,500 of bonus first year depreciation ($50,000 − $25,000 of expensing × .50 = $12,500), plus ... $2,500 of regular first-year depreciation ($50,000 − $25,000 of expensing − $12,500 bonus depreciation × .20 = $2,500. Now 100% first-year writeoffs for heavy SUVs. Under the 2010 Tax Relief Act, the bonus first-year depreciation percentage is 100% (instead of 50%) for bonus-depreciation-eligible “qualified property” that is generally (1) placed in service after Sept. 8, 2010 and before Jan. 1, 2012, and (2) acquired by the taxpayer after Sept. 8, 2010 and before Jan. 1, 2012. Qualified property includes property to which MACRS applies with a recovery period of 20 years or less. Autos and trucks are 5-year MACRS property and thus qualify for bonus depreciation (assuming business use exceeds 50% of total use). ( Code Sec. 168(k)(2)(D) ) Thus, a taxpayer that buys and places in service a new heavy SUV after Sept. 8, 2010 and before Jan. 1, 2012, and uses it 100% for business, may write off its entire cost in the placed-in-service year. There is no specific rule barring this result for heavy SUVs. Thus, if the taxpayer in our illustration above had bought the heavy SUV in, say, October of 2010, it could write off the full $50,000 cost of the vehicle on its 2010 return
Tuesday, January 25, 2011
News Release 2011-9, 01/24/2011, IRC Sec(s). Headnote: Reference(s): Full Text: IRS Announces New Advisory Council Members WASHINGTON — The Internal Revenue Service today announced the selection of 10 new members and a new chairman of the Internal Revenue Service Advisory Council (IRSAC), which provides an organized public forum for IRS officials and the public to discuss key tax administration issues. “ IRSAC's new members bring a wealth of knowledge and experience that will help us shape our programs,” said IRS Commissioner Doug Shulman. Members are selected to represent the taxpaying public, tax professionals, small and large businesses, and the payroll community. The council provides the IRS leadership with important feedback, observations and suggestions. IRSAC meets periodically and will submit a report to the agency in November 2011 at a public meeting. IRSAC members generally serve a three-year term with a possible one-year extension. The 10 new participants will join 19 returning members in 2011. The new members are: Richard G. Larsen, JD, CPA, of Fairfax, Va. Larsen is a Distinguished Professor of Accounting at George Mason University, School of Management. He is presently on the Board of Directors of Tax Analysts and the Bureau of National Affairs Accounting Advisory Board. Neil D. Traubenberg, JD, of Broomfield, Colo. Traubenberg recently retired as Vice President-Corporate Tax for Sun Microsystems. He has over 35 years experience in taxation that included an international restructuring strategy that integrates subsidiaries attained through acquisition with existing Sun subsidiaries. He is a member of the ABA-Tax Section, MAPI and was Tax Executive Institute (TEI), International President from 2009-2010. Kevin D. Anderson, JD, CPA of Bethesda, Md. Anderson is a partner with the firm of BDO Seidman, LLP. He is a member of the ABA-Section of Taxation and the Section's liaison to the Wage and Investment Division of the Service. He also served as Vice Chair of the Pro Bono Committee, where his principal role was to develop and manage the Section's commitment to the Volunteer Income Tax Assistance Program (VITA). Donna K. Baker, CPA, of Adrian, Mich. Baker is the owner of Donna K. Baker & Associates and Tax Pro Filers. She is also an associate professor of accounting with Siena Heights University. She is a member of AICPA, NATP, and the Michigan Association of Certified Public Accountants and the Lenawee County VITA Coalition. William E. Philbrick, CPA/ABV, CVA, CFF, of Worcester, Mass. Philbrick serves as a Senior Vice President with Greenberg, Rosenblatt, Kull & Britsoli, PC. He is a frequent lecturer and speaker before professional organizations on several tax areas. He is also a member of the AICPA, and the Massachusetts Society of Certified Public Accountants, the National Association of Certified Valuation Analysts, and the National Society of Accountants. Sanford D. Kelsey, III, JD, CPA, of Memphis. Kelsey is a Senior Tax Attorney for FedEx Corporation where is advises stakeholders of FedEx's various subsidiaries on tax matters dealing with state, federal and international tax matters. Kelsey currently serves as an articles editor on the Editorial Board and Publication Committee of The Tax Lawyer – SALTE, an American Bar Association (ABA) Publication. He is also a member of ABA, the Florida Bar Association and the Tennessee Society of Certified Public Accountants. Cecily V. Welch, CPA, PFS, CPF, of Alpharetta, Ga. Welch is a Senior Tax Manager with S.J. Gorowitz Accounting and Tax Services, Inc. She has lectured frequently to professional organizations and has experience in domestic and international financial audits. Ms. Welch is a member of AICPA and is active in the Georgia Society of CPA's – Tax Section and Estate Planning Section. David F. Golden, LL.M., JD, CPA, of Atlanta. Golden is a partner with the law firm of Troutman Sanders LLP. He prepared comments on behalf of the American Association of Attorney-Certified Public Accounts (AAA-CPA), on proposed regulations to the Section 6694 Tax Return Preparer Penalty Rules and has spoken extensively regarding Circular 230 and its impact on tax lawyers and certified public accountants. He is a member of the American Bar Association (ABA) and a member of AAA-CPA. Peter S. Wilson, JD, CPA of Raleigh, N.C. Wilson is a Managing Director with RSM McGladrey's National Tax practice a partner in McGladrey & Pullen LLP. He chaired the task force that developed the ABA Tax Section comments on Circular 230 § 10.34(a) (2009). He is a member of the ABA, Tax Section, and Standards of Tax Practice Committee and the AICPA, Tax Division. Charles J. Muller, III, LL.M., JD, of San Antonio. Muller is an attorney/partner with the law firm of Strasburger & Price and specializes in civil, criminal, malpractice, tax, commercial and financial matters. He has chaired the American Bar Association Committee on Civil and Criminal Penalties and the Penalties Tax Force and he is a recipient of the Attorney General's Marshall Award for Outstanding Legal Achievement in the Trial of Complex Litigation. He is a member of both the American College of Tax Lawyers and the American Bar Association (ABA), Tax Section, in addition to being listed in the Best Lawyers in America. The 2011 IRSAC Chairman is Charles P. Rettig, JD, LL.M., of Beverly Hills. Rettig served as the vice-chair of IRSAC for 2010. He is an attorney with Hochman, Salkin, Rettig, Toscher & Perez, P.C., and specializes in tax controversies as well as tax, business, charitable and estate planning, and family wealth transfers. He is on the National Board of Advisors for the Graduate Tax Program (LL.M. in Taxation) at New York University School of Law; a Member of the Advisory Board of the California Franchise Tax Board; an elected Regent and Fellow of the American College of Tax Counsel; a Member of the Board of Trustees for the California CPA Education Foundation; and a Member of the Board of Advisors for the CCH Journal of Tax Practice and Procedure. For more information on IRSAC, please visit the Tax Professionals page on IRS.gov. Related Items: www.irstaxattorney.com 888-712-7690
Monday, January 24, 2011
Tax changes for tax year 2011 The sheer volume of legislative tax changes and their complexity make it difficult for clients to keep track of what's new and what's been changed. You can use the Client Letter that follows to keep your clients up-to-date on what's new for 2011, and to suggest that a financial and tax planning review may be in order. For client letters on the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act). The tax laws enacted in the last couple of years contain important income tax and information reporting provisions that are effective for the first time in 2011. To inform you of what's new in the tax rules, here's a summary of the key tax changes for 2011, broken down into three categories: Personal Income Taxes, Retirement Plan Changes, and Tax Changes for Businesses and Investors. If you'd like to discuss how these changes affect your personal, business or investment situation, please give me a call. Personal Income Taxes Payroll tax holiday in place. Employees will pay only 4.2% (instead of the usual 6.2%) OASDI (Social Security) tax on compensation received during 2011 up to $106,800 (the wage base for 2011). Similarly, for tax years beginning in 2011, self-employed persons will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800. In either case, the maximum savings for 2011 will be $2,136 (2% of $106,800) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,272. Stricter rules apply to energy saving home improvements. You can claim a tax credit for energy saving home improvements you make this year, but stricter rules apply for 2011 than for 2010. You can only claim a 10% credit for qualified energy property placed in service in 2011 up to a $500 lifetime limit (with no more than $200 from windows and skylights). What's more, the credit you claim for any year can't exceed $500 less the total of the credits you claimed for all earlier tax years ending after Dec. 31, 2005. The amount you claim for windows and skylights in a year can't exceed $200 less the total of the credits you claimed for these items in all earlier tax years ending after Dec. 31, 2005. The credit is equal to the sum of: (1) 10% of the amount you pay or incur for qualified energy efficient improvements (such as insulation, exterior windows or doors that meet certain energy efficient standards) installed during the year, and (2) the amount of the residential energy property expenses you paid or incurred during the year. The credit for residential energy property expenses can't exceed: (A) $50 for an advanced main circulating fan; (B) $150 for any qualified natural gas, propane, or hot water boiler; and (C) $300 for any item of energy efficient property (advanced types of energy saving equipment, such as electric heat pumps, meeting specific energy efficient standards). Partial annuitization of annuity contracts. When you receive non-retirement-plan annuity payments from an annuity contract, part of each payment is a tax-free recovery of your basis (cost of the annuity contract for tax purposes), and part is a taxable distribution of earnings. For amounts received in tax years beginning after Dec. 31, 2010, taxpayers may partially annuitize such an annuity (or endowment, or life insurance) contract. If you receive an annuity for a period of 10 years or more, or over one or more lives, under any portion of an annuity, endowment, or life insurance contract, then that portion is treated as a separate contract for annuity taxation purposes. The net effect is that the annuitized portion is treated as a separate contract, and each annuity payment from that portion is partially a tax-free recovery of basis and partially a taxable distribution of earnings. Absent this rule, the payments might have been treated as coming out of income before recovery of any basis. The portion of the contract that is not annuitized is also treated as a separate contract and will continue to earn income on a tax-deferred basis. Restricted definition of medicine for health plan reimbursements. Beginning this year, the cost of over-the-counter medicines can't be reimbursed with excludible income through a health flexible spending arrangement (FSA), health reimbursement account (HRA), health savings account (HSA), or Archer MSA (medical savings account), unless the medicine is prescribed by a doctor or is insulin. This new rule applies to amounts paid after 2010. However, it does not apply to amounts paid in 2011 for medicines or drugs bought before Jan. 1, 2011. Also, for distributions after 2010, the additional tax on distributions from an HSA that are not used for qualified medical expenses increases from 10% to 20% of the disbursed amount, and the additional tax on distributions from an Archer MSA that are not used for qualified medical expenses increases from 15% to 20% of the disbursed amount. Retirement Plan Changes Small employers may establish “simple cafeteria plans.” For years beginning after Dec. 31, 2010, small employers (those having an average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a “simple cafeteria plan.” An employer that uses this type of plan gets a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for certain types of qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan, and benefits under a dependent care assistance program. Election to treat January 2011 charitable distributions as made in 2010. If you are age 70 1/2 or older, you can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000. This applies for charitable IRA transfers made in tax years beginning before Jan. 1, 2012. In addition, if you make such a distribution in January of 2011, you can treat it for income tax purposes as if it were made on Dec. 31, 2010. Thus, a qualified charitable distribution made in January of 2011 may be treated as made in your 2010 tax year and count against the $100,000 exclusion for 2010. It is also may be used to satisfy your IRA required minimum distribution for 2010. Tax Changes for Businesses and Investors Electronic filing rules now in place. Beginning Jan. 1, 2011, employers must use electronic funds transfer (EFT) to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after Dec. 31, 2010. Up-to-$1,000 credit for “retained workers” in 2011. Employers may claim a “retention credit” for retaining qualifying new employees (certain formerly unemployed workers meeting specific requirements). The amount of the credit is the lesser of $1,000 or 6.2% of wages you pay to the retained qualified employee during a 52 consecutive week period. The qualified employee's wages for such employment during the last 26 weeks must equal at least 80% of wages for the first 26 weeks. The credit may be claimed for a retained worker for the first tax year ending after Mar. 18, 2010, for which the retained worker satisfies the 52 consecutive week requirement. However, the credit applies only for qualifying employees hired after Feb. 3, 2010, and before Jan. 1, 2011. New basis and character reporting rules. Generally effective on Jan. 1, 2011, every broker required to file an information return reporting the gross proceeds of a “covered security” such as corporate stock must include in the return the customer's adjusted basis in the security and whether any gain or loss with respect to the security is short-term or long-term. The reporting is generally done on Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” A covered security includes all stock acquired beginning in 2011, except stock in certain regulated investment companies (i.e, mutual funds) and stock acquired in connection with a dividend reinvestment plan (both of which are covered securities if acquired beginning in 2012). Corporate actions that affect stock basis must be reported. Effective Jan. 1, 2011, issuers of “specified securities” must file a return describing any organizational action (e.g., stock split, merger, or acquisition) that affects the basis of the specified security, the quantitative effect on the basis of that specified security, and any other information required by IRS. The issuer's return (and information to nominees or certificate holders) must be filed within 45 days after the date of the organizational action or, if earlier, by January 15th of the year following the calendar year during which the action occurred. Nominees or certificate holders must (unless the IRS waives this requirement) be given a written statement showing (1) the name, address, and telephone number of the information contact of the person required to file the return, (2) the information required to be included on the return for the security, and (3) any other information required by the IRS. In general, a specified security is any share of stock in an entity organized as, or treated for federal tax purposes as, a foreign or domestic corporation. Reporting requirement for payment card and third-party payment transactions. After 2010, banks generally must file an information return with the IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant's name, address, and TIN. Similar reporting is also required for third party network transactions (e.g., those facilitating online sales). Information reporting for real estate. For payments made after Dec. 31, 2010, for information reporting purposes, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property. As a result, recipients of rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, rental income recipients making payments of $600 or more during the tax year to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income must provide an information return (typically Form 1099-MISC) to the IRS and to the service provider. The rental property expense payment reporting requirement doesn't apply to: (1) an individual who receives rental income of not more than a minimal amount (to be determined by the IRS); (2) any individual (including one who is an active member of the uniformed services or an employee of the intelligence community) if substantially all of his or her rental income is derived from renting the individual's principal residence (main home) on a temporary basis; or (3) any other individual for whom the information reporting requirement would cause hardship (to be defined by
Friday, January 21, 2011
News Release 2011-7, 01/20/2011, IRC Sec(s). ________________________________________ Headnote: Reference(s): Full Text: IRS to Start Processing Delayed Returns on Feb. 14; Most People Unaffected and Can File Now IR-2011-7, Jan. 20, 2011 The Internal Revenue Service plans a Feb. 14 start date for processing tax returns delayed by last month's tax law changes. The IRS reminded taxpayers affected by the delay they can begin preparing their tax returns immediately because many software providers are ready now to accept these returns. Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14. People using e-file for these delayed forms can get a head start because many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open on Feb. 14 for the delayed forms. Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete. Most other returns, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately. The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.
Thursday, January 20, 2011
The Supreme Court has held that, for purposes of calculating the amount of income available to a debtor to pay his creditors in a Chapter 13 bankruptcy case, a debtor who owned his car outright wasn't entitled to claim any car-ownership deduction. In so holding, the Court determined that a debtor's “applicable monthly expense amounts” specified under IRS's local standards included only those actually incurred by the debtor. Opinion) OCTOBER TERM, 2010 Syllabus NOTE: Where it is feasible, a syllabus (headnote) will be released, as isbeing done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has beenprepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337. SUPREME COURT OF THE UNITED STATES Syllabus RANSOM v. FIA CARD SERVICES, N. A., FKA MBNA AMERICA BANK, N. A. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT No. 09–907. Argued October 4, 2010—Decided January 11, 2011 Chapter 13 of the Bankruptcy Code uses a statutory formula known asthe “means test” to help ensure that debtors who can pay creditors do pay them. The means test instructs a debtor to determine his “disposable income”—the amount he has available to reimburse creditors—by deducting from his current monthly income “amounts reasonably necessary to be expended” for, inter alia, “maintenance or support.” 11 U. S. C. §1325(b)(2)(A)(i). For a debtor whose income is above the median for his State, the means test indentifies which expenses qualify as “amounts reasonably necessary to be expended.” As relevant here, the statute 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 [IRS] forthe area in which the debtor resides.” §707(b)(2)(A)(ii)(I).The Standards are tables listing standardized expense amounts for basic necessities, which the IRS prepares to help calculate taxpayers’ability to pay overdue taxes. The IRS also creates supplementalguidelines known as the “Collection Financial Standards,” which describe how to use the tables and what the amounts listed in them mean. The Local Standards include an allowance for transportationexpenses, divided into vehicle “Ownership Costs” and vehicle “Operating Costs.” The Collection Financial Standards explain that “Ownership Costs” cover monthly loan or lease payments on an automobile; the expense amounts listed are based on nationwide car financing data. The Collection Financial Standards further state that a taxpayer who has no car payment may not claim an allowance 2 RANSOM v. FIA CARD SERVICES, N. A. Syllabus for ownership costs. When petitioner Ransom filed for Chapter 13 bankruptcy relief, helisted respondent (FIA) as an unsecured creditor. Among his assets,Ransom reported a car that he owns free of any debt. In determininghis monthly expenses, he nonetheless claimed a car-ownership deduction of $471, the full amount specified in the “Ownership Costs” table,as well as a separate $388 deduction for car-operating costs. Based on his means-test calculations, Ransom proposed a bankruptcy plan that would result in repayment of approximately 25% of his unsecured debt. FIA objected on the ground that the plan did not directall of Ransom’s disposable income to unsecured creditors. FIA contended that Ransom should not have claimed the car-ownership allowance because he does not make loan or lease payments on his car. Agreeing, the Bankruptcy Court denied confirmation of the plan.The Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit affirmed. Held: A debtor who does not make loan or lease payments may not takethe car-ownership deduction. Pp. 6–18. (a) This Court’s interpretation begins with the language of theBankruptcy Code, which provides that a debtor may claim only “applicable” expense amounts listed in the Standards. Because the Code does not define the key word “applicable,” the term carries its ordinary meaning of appropriate, relevant, suitable, or fit. What makes an expense amount “applicable” in this sense is most naturally understood to be its correspondence to an individual debtor’s financial circumstances. Congress established a filter, permitting a debtor toclaim a deduction from a National or Local Standard table only ifthat deduction is appropriate for him. And a deduction is so appropriate only if the debtor will incur the kind of expense covered by thetable during the life of the plan. Had Congress not wanted to separate debtors who qualify for an allowance from those who do not, it could have omitted the term “applicable” altogether. Without that word, all debtors would be eligible to claim a deduction for each category listed in the Standards. Interpreting the statute to require athreshold eligibility determination thus ensures that “applicable” carries meaning, as each word in a statute should. This reading draws support from the statute’s context and purpose. The Code initially defines a debtor’s disposable income as his “current monthly income . . . less amounts reasonably necessary to be expended.” §1325(b)(2). It then instructs that such reasonably necessary amounts “shall be determined in accordance with” the means test. §1325(b)(3). Because Congress intended the means test to approximate the debtor’s reasonable expenditures on essential items, a debtor should be required to qualify for a deduction by actually incur3 Cite as: 562 U. S. ____ (2011) Syllabus ring an expense in the relevant category. Further, the statute’s purpose—to ensure that debtors pay creditors the maximum they can afford—is best achieved by interpreting the means test, consistent withthe statutory text, to reflect a debtor’s ability to afford repayment.Pp. 6–9. (b) The vehicle-ownership category covers only the costs of a car loan or lease. The expense amount listed ($471) is the average monthly payment for loans and leases nationwide; it is not intendedto estimate other conceivable expenses associated with maintaining a car. Maintenance expenses are the province of the separate “Operating Costs” deduction. A person who owns a car free and clear is entitled to the “Operating Costs” deduction for all driving-related expenses. But such a person may not claim the “Ownership Costs”deduction, because that allowance is for the separate costs of a carloan or lease. The IRS’ Collection Financial Standards reinforce this conclusion by making clear that individuals who have a car but makeno loan or lease payments may take only the operating-costs deduction. Because Ransom owns his vehicle outright, he incurs no expense in the “Ownership Costs” category, and that expense amount istherefore not “applicable” to him. Pp. 9–11. (c) Ransom’s arguments to the contrary—an alternative interpretation of the key word “applicable,” an objection to the Court’s view ofthe scope of the “Ownership Costs” category, and a criticism of thepolicy implications of the Court’s approach—are unpersuasive. Pp. 11–18. 577 F. 3d 1026, affirmed. KAGAN, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, THOMAS, GINSBURG, BREYER, ALITO, and SO-TOMAYOR, JJ., joined. SCALIA, J., filed a dissenting opinion. _________________ _________________ 1 Cite as: 562 U. S. ____ (2011) Opinion of the Court NOTICE: This opinion is subject to formal revision before publication in thepreliminary print of the United States Reports. Readers are requested tonotify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in orderthat corrections may be made before the preliminary print goes to press. SUPREME COURT OF THE UNITED STATES No. 09–907 JASON M. RANSOM, PETITIONER v. FIA CARD SERVICES, N. A., FKA MBNA AMERICA BANK, N. A. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OFAPPEALS FOR THE NINTH CIRCUIT [January 11, 2011] JUSTICE KAGAN delivered the opinion of the Court. Chapter 13 of the Bankruptcy Code enables an individual to obtain a discharge of his debts if he pays his creditors a portion of his monthly income in accordance with a court-approved plan. 11 U. S. C. §1301 et seq. To determine how much income the debtor is capable of paying, Chapter 13 uses a statutory formula known as the “meanstest.” §§707(b)(2) (2006 ed. and Supp. III), 1325(b)(3)(A) (2006 ed.). The means test instructs a debtor to deduct specified expenses from his current monthly income. The result is his “disposable income”—the amount he hasavailable to reimburse creditors. §1325(b)(2). This case concerns the specified expense for vehicleownership costs. We must determine whether a debtor like petitioner Jason Ransom who owns his car outright, and so does not make loan or lease payments, may claiman allowance for car-ownership costs (thereby reducing the amount he will repay creditors). We hold that the text, context, and purpose of the statutory provision at issue preclude this result. A debtor who does not make loan or 2 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court lease payments may not take the car-ownership deduction. I A “Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA or Act) tocorrect perceived abuses of the bankruptcy system.” Milavetz, Gallop & Milavetz, P. A. v. United States, 559 U. S. ___, ___ (2010) (slip op., at 1). In particular, Congressadopted the means test—“[t]he heart of [BAPCPA’s] consumer bankruptcy reforms,” H. R. Rep. No. 109–31, pt. 1, p. 2 (2005) (hereinafter H. R. Rep.), and the home of the statutory language at issue here—to help ensure that debtors who can pay creditors do pay them. See, e.g., ibid.(under BAPCPA, “debtors [will] repay creditors the maximum they can afford”). In Chapter 13 proceedings, the means test provides aformula to calculate a debtor’s disposable income, which the debtor must devote to reimbursing creditors under acourt-approved plan generally lasting from three to five years. §§1325(b)(1)(B) and (b)(4).1 The statute defines “disposable income” as “current monthly income” less“amounts reasonably necessary to be expended” for “maintenance or support,” business expenditures, and certaincharitable contributions. §§1325(b)(2)(A)(i) and (ii). For a debtor whose income is above the median for his State, the means test identifies which expenses qualify as “amounts —————— 1Chapter 13 borrows the means test from Chapter 7, where it is usedas a screening mechanism to determine whether a Chapter 7 proceeding is appropriate. Individuals who file for bankruptcy relief under Chapter 7 liquidate their nonexempt assets, rather than dedicate theirfuture income, to repay creditors. See 11 U. S. C. §§704(a)(1), 726. If the debtor’s Chapter 7 petition discloses that his disposable income ascalculated by the means test exceeds a certain threshold, the petition ispresumptively abusive. §707(b)(2)(A)(i). If the debtor cannot rebut the presumption, the court may dismiss the case or, with the debtor’s consent, convert it into a Chapter 13 proceeding. §707(b)(1). 3 Cite as: 562 U. S. ____ (2011) Opinion of the Court reasonably necessary to be expended.” The test supplantsthe pre-BAPCPA practice of calculating debtors’ reasonable expenses on a case-by-case basis, which led to varying and often inconsistent determinations. See, e.g., In re Slusher, 359 B. R. 290, 294 (Bkrtcy. Ct. Nev. 2007). Under the means test, a debtor calculating his “reasonably necessary” expenses is directed to claim allowances for defined living expenses, as well as for securedand priority debt. §§707(b)(2)(A)(ii)–(iv). As relevant here, the statute provides: “The debtor’s monthly expenses shall be the debtor’sapplicable 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 theInternal Revenue Service [IRS] for the area in which the debtor resides.” §707(b)(2)(A)(ii)(I). These are the principal amounts that the debtor can claimas his reasonable living expenses and thereby shield fromcreditors. The National and Local Standards referenced in this provision are tables that the IRS prepares listing standardized expense amounts for basic necessities.2 The IRS uses the Standards to help calculate taxpayers’ ability topay overdue taxes. See 26 U. S. C. §7122(d)(2). The IRS also prepares supplemental guidelines known as the Collection Financial Standards, which describe how to use the —————— 2The National Standards designate allowances for six categories of expenses: (1) food; (2) housekeeping supplies; (3) apparel and services; (4) personal care products and services; (5) out-of-pocket health care costs; and (6) miscellaneous expenses. Internal Revenue Manual §188.8.131.52 (Oct. 2, 2009), http://www.irs.gov/irm/part5/irm_05-015001.html#d0e1012 (all Internet materials as visited Jan. 7, 2011, andavailable in Clerk of Court’s case file). The Local Standards authorize deductions for two kinds of expenses: (1) housing and utilities; and (2)transportation. Id., §184.108.40.206. 4 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court tables and what the amounts listed in them mean. The Local Standards include an allowance for transportation expenses, divided into vehicle “Ownership Costs” and vehicle “Operating Costs.”3 At the time Ransom filed for bankruptcy, the “Ownership Costs” table appeared as follows: Ownership Costs First Car Second Car National $471 $332 App. to Brief for Respondent 5a. The Collection Financial Standards explain that these ownership costs represent“nationwide figures for monthly loan or lease payments,” id., at 2a; the numerical amounts listed are “base[d] . . . onthe five-year average of new and used car financing datacompiled by the Federal Reserve Board,” id., at 3a. The Collection Financial Standards further instruct that, in the tax-collection context, “[i]f a taxpayer has no car payment, . . . only the operating costs portion of the transportation standard is used to come up with the allowable transportation expense.” Ibid. B Ransom filed for Chapter 13 bankruptcy relief in July 2006. App. 1, 54. Among his liabilities, Ransom itemized over $82,500 in unsecured debt, including a claim held by respondent FIA Card Services, N. A. (FIA). Id., at 41. Among his assets, Ransom listed a 2004 Toyota Camry, valued at $14,000, which he owns free of any debt. Id., at 38, 49, 52. For purposes of the means test, Ransom reported in—————— 3Although both components of the transportation allowance are listedin the Local Standards, only the operating-cost expense amounts vary by geography; in contrast, the IRS provides a nationwide figure for ownership costs. 5 Cite as: 562 U. S. ____ (2011) Opinion of the Court come of $4,248.56 per month. Id., at 46. He also listed monthly expenses totaling $4,038.01. Id., at 53. In determining those expenses, Ransom claimed a carownership deduction of $471 for the Camry, the fullamount specified in the IRS’s “Ownership Costs” table. Id., at 49. Ransom listed a separate deduction of $338 for car-operating costs. Ibid. Based on these figures, Ransom had disposable income of $210.55 per month. Id., at 53. Ransom proposed a 5-year plan that would result inrepayment of approximately 25% of his unsecured debt. Id., at 55. FIA objected to confirmation of the plan on the ground that it did not direct all of Ransom’s disposableincome to unsecured creditors. Id., at 64. In particular,FIA argued that Ransom should not have claimed the carownership allowance because he does not make loan orlease payments on his car. Id., at 67. FIA noted that without this allowance, Ransom’s disposable income would be $681.55—the $210.55 he reported plus the $471 hededucted for vehicle ownership. Id., at 71. The difference over the 60 months of the plan amounts to about $28,000. C The Bankruptcy Court denied confirmation of Ransom’s plan. App. to Pet. for Cert. 48. The court held that Ransom could deduct a vehicle-ownership expense only “if heis currently making loan or lease payments on that vehicle.” Id., at 41. Ransom appealed to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed. In re Ransom, 380 B. R. 799, 808–809 (2007). The panel reasoned that an “expense[amount] becomes relevant to the debtor (i.e., appropriate or applicable to the debtor) when he or she in fact has suchan expense.” Id., at 807. “[W]hat is important,” the panel noted, “is the payments that debtors actually make, not how many cars they own, because [those] payments . . .are what actually affect their ability to” reimburse unse6 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court cured creditors. Ibid. The United States Court of Appeals for the Ninth Circuit affirmed. In re Ransom, 577 F. 3d 1026, 1027 (2009). The plain language of the statute, the court held, “does not allow a debtor to deduct an ‘ownership cost’ . . . that thedebtor does not have.” Id., at 1030. The court observed that “[a]n ‘ownership cost’ is not an ‘expense’—either actual or applicable—if it does not exist, period.” Ibid. We granted a writ of certiorari to resolve a split of authority over whether a debtor who does not make loan orlease payments on his car may claim the deduction forvehicle-ownership costs. 559 U. S. ___ (2010).4 We now affirm the Ninth Circuit’s judgment. II Our interpretation of the Bankruptcy Code starts “where all such inquiries must begin: with the language of the statute itself.” United States v. Ron Pair Enterprises, Inc., 489 U. S. 235, 241 (1989). As noted, the provision of the Code central to the decision of this case states: “The debtor’s monthly expenses shall be the debtor’sapplicable 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[IRS] for the area in which the debtor resides.”§707(b)(2)(A)(ii)(I). The key word in this provision is “applicable”: A debtormay claim not all, but only “applicable” expense amounts —————— 4Compare In re Ransom, 577 F. 3d 1026, 1027 (CA9 2009) (case below), with In re Washburn, 579 F. 3d 934, 935 (CA8 2009) (permitting the allowance), In re Tate, 571 F. 3d 423, 424 (CA5 2009) (same), and In re Ross-Tousey, 549 F. 3d 1148, 1162 (CA7 2008) (same). The question has also divided bankruptcy courts. See, e.g., In re Canales, 377 B. R. 658, 662 (Bkrtcy. Ct. CD Cal. 2007) (citing dozens of cases reaching opposing results). 7 Cite as: 562 U. S. ____ (2011) Opinion of the Court listed in the Standards. Whether Ransom may claim the $471 car-ownership deduction accordingly turns on whether that expense amount is “applicable” to him. Because the Code does not define “applicable,” we look to the ordinary meaning of the term. See, e.g., Hamilton v. Lanning, 560 U. S. ___, ___ (2010) (slip op., at 6). “Applicable” means “capable of being applied: having relevance” or “fit, suitable, or right to be applied: appropriate.”Webster’s Third New International Dictionary 105 (2002). See also New Oxford American Dictionary 74 (2d ed. 2005) (“relevant or appropriate”); 1 Oxford English Dictionary 575 (2d ed. 1989) (“[c]apable of being applied” or “[f]it or suitable for its purpose, appropriate”). So an expense amount is “applicable” within the plain meaning of the statute when it is appropriate, relevant, suitable, or fit. What makes an expense amount “applicable” in thissense (appropriate, relevant, suitable, or fit) is most naturally understood to be its correspondence to an individualdebtor’s financial circumstances. Rather than authorizing all debtors to take deductions in all listed categories, Congress established a filter: A debtor may claim a deduction from a National or Local Standard table (like “[Car]Ownership Costs”) if but only if that deduction is appropriate for him. And a deduction is so appropriate only ifthe debtor has costs corresponding to the category covered by the table—that is, only if the debtor will incur that kind of expense during the life of the plan. The statute underscores the necessity of making such an individualized determination by referring to “the debtor’s applicablemonthly expense amounts,” §707(b)(2)(A)(ii)(I) (emphasisadded)—in other words, the expense amounts applicable (appropriate, etc.) to each particular debtor. Identifyingthese amounts requires looking at the financial situation of the debtor and asking whether a National or LocalStandard table is relevant to him. If Congress had not wanted to separate in this way 8 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court debtors who qualify for an allowance from those who do not, it could have omitted the term “applicable” altogether.Without that word, all debtors would be eligible to claim a deduction for each category listed in the Standards. Congress presumably included “applicable” to achieve a different result. See Leocal v. Ashcroft, 543 U. S. 1, 12 (2004) (“[W]e must give effect to every word of a statute wherever possible”). Interpreting the statute to require a thresholddetermination of eligibility ensures that the term “applicable” carries meaning, as each word in a statute should. This reading of “applicable” also draws support from the statutory context. The Code initially defines a debtor’sdisposable income as his “current monthly income . . . less amounts reasonably necessary to be expended.” §1325(b)(2)(emphasis added). The statute then instructs that “[a]mounts reasonably necessary to be expended . . . shall be determined in accordance with” the means test. §1325(b)(3). Because Congress intended the means test to approximate the debtor’s reasonable expenditures on essential items, a debtor should be required to qualify for a deduction by actually incurring an expense in the relevant category. If a debtor will not have a particular kind of expense during his plan, an allowance to cover that cost is not “reasonably necessary” within the meaning of the statute.5 Finally, consideration of BAPCPA’s purpose strengthensour reading of the term “applicable.” Congress designed —————— 5This interpretation also avoids the anomalous result of granting preferential treatment to individuals with above-median income. Because the means test does not apply to Chapter 13 debtors whoseincomes are below the median, those debtors must prove on a case-bycase basis that each claimed expense is reasonably necessary. See §§1325(b)(2) and (3). If a below-median-income debtor cannot take a deduction for a nonexistent expense, we doubt Congress meant to provide such an allowance to an above-median-income debtor—the very kind of debtor whose perceived abuse of the bankruptcy system inspired Congress to enact the means test. 9 Cite as: 562 U. S. ____ (2011) Opinion of the Court the means test to measure debtors’ disposable income and, in that way, “to ensure that [they] repay creditors the maximum they can afford.” H. R. Rep., at 2. This purposeis best achieved by interpreting the means test, consistent with the statutory text, to reflect a debtor’s ability to afford repayment. Cf. Hamilton, 560 U. S., at ___ (slip op.,at 14) (rejecting an interpretation of the Bankruptcy Codethat “would produce [the] senseless resul[t]” of “deny[ing] creditors payments that the debtor could easily make”). Requiring a debtor to incur the kind of expenses for whichhe claims a means-test deduction thus advances BAPCPA’s objectives. Because we conclude that a person cannot claim anallowance for vehicle-ownership costs unless he has someexpense falling within that category, the question in this case becomes: What expenses does the vehicle-ownershipcategory cover? If it covers loan and lease payments alone, Ransom does not qualify, because he has no such expense. Only if that category also covers other costs associated with having a car would Ransom be entitled to thisdeduction. The less inclusive understanding is the right one: The ownership category encompasses the costs of a car loan orlease and nothing more. As noted earlier, the numerical amounts listed in the “Ownership Costs” table are “base[d] . . . on the five-year average of new and used car financing data compiled by the Federal Reserve Board.” App. to Brief for Respondent 3a. In other words, the sum $471 is the average monthly payment for loans and leases nationwide; it is not intended to estimate other conceivable expenses associated with maintaining a car. The Standards do account for those additional expenses, but in a different way: They are mainly the province of the separate deduction for vehicle “Operating Costs,” which include payments for “[v]ehicle insurance, . . . maintenance, fuel, state and local registration, required inspection, 10 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court parking fees, tolls, [and] driver’s license.” Internal Rev-enue Manual §§220.127.116.11 and 18.104.22.168 (May 1, 2004),reprinted in App. to Brief for Respondent 16a, 20a; see also IRS, Collection Financial Standards (Feb. 19, 2010),http://www.irs.gov/individuals/article/0,,id=96543,00.html.6 A person who owns a car free and clear is entitled to claimthe “Operating Costs” deduction for all these expenses of driving—and Ransom in fact did so, to the tune of $338.But such a person is not entitled to claim the “OwnershipCosts” deduction, because that allowance is for the separate costs of a car loan or lease. The Collection Financial Standards—the IRS’s explanatory guidelines to the National and Local Standards—explicitly recognize this distinction between ownership and operating costs, making clear that individuals who have a car but make no loan or lease payments may claimonly the operating allowance. App. to Brief for Respondent 3a; see supra, at 4. Although the statute does not incorporate the IRS’s guidelines, courts may consult thismaterial in interpreting the National and Local Standards; after all, the IRS uses those tables for a similar purpose—to determine how much money a delinquenttaxpayer can afford to pay the Government. The guidelines of course cannot control if they are at odds with thestatutory language. But here, the Collection Financial Standards’ treatment of the car-ownership deductionreinforces our conclusion that, under the statute, a debtor seeking to claim this deduction must make some loan orlease payments.7 —————— 6In addition, the IRS has categorized taxes, including those associated with car ownership, as an “Other Necessary Expens[e],” for which a debtor may take a deduction. See App. to Brief for Respondent 26a; Brief for United States as Amicus Curiae 16, n. 4. 7Because the dissent appears to misunderstand our use of the Collection Financial Standards, and because it may be important for futurecases to be clear on this point, we emphasize again that the statute 11 Cite as: 562 U. S. ____ (2011) Opinion of the Court Because Ransom owns his vehicle free and clear of any encumbrance, he incurs no expense in the “Ownership Costs” category of the Local Standards. Accordingly, thecar-ownership expense amount is not “applicable” to him,and the Ninth Circuit correctly denied that deduction. III Ransom’s argument to the contrary relies on a differentinterpretation of the key word “applicable,” an objection to our view of the scope of the “Ownership Costs” category, and a criticism of the policy implications of our approach. We do not think these claims persuasive. A Ransom first offers another understanding of the term“applicable.” A debtor, he says, determines his “applicable” deductions by locating the box in each National orLocal Standard table that corresponds to his geographiclocation, income, family size, or number of cars. Under this approach, a debtor “consult[s] the table[s] alone” todetermine his appropriate expense amounts. Reply Brieffor Petitioner 16. Because he has one car, Ransom argues that his “applicable” allowance is the sum listed in thefirst column of the “Ownership Costs” table ($471); if he had a second vehicle, the amount in the second column ($332) would also be “applicable.” On this approach, the word “applicable” serves a function wholly internal to the tables; rather than filtering out debtors for whom a deduction is not at all suitable, the term merely directs each —————— does not “incorporat[e]” or otherwise “impor[t]” the IRS’s guidance. Post, at 1, 4 (opinion of SCALIA, J.). The dissent questions what possible basis except incorporation could justify our consulting the IRS’s view, post, at 4, n., but we think that basis obvious: The IRS creates the National and Local Standards referenced in the statute, revises them as it deems necessary, and uses them every day. The agency might,therefore, have something insightful and persuasive (albeit not controlling) to say about them. 12 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court debtor to the correct box (and associated dollar amount of deduction) within every table. This alternative reading of “applicable” fails to comport with the statute’s text, context, or purpose. As intimated earlier, supra, at 7–8, Ransom’s interpretation would render the term “applicable” superfluous. Assume Congress had omitted that word and simply authorized adeduction of “the debtor’s monthly expense amounts” specified in the Standards. That language, most naturally read, would direct each debtor to locate the box in everytable corresponding to his location, income, family size, or number of cars and to deduct the amount stated. In other words, the language would instruct the debtor to use the exact approach Ransom urges. The word “applicable” is not necessary to accomplish that result; it is necessary only for the different purpose of dividing debtors eligible to make use of the tables from those who are not. Further, Ransom’s reading of “applicable” would sever the connection between the means test and the statutory provision it is meant to implement—the authorization of an allowance for (but only for) “reasonably necessary” expenses. Expenses that are wholly fictional are not easily thought of as reasonably necessary. And finally, Ransom’s interpretation would run counter to the statute’s overall purpose ofensuring that debtors repay creditors to the extent theycan—here, by shielding some $28,000 that he does not infact need for loan or lease payments. As against all this, Ransom argues that his reading is necessary to account for the means test’s distinction between “applicable” and “actual” expenses—more fully stated, between the phrase “applicable monthly expenseamounts” specified in the Standards and the phrase “actual monthly expenses for . . . Other Necessary Expenses.”§707(b)(2)(A)(ii)(I) (emphasis added). The latter phraseenables a debtor to deduct his actual expenses in particular categories that the IRS designates relating mainly to 13 Cite as: 562 U. S. ____ (2011) Opinion of the Court taxpayers’ health and welfare. Internal Revenue Manual §22.214.171.124(1), http://www.irs.gov/irm/part5/ irm_05-015001.html#d0e1381. According to Ransom, “applicable” cannot mean the same thing as “actual.” Brief for Petitioner 40. He thus concludes that “an ‘applicable’ expensecan be claimed [under the means test] even if no ‘actual’ expense was incurred.” Ibid. Our interpretation of the statute, however, equally avoids conflating “applicable” with “actual” costs. Although the expense amounts in the Standards apply only if the debtor incurs the relevant expense, the debtor’s outof-pocket cost may well not control the amount of thededuction. 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 thanfor his real expenditures.8 For the Other Necessary Expense categories, by contrast, the debtor may deduct hisactual expenses, no matter how high they are.9 Our read —————— 8The parties and the Solicitor General as amicus curiae dispute the proper deduction for a debtor who has expenses that are lower than the amounts listed in the Local Standards. Ransom argues that a debtormay claim the specified expense amount in full regardless of his out-ofpocket costs. Brief for Petitioner 24–27. The Government concurs with this view, provided (as we require) that a debtor has some expense relating to the deduction. See Brief for United States as Amicus Curiae 19–21. FIA, relying on the IRS’s practice, contends to the contrary thata debtor may claim only his actual expenditures in this circumstance. Brief for Respondent 12, 45–46 (arguing that the Local Standardsfunction as caps). We decline to resolve this issue. Because Ransom incurs no ownership expense at all, the car-ownership allowance is not applicable to him in the first instance. Ransom is therefore not entitled to a deduction under either approach. 9For the same reason, the allowance for “applicable monthly expense amounts” at issue here differs from the additional allowances that the dissent cites for the deduction of actual expenditures. See post, at 3–4 (noting allowances for “actual expenses” for care of an elderly or chronically ill household member, §707(b)(2)(A)(ii)(II), and for home energycosts, §707(b)(2)(A)(ii)(V)). 14 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court ing of the means test thus gives full effect to “the distinction between ‘applicable’ and ‘actual’ without taking a further step to conclude that ‘applicable’ means ‘nonexistent.’” In re Ross-Tousey, 368 B. R. 762, 765 (Bkrtcy. Ct.ED Wis. 2007), rev’d, 549 F. 3d 1148 (CA7 2008). Finally, Ransom’s reading of “applicable” may not evenanswer the essential question: whether a debtor may claim a deduction. “[C]onsult[ing] the table[s] alone” todetermine a debtor’s deduction, as Ransom urges us to do,Reply Brief for Petitioner 16, often will not be sufficient because the tables are not self-defining. This case provides a prime example. The “Ownership Costs” tablefeatures two columns labeled “First Car” and “Second Car.” See supra, at 4. Standing alone, the table does not specify whether it refers to the first and second cars owned (as Ransom avers), or the first and second cars for which the debtor incurs ownership costs (as FIA maintains)—andso the table does not resolve the issue in dispute.10 See In re Kimbro, 389 B. R. 518, 533 (Bkrtcy. App. Panel CA6 2008) (Fulton, J., dissenting) (“[O]ne cannot really ‘just —————— 10The interpretive problem is not, as the dissent suggests, “whether to claim a deduction for one car or for two,” post, at 3, but rather whether to claim a deduction for any car that is owned if the debtor has no ownership costs. Indeed, if we had to decide this question on the basis of the table alone, we might well decide that a debtor who does not make loan or lease payments cannot claim an allowance. The table, after all, is titled “Ownership Costs”—suggesting that it applies to those debtors who incur such costs. And as noted earlier, the dollar amounts in the table represent average automobile loan and lease payments nationwide (with all other car-related expenses approximated in the separate “Operating Costs” table). See supra, at 9–10. Ransom himself concedes that not every debtor falls within the terms ofthis table; he would exclude, and thus prohibit from taking a deduction, a person who does not own a car. Brief for Petitioner 33. In like manner, the four corners of the table appear to exclude an additionalgroup—debtors like Ransom who own their cars free and clear and sodo not make the loan or lease payments that constitute “Ownership Costs.” 15 Cite as: 562 U. S. ____ (2011) Opinion of the Court look up’ dollar amounts in the tables without either referring to IRS guidelines for using the tables or imposing preexisting assumptions about how [they] are to be navigated” (footnote omitted)). Some amount of interpretation is necessary to decide what the deduction is for and whether it is applicable to Ransom; and so we are brought back full circle to our prior analysis. B Ransom next argues that viewing the car-ownership deduction as covering no more than loan and lease payments is inconsistent with a separate sentence of themeans test that provides: “Notwithstanding any other provision of this clause, the monthly expenses of the debtor shall not include any payments for debts.” §707(b)(2)(A)(ii)(I). The car-ownership deduction cannot comprise only loan and lease payments, Ransom contends,because those payments are always debts. See Brief for Petitioner 28, 44–45. Ransom ignores that the “notwithstanding” sentencegoverns the full panoply of deductions under the Nationaland Local Standards and the Other Necessary Expensecategories. We hesitate to rely on that general provision to interpret the content of the car-ownership deductionbecause Congress did not draft the former with the latter specially in mind; any friction between the two likely reflects only a lack of attention to how an across-the-board exclusion of debt payments would correspond to a particular IRS allowance.11 Further, the “notwithstanding” sentence by its terms functions only to exclude, and not to authorize, deductions. It cannot establish an allowance —————— 11Because Ransom does not make payments on his car, we need notand do not resolve how the “notwithstanding” sentence affects the vehicle-ownership deduction when a debtor has a loan or lease expense.See Brief for United States as Amicus Curiae 23, n. 5 (offering alternative views on this question); Tr. of Oral Arg. 51–52. 16 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court for non-loan or -lease ownership costs that no National or Local Standard covers. Accordingly, the “notwithstanding” sentence does nothing to alter our conclusion that the “Ownership Costs” table does not apply to a debtor whose car is not encumbered. C Ransom finally contends that his view of the means test is necessary to avoid senseless results not intended byCongress. At the outset, we note that the policy concernsRansom emphasizes pale beside one his reading creates:His interpretation, as we have explained, would frustrateBAPCPA’s core purpose of ensuring that debtors devotetheir full disposable income to repaying creditors. See supra, at 8–9. We nonetheless address each of Ransom’s policy arguments in turn.Ransom first points out a troubling anomaly: Under ourinterpretation, “[d]ebtors can time their bankruptcy filing to take place while they still have a few car payments left, thus retaining an ownership deduction which they wouldlose if they filed just after making their last payment.”Brief for Petitioner 54. Indeed, a debtor with only a singlecar payment remaining, Ransom notes, is eligible to claima monthly ownership deduction. Id., at 15, 52. But this kind of oddity is the inevitable result of a standardized formula like the means test, even more under Ransom’s reading than under ours. Such formulas are bytheir nature over- and under-inclusive. In eliminating thepre-BAPCPA case-by-case adjudication of above-medianincome debtors’ expenses, on the ground that it leant itself to abuse, Congress chose to tolerate the occasional peculiarity that a brighter-line test produces. And Ransom’s alternative reading of the statute would spawn its ownanomalies—even placing to one side the fundamentalstrangeness of giving a debtor an allowance for loan or lease payments when he has not a penny of loan or lease 17 Cite as: 562 U. S. ____ (2011) Opinion of the Court costs. On Ransom’s view, for example, a debtor entering bankruptcy might purchase for a song a junkyard car—“anold, rusted pile of scrap metal [that would] si[t] on cinderblocks in his backyard,” In re Brown, 376 B. R. 601, 607 (Bkrtcy. Ct. SD Tex. 2007)—in order to deduct the $471 car-ownership expense and reduce his payment to creditors by that amount. We do not see why Congress would have preferred that result to the one that worries Ransom.That is especially so because creditors may well be able toremedy Ransom’s “one payment left” problem. If car payments cease during the life of the plan, just as if other financial circumstances change, an unsecured creditor may move to modify the plan to increase the amount thedebtor must repay. See 11 U. S. C. §1329(a)(1). Ransom next contends that denying the ownershipallowance to debtors in his position “sends entirely the wrong message, namely, that it is advantageous to be deeply in debt on motor vehicle loans, rather than to pay them off.” Brief for Petitioner 55. But the choice here is not between thrifty savers and profligate borrowers, asRansom would have it. Money is fungible: The $14,000that Ransom spent to purchase his Camry outright wasmoney he did not devote to paying down his credit carddebt, and Congress did not express a preference for oneuse of these funds over the other. Further, Ransom’s argument mistakes what the deductions in the means test are meant to accomplish. Rather than effecting any broadfederal policy as to saving or borrowing, the deductions serve merely to ensure that debtors in bankruptcy can afford essential items. The car-ownership allowance thussafeguards a debtor’s ability to retain a car throughout the plan period. If the debtor already owns a car outright, hehas no need for this protection. Ransom finally argues that a debtor who owns his car free and clear may need to replace it during the life of the plan; “[g]ranting the ownership cost deduction to a vehicle 18 RANSOM v. FIA CARD SERVICES, N. A. Opinion of the Court that is owned outright,” he states, “accords best with economic reality.” Id., at 52. In essence, Ransom seeks an emergency cushion for car owners. But nothing in the statute authorizes such a cushion, which all debtors presumably would like in the event some unexpected need arises. And a person who enters bankruptcy without any car at all may also have to buy one during the plan period;yet Ransom concedes that a person in this position cannotclaim the ownership deduction. Tr. of Oral Arg. 20. The appropriate way to account for unanticipated expenses like a new vehicle purchase is not to distort the scope of a deduction, but to use the method that the Code provides for all Chapter 13 debtors (and their creditors): modification of the plan in light of changed circumstances. See §1329(a)(1); see also supra, at 17. IV Based on BAPCPA’s text, context, and purpose, we hold that the Local Standard expense amount for transportation “Ownership Costs” is not “applicable” to a debtor who will not incur any such costs during his bankruptcy plan. Because the “Ownership Costs” category covers only loan and lease payments and because Ransom owns his car freefrom any debt or obligation, he may not claim the allowance. In short, Ransom may not deduct loan or lease expenses when he does not have any. We therefore affirm the judgment of the Ninth Circuit. It is so ordered. _________________ _________________ Cite as: 562 U. S. ____ (2011) 1 SCALIA, J., dissenting SUPREME COURT OF THE UNITED STATES No. 09–907 JASON M. RANSOM, PETITIONER v. FIA CARD SERVICES, N. A., FKA MBNA AMERICA BANK, N. A. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OFAPPEALS FOR THE NINTH CIRCUIT [January 11, 2011] JUSTICE SCALIA, dissenting. I would reverse the judgment of the Ninth Circuit. I agree with the conclusion of the three other Courts of Appeals to address the question: that a debtor who owns acar free and clear is entitled to the car-ownership allowance. See In re Washburn, 579 F. 3d 934 (CA8 2009); In re Tate, 571 F. 3d 423 (CA5 2009); In re Ross-Tousey, 549 F. 3d 1148 (CA7 2008). The statutory text at issue is the phrase enacted in theBankruptcy Abuse Prevention and Consumer ProtectionAct of 2005 (BAPCPA), “applicable monthly expense amounts specified under the National Standards and Local Standards,” 11 U. S. C. §707(b)(2)(A)(ii)(I). The Court holds that the word “applicable” in this provisionimports into the Local Standards a directive in the Internal Revenue Service’s Collection Financial Standards, which have as their stated purpose “to help determine ataxpayer’s ability to pay a delinquent tax liability,” App. to Brief for Respondent 1a. That directive says that “[i]f ataxpayer has no car payment,” the Ownership Cost provisions of the Local Standards will not apply. Id., at 3a. That directive forms no part of the Local Standards towhich the statute refers; and the fact that portions of the Local Standards are to be disregarded for revenue2 RANSOM v. FIA CARD SERVICES, N. A. SCALIA, J., dissenting collection purposes says nothing about whether they are tobe disregarded for purposes of Chapter 13 of the Bankruptcy Code. The Court believes, however, that unless the IRS’s Collection Financial Standards are imported into the Local Standards, the word “applicable” would do no work,violating the principle that “‘we must give effect to every word of a statute wherever possible.’” Ante, at 8 (quoting Leocal v. Ashcroft, 543 U. S. 1, 12 (2004)). I disagree. The canon against superfluity is not a canon against verbosity.When a thought could have been expressed more concisely, one does not always have to cast about for someadditional meaning to the word or phrase that could havebeen dispensed with. This has always been understood. A House of Lords opinion holds, for example, that in the phrase “‘in addition to and not in derogation of’” the last part adds nothing but emphasis. Davies v. Powell Duffryn Associated Collieries, Ltd.,  A. C. 601, 607. It seems to me that is the situation here. To be sure, one can say “according to the attached table”; but it isacceptable (and indeed I think more common) to say “according to the applicable provisions of the attached table.” That seems to me the fairest reading of “applicablemonthly expense amounts specified under the NationalStandards and Local Standards.” That is especially so for the Ownership Costs portion of the Local Standards,which had no column titled “No Car.” Here the expense amount would be that shown for one car (which is all the debtor here owned) rather than that shown for two cars;and it would be no expense amount if the debtor owned no car, since there is no “applicable” provision for that on the table. For operating and public transportation costs, the“applicable” amount would similarly be the amount provided by the Local Standards for the geographic region in which the debtor resides. (The debtor would not first be required to prove that he actually operates the cars thathe owns, or, if does not own a car, that he actually uses 3 Cite as: 562 U. S. ____ (2011) SCALIA, J., dissenting public transportation.) The Court claims that the tables “are not self-defining,” and that “[s]ome amount of interpretation” is necessary in choosing whether to claim a deduction at all, for one car, or for two. Ante, at 14–15. But this problem seems to me more metaphysical than practical. The point of the statutory language is to entitle debtors who own cars to an ownership deduction, and Ihave little doubt that debtors will be able to choose correctly whether to claim a deduction for one car or for two. If the meaning attributed to the word by the Court wereintended, it would have been most precise to say “monthly expense amounts specified under the National Standardsand Local Standards, if applicable for IRS collection purposes.” And even if utter precision was too much to expect, it would at least have been more natural to say “monthly expense amounts specified under the National Standards and Local Standards, if applicable.” That would make it clear that amounts specified under thoseStandards may nonetheless not be applicable, justifying (perhaps) resort to some source other than the Standardsthemselves to give meaning to the condition. The verynext paragraph of the Bankruptcy Code uses that formulation (“if applicable”) to limit to actual expenses thededuction for care of an elderly or chronically ill household member: “[T]he debtor’s monthly expenses may include, if applicable, the continuation of actual expenses paid by the debtor that are reasonable and necessary” for that purpose. 11 U. S. C. §707(b)(2)(A)(ii)(II) (emphasis added). Elsewhere as well, the Code makes it very clear when prescribed deductions are limited to actual expenditures.Section 707(b)(2)(A)(ii)(I) itself authorizes deductions for ahost of expenses—health and disability insurance, for example—only to the extent that they are “actual . . .expenses” that are “reasonably necessary.” Additional deductions for energy are allowed, but again only if theyare “actual expenses” that are “reasonable and necessary.” 4 RANSOM v. FIA CARD SERVICES, N. A. SCALIA, J., dissenting §707(b)(2)(A)(ii)(V). Given the clarity of those limitationsto actual outlays, it seems strange for Congress to limitthe car-ownership deduction to the somewhat peculiar category “cars subject to any amount whatever of outstanding indebtedness” by the mere word “applicable,”meant as incorporation of a limitation that appears ininstructions to IRS agents.* I do not find the normal meaning of the text undermined by the fact that it produces a situation in which a debtor who owes no payments on his car nonetheless gets the operating-expense allowance. For the Court’s more strained interpretation still produces a situation in which a debtor who owes only a single remaining payment on his car gets the full allowance. As for the Court’s imaginedhorrible in which “a debtor entering bankruptcy might purchase for a song a junkyard car,” ante, at 17: That is fairly matched by the imagined horrible that, under the Court’s scheme, a debtor entering bankruptcy might purchase a junkyard car for a song plus a $10 promissory note payable over several years. He would get the full ownership expense deduction. Thus, the Court’s interpretation does not, as promised, —————— *The Court protests that I misunderstand its use of the Collection Financial Standards. Its opinion does not, it says, find them to beincorporated by the Bankruptcy Code; they simply “reinforc[e] our conclusion that . . . a debtor seeking to claim this deduction must makesome loan or lease payments.” Ante, at 10. True enough, the opinionsays that the Bankruptcy Code “does not incorporate the IRS’s guidelines,” but it immediately continues that “courts may consult this material in interpreting the National and Local Standards” so long as itis not “at odds with the statutory language.” Ibid. In the presentcontext, the real-world difference between finding the guidelinesincorporated and finding it appropriate to consult them escapes me, since I can imagine no basis for consulting them unless Congress meant them to be consulted, which would mean they are incorporated. And without incorporation, they are at odds with the statutory language, which otherwise contains no hint that eligibility for a Car Ownershipdeduction requires anything other than ownership of a car. 5 Cite as: 562 U. S. ____ (2011) SCALIA, J., dissenting maintain “the connection between the means test and the statutory provision it is meant to implement—the authorization of an allowance for (but only for) ‘reasonably necessary’ expenses,” ante, at 12. Nor do I think this difficulty is eliminated by the deus ex machina of 11 U. S. C. §1329(a)(1), which according to the Court would allow anunsecured creditor to “move to modify the plan to increasethe amount the debtor must repay,” ante, at 17. Apartfrom the fact that, as a practical matter, the sums involved would hardly make this worth the legal costs, allowing such ongoing revisions of matters specificallycovered by the rigid means test would return us to “the pre-BAPCPA case-by-case adjudication of above-medianincome debtors’ expenses,” ante, at 16. If the BAPCPA had thought such adjustments necessary, surely it would have taken the much simpler and more logical step ofproviding going in that the ownership expense allowance would apply only so long as monthly payments were due. The reality is, to describe it in the Court’s own terms,that occasional overallowance (or, for that matter, underallowance) “is the inevitable result of a standardized formula like the means test . . . . Congress chose to tolerate the occasional peculiarity that a brighter-line testproduces.” Ibid. Our job, it seems to me, is not to eliminate or reduce those “oddit[ies],” ibid., but to give theformula Congress adopted its fairest meaning. In myjudgment the “applicable monthly expense amounts” for operating costs “specified under the . . . Local Standards,”are the amounts specified in those Standards for either one car or two cars, whichever of those is applicable