Tax Issues in Consumer Bankruptcies Navigating Discharge of Tax - - PowerPoint PPT Presentation

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Tax Issues in Consumer Bankruptcies

Navigating Discharge of Tax Liability, Impact of Tax Obligations on Means Testing, and Debt‐Related Tax Consequences

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUES DAY, JANUARY 15, 2013

Today’s faculty features:

Burton J. Haynes, Principal, Law Office of Burton J. Haynes, Burke, Va. Richard S . Gendler, Principal, Law Offices of Richard S. Gendler, Miami Gardens, Fla.

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Tax I ssues in Tax I ssues in Consumer Bankruptcies

Strafford Webinars

• - January 2013

Burton J. Haynes Burton J. Haynes

Law Office of Burton J. Haynes bj@bjhaynes.com 703.913.7500

Using Bankruptcy to Deal With Ta P oblems afte the BAPCPA Tax Problems after the BAPCPA

Burton J. Haynes 6

Types of Bankruptcies Types of Bankruptcies

Ch t 7 “li id ti ” b k t Chapter 7 – “liquidating” bankruptcy. Trustee is appointed to protect the unsecured dit (th d l d t t d) creditors (the secureds are already protected). Trustee identifies, marshals and sells debtor’s t d t nonexempt, unsecured assets. Trustee abandons encumbered assets. No payments from future income are required.

Burton J. Haynes 7

Types of Bankruptcies Types of Bankruptcies

Chapter 13 – Small debtors with regular income who can make monthly payments against debts, and whose debts are under the statutory limits:

• Unsecured debts less than $360,475.

S d d bt l th $1 081 400

• Secured debts less than $1,081,400.

Debtor makes monthly payments to trustee for di t ib ti t dit (l i i ) distribution to creditors (less commission). Plan must provide full payment of priority debts.

Burton J. Haynes 8

Effect of Bankruptcy on IRS Collection Action Collection Action

Automatic stay arises under BC §362(a). All I RS collection action must cease, except:

• Demanding delinquent (unfiled) tax returns.
• Auditing prepetition or postpetition returns.

Auditing prepetition or postpetition returns.

• I ssuing a statutory notice of deficiency.
• Assessing uncontested prepetition liabilities

d t h fil d t t and taxes shown on filed tax returns.

• Refiling a previous notice of federal tax lien.
• I ssuing a summons to determine a tax liability.

Burton J. Haynes 9

ssu g a su

• s to dete

e a ta ab ty

Effect of Bankruptcy on IRS Collection Action Collection Action

Property levied on but not transferred to the I RS prepetition is property of the estate, and subject to a turnover action by trustee. j Tangible property seized prepetition but not sold by I RS prepetition is property of the y p p p p y estate, subject to turnover action by trustee. When I RS has received payment prepetition, p y p p ,

• wnership has transferred to I RS, and the

asset is not property of the estate (but may be subject to recovery as a preference).

Burton J. Haynes 10

j y p )

Effect of Bankruptcy on IRS Collection Action Collection Action

Specific I RS collection actions are prohibited: Specific I RS collection actions are prohibited:

• Starting or continuing an administrative or

j di i l di (i l di C h i ) judicial proceeding (including a CDP hearing).

• I ssuing a levy or instituting a seizure.
• Verbally requesting payment or sending
• Verbally requesting payment or sending

written notices demanding payment.

• Making a setoff against a postpetition refund

g g p p to collect a prepetition tax.

• Filing, perfecting or enforcing a tax lien for

prepetition tax periods (refiling is permitted)

Burton J. Haynes 11

prepetition tax periods (refiling is permitted).

Effect of Bankruptcy on IRS Collection Action Collection Action

Violations of the BC §362 automatic stay or the BC §524 discharge permanent injunction by I RS: I RC §7433(e)(1) permits action against the I RS for willful or negligent violations of the stay or the permanent injunction arising on discharge the permanent injunction arising on discharge. Taxpayer or injured third parties may recover up t $100 000 f I RS li t i l ti d to $100,000 for I RS negligent violations, and up to $1,000,000 for reckless or willful violations.

Burton J. Haynes 12

Classifying Tax Debts Classifying Tax Debts

Three crucial determinations must be made in classifying tax debts in bankruptcy:

• Secured vs. unsecured.
• Priority vs. nonpriority.
• Exceptions to discharge

Burton J. Haynes 13

Secured vs Unsecured Secured vs. Unsecured

I RS b I RS can be:

• A secured creditor if a lien was filed; or
• A secured creditor, if a lien was filed; or
• An unsecured creditor, if no lien was filed; or

An unsecured creditor, if no lien was filed; or

• Partially secured and partially unsecured, if a

lien was filed but the tax exceeds taxpayer’s equity in the property covered by the lien.

Burton J. Haynes 14

Secured vs Unsecured Secured vs. Unsecured

A tax claim is unsecured if:

• no notice of tax lien was filed;
• no notice of tax lien was filed;
• a tax lien was filed but the debtor has no

equity in assets to which the lien may attach;

• a tax lien was filed but other creditors had
• a tax lien was filed but other creditors had

recorded liens prior to the tax lien, consuming all available equity in the property.

Burton J. Haynes 15

Priority vs Nonpriority Priority vs. Nonpriority

BC §507(a)(8)(A)(i) – 3 year rule: Taxes are priority debts if the return was due Taxes are priority debts if the return was due (with extensions) less than 3 years prior to the filing of the bankruptcy petition. Period is extended: (1) while a prior bankruptcy case was open, plus 90 days; or (2) while the I RS was barred from taking collection action by "an appeal of any collection action taken or proposed against the debtor, plus 90 days.“

Burton J. Haynes 16

Priority vs Nonpriority Priority vs. Nonpriority

BC §507(a)(8)(A)(ii) – 240 day rule: § ( )( )( )( ) y Taxes are priority debts if assessment was made less than 240 days prior to petition date. Self-assessment starts with filing a return; but the filing date is NOT the assessment date. 240 day period is extended: (1) while an offer in compromise was pending, plus 30 days; (2) while a prior bankruptcy was open, plus 90 days; or (3) p p y p , p y ; ( ) while the I RS was barred from collection action by "an appeal of any collection action taken or proposed against the debtor, plus 90 days.“

Burton J. Haynes 17

p p g , p y

Priority vs Nonpriority Priority vs. Nonpriority

Relation back: F f th BC §507( )(8)(A)(ii) 240 For purposes of the BC §507(a)(8)(A)(ii) 240- day rule, interest and penalties are deemed to relate back to the assessment date of the tax. Thus, each incremental assessment of penalty i t t i t t t d f di h b

• r interest is not protected from discharge by

a separate 240-day priority period.

Burton J. Haynes 18

Exceptions to Discharge Exceptions to Discharge

BC §523(a)(1)(B) – 2 year rule: Taxes are excepted from discharge if the return Taxes are excepted from discharge if the return was filed less than 2 years prior to the filing of the petition (or was not filed at all). The I RS has recently begun arguing that the pre- BAPCPA concept of equitable tolling BAPCPA concept of equitable tolling

Burton J. Haynes 19

Exceptions to Discharge Exceptions to Discharge

P i BAPCPA hi 2 f d fil d l Prior to BAPCPA, this 2 year from date filed rule applied in Chapter 7, but not in Chapter 13. Post-BAPCPA, it applies to both Chapter 7 and Chapter 13, with the result that taxes for years Chapter 13, with the result that taxes for years for which no tax returns were filed are now nondischargeable regardless of the type of bankruptcy used bankruptcy used.

Burton J. Haynes 20

Exceptions to Discharge Exceptions to Discharge

“Return” for discharge purposes: To constitute a Return for discharge purposes: To constitute a tax return under BC §523, a document must contain enough information for the I RS to compute the tax liability, and must evidence an honest attempt to comply with the tax laws. A frivolous return is not a return for this purpose. Tax protestors are constantly dreaming up new variants and the taxes later assessed are not variants, and the taxes later assessed are not dischargeable if what was filed is deemed not to constitute a return for purposes of §523.

Burton J. Haynes 21

Exceptions to Discharge Exceptions to Discharge

Substitute for Return (SFR) Assessments Substitute for Return (SFR) Assessments. I RS can compute tax if taxpayer fails to file, and i h C § 6020(b) can assess without consent. I RC § 6020(b). Prior to BAPCPA, many courts held that once an SFR t d l t fil d “ t ” SFR assessment was made, a late filed “return” was ineffective. Since you can’t satisfy the 2 year from date filed rule of §523(a)(1)(B), an SFR § ( )( )( ), assessment is nondischargeable in Chapter 7. See I n re Moroney, 352 F.3d 902 (4th Cir. 2003).

Burton J. Haynes 22

Exceptions to Discharge Exceptions to Discharge

The BAPCPA has its own definition of tax "return:“ The BAPCPA has its own definition of tax return: “. . . a return prepared pursuant to §6020(a) . . . or similar State or local law, or a written stipulation to a judgment or a final order entered by a non- bankruptcy tribunal, but does not include a return made pursuant to §6020(b) . . . or a similar State or made pursuant to §6020(b) . . . or a similar State or local law.” So sometimes a return is not a return, and some- , times something that is not a return is a return. Who writes this stuff?

Burton J. Haynes 23

Interest on Tax Debts Interest on Tax Debts

Prepetition interest: I t t f ll th d l i t I nterest follows the underlying tax. So if the prepetition tax is discharged the related So if the prepetition tax is discharged, the related interest will also be discharged. But if the tax survives the discharge, so too does the pre-petition interest.

Burton J. Haynes 24

Penalties Penalties

BC §523(a)(7) disjunctive test for penalties: BC §523(a)(7) disjunctive test for penalties: Penalties are dischargeable to the extent they – (A) relate to a dischargeable tax claim, OR (A) relate to a dischargeable tax claim, OR (B) where the event giving rise to the penalty

• ccurred more than three years prior to the filing
• ccurred more than three years prior to the filing
• f the bankruptcy petition.

See I n re Burns (11th Cir 1989) and I n re Allen 272 See I n re Burns (11 Cir 1989) and I n re Allen 272 B.R. 913 (E.D. Va 2002) following majority rule, contra I n re Putnam 131 B.R. 52 (W.D. Va 1991).

Burton J. Haynes 25

Penalties Penalties

Pecuniary loss penalties are priority claims and Pecuniary loss penalties are priority claims and not dischargeable (e.g. 100% penalty or TFRP). i i l i i i l i But punitive penalties are not priority claims, even if the underlying tax is entitled to priority, and such penalties are dischargeable if they meet p g y either prong of the disjunctive test of §523(a)(7). Punitive penalties include those for late filing late Punitive penalties include those for late filing, late payment, negligence and even civil fraud.

Burton J. Haynes 26

Nondischargeable Taxes Nondischargeable Taxes

BC §507(a)(8)(C): The Bankruptcy Code gives priority to “a tax The Bankruptcy Code gives priority to a tax required to be collected or withheld and for which the debtor is liable in any capacity,” thereby making such taxes nondischargeable thereby making such taxes nondischargeable.

• Withheld portion of payroll taxes.
• Trust fund recovery penalty (TRFP).
• Sales taxes collected from customers.

Burton J. Haynes 27

Nondischargeable Taxes Nondischargeable Taxes

Employer’s share of payroll taxes: While the withheld portions of the payroll tax are nondis- chargeable, the tax imposed on the employer chargeable, the tax imposed on the employer (1/ 2 of FI CA and Medicare) are dischargeable if the wages were paid and the return was due more than three years prior to the bankruptcy more than three years prior to the bankruptcy. See BC §507(a)(8)(D). FUTA taxes are not “trust fund” taxes and are similarly dischargeable.

Burton J. Haynes 28

Nondischargeable Taxes Nondischargeable Taxes

Chapter 7: Nondischargeable taxes survive the discharge, g g and must be addressed later. Ch t 13 Chapter 13: Priority taxes are paid, since to be confirmed a l t id f f ll t f i it plan must provide for full payment of priority

• debts. Any nonpriority debts excepted from

discharge survive and must be addressed later.

Burton J. Haynes 29

g

Nondischargeable Taxes Nondischargeable Taxes

BC §523(a)(1)(C) bars discharge if the taxpayer BC §523(a)(1)(C) bars discharge if the taxpayer “made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.” Circuits are split on whether mere nonpayment, without more, constitutes willful attempt to d d f t t C H (11th) T ti evade or defeat tax. Compare Haas (11th), Toti (6th), Dalton (10th) and Fegely (3rd). Does civil

• r criminal definition of “evasion” apply?

pp y

Burton J. Haynes 30

Nondischargeable Taxes Nondischargeable Taxes

BC §523(a)(1)(C) does not require that the BC §523(a)(1)(C) does not require that the taxpayer be prosecuted for fraud for the taxes to be found nondischargeable (in Chapter 7). For example, see Meyers v. I RS (6th Cir. 1999). Tax protestor did not file returns and claimed excessive withholding exemptions to reduce the excessive withholding exemptions to reduce the amount of tax withheld by his employer. Or see U S v Schmidt (4th Cir 1991) Taxpayer Or see U.S. v. Schmidt (4th Cir. 1991). Taxpayer assigned wages, yet maintained dominion and control over the funds.

Burton J. Haynes 31

Equitable Considerations Equitable Considerations

I f the BAPCPA means test applies, it compares monthly income to "allowable" deductions. I ncome is debtor's average income over the six full months prior to petition. (Even if only one p p ( y spouse files bankruptcy, income for the means test includes income of non-petitioning spouse.)

Burton J. Haynes 32

Equitable Considerations Equitable Considerations

Deductions for means test start with the I RS’s "allowable" living expenses: National standard for food, clothing, etc.; Local transportation standard; and County specific standard for housing and utilities. (Bankruptcy attorneys must now understand the ( p y y I RS’s collection standards which are used in the means test, even in cases with no tax debts.)

Burton J. Haynes 33

Strafford Webinars - January 2013

Ri h d S G dl J D LL M J S D Richard S. Gendler, J.D., LL.M, J.S.D. (Cand.)

h d dl Richard S. Gendler & Associates, P.A. rgendler@miami-law.com 305 444 1533 305-444-1533

In 2005 BAPCPA imposed a "means

test" for debtors with "primarily test for debtors with primarily consumer debt.“

35

• Under 11 U.S.C §707(b), bankruptcy court has

ability to “dismiss a case filed by an individual ability to dismiss a case filed by an individual debtor . . . whose debts are primarily consumer debts . . . if it finds that the granting of relief would be an abuse ” be an abuse . . .

• To determine whether this “presumption of abuse”

p p exists, most debtors earning “income” are subject to an income-based test called the "means test."

• Presumption of abuse arises if debtor's “income” is

higher than the debtor’s presumed expenses. g p p

. 36

The crux of the means test is that a debtor may be obligated to file

a chapter 13 case if – 1 C 25% f hi /h l d d bt

1. Can repay 25% or more of his/her general unsecured debt over a

60-month period and

2 Minimum payments of $117 09 per month ($7 025 total) or 2. Minimum payments of $117.09 per month ($7,025 total), or Debtor can pay $11,725 or more over 60 months without regard to

the percentage repaid. the percentage repaid.

*** However - If debtor’s income is below the median income for

this or her state the presumption is inapplicable. p p pp

37

- First Step is to calculate debtor’s current monthly income as

defined by §101(10A). y §

• Not the same definition as IRC 61. No regard as to whether the

income is taxable. For instance help from family may be defined as “income”. Includes amounts regularly paid by another other than debtor for household expenses. D t i d bt ’ thl i i d f ll

• Determine debtor’s average monthly income received from all

sources within 180 prior to the filing of the bankruptcy case (Include income of non-filing spouse living in same home).

• Does not include Social Security benefits.

38

Once current monthly income calculated must deduct the

following expenses –

1. Debtor’s contractually due “post-petition” monthly

average payments on secured debt.

2. Debtor’s allowable monthly expenses as calculated by the

y p y IRS guidelines.

3. Debtor’s monthly expenses for “priority claims” as 3. Debtor s monthly expenses for priority claims as

defined under Section 523.

39

 Because the BAPCPA means test is used to

determine what debtor could pay on nonpriority unsecured debts, the computation also deducts contractually scheduled also deducts contractually scheduled payments to secured creditors for five years after petition date. p

 For example, this may permit deduction of

mortgage payments in excess of IRS housing mortgage payments in excess of IRS housing allowance for purposes of the means test.

40

This formula is contained under 11 U.S.C. §707(b)(2)(A) which

determines when a “presumption of abuse” will arise when a debtor files a chapter 7 case.

If Debtor is “subject to” the means test and has the presumed

ability to repay according to the formula, a case filed under Chapter 7 the case would be subject to dismissal as a Chapter 7 the case would be subject to dismissal as a presumption of abuse unless the concerts the case to a chapter 13

- Presumption can be raised by the Court, by the trustee, or by

a creditor.

. 41

• A finding of a “presumption of abuse” may

be rebutted in a chapter 7 case with a showing of ‘‘special circumstances’’ which showing of special circumstances which would require that the debtor's current monthly income be adjusted. y j

• Could a student loan payment which is not defined

as a priority claim under section 523 but is nevertheless non-dischargeable be deemed a nevertheless non dischargeable be deemed a special circumstance?

42

www.ustp.gov US Trustee Website that should be consulted

i di ll f d d i i i i periodically for updated criteria pertaining to allowable expenses and household median income changes regularly income changes regularly.

. 43

 Recall for the Means test to apply, the

plain language of § 707(b) states that a debtor’s debts must primarily be d b I L i 2009 B k consumer debts. In re Leigy, 2009 Bankr. LEXIS 3678, at *7 (Bankr. M.D. Pa. 2009).

44

 Section 101(8) provides some clarity: 

“Consumer debt” is “debt incurred by an i di id l i il f l f il individual primarily for a personal, family or household purpose.” See In re Stewart, 175 F 3d 796 806 (10th Cir 1999) (“Courts F.3d 796, 806 (10th Cir. 1999) ( Courts consistently have applied [the § 101(8)] definition for the purposes of § 107(b).”).

45

• Although Code does not define or otherwise quantify

“primarily,” a majority of courts have determined that the standard is met when more than half the debts owed are consumer in nature. In re Leigy, 2009 Bankr. LEXIS 3678, at *7 (Bankr. M.D. Pa. 2009) (citing In re Stewart, 175 F.3d 796, 808 (10th Cir. 1999); In re Booth, 858 F.2d 1051, 1055 (5th Cir. 1988) I K ll 841 F 2d 908 913 (9th Ci 1988) I 1988); In re Kelly, 841 F.2d 908, 913 (9th Cir. 1988); In re Victoria, 389 B.R. 250, 254 (M.D. Ala. 2008)). h “ l ” d h d f



Thus, “primarily” indicates that no means test is required if less than 50 per cent of total scheduled debt is consumer in nature.

46

 Income tax obligations may comprise the majority of a

debtor’s pre-petition obligations in a chapter 7 case. It is important to determine hether these obligations are important to determine whether these obligations are deemed “consumer debt,” which would subject the debtor to the means test under § 707(b).

 Few courts have addressed this issue. Many courts have

analyzed the meaning of “consumer debt” under other provisions of the Code and determined for the most part provisions of the Code and determined, for the most part, that tax obligations do not constitute consumer debt. Wh th th bli ti id d d bt f

 Whether these obligations are considered consumer debt for

the purpose of triggering the means test has not been definitively settled.

47

• Bankruptcy courts have also examined the legislative history
• f § 101(8) See In re Booth 858 F 2d 1051 1054 (5th Cir
• f § 101(8). See In re Booth, 858 F.2d 1051, 1054 (5th Cir.

1988); In re Millikan, 2007 Bankr. LEXIS 4696, at *3 (Bankr. S.D. Ind. 2007).

• The drafters of the Code looked to consumer protection laws,

such as the Truth in Lending Act, to define the term “consumer debt ” These consumer-protection statutes reflect consumer debt. These consumer protection statutes reflect that when a borrower’s motivation to secure credit is driven by profit, the debt will fall outside the meaning of consumer

• credit. In re Booth, 858 F.2d at 1054-1055

c ed t e

• ot , 858

d at 05 055

48

• Bankruptcy courts have adopted profit-motive test to

determine whether debt is a business debt that falls outside definition of consumer debt for purposes of § 101(8). See, e.g., In re Davis, 378 B.R. 539, 547 (Bankr. N.D. Ohio 2007); In re Stewart, 175 F.3d 796, 806 (10th Cir. 1999).

• In bankruptcy, “test for determining whether debt should be

classified as business debt, rather than [consumer debt]...is whether debt was incurred with [an] eye toward profit.” In re Booth, 858 F.2d 1051, 1055 (5th Cir. 1988); see also In re Westerberry, 215 F.3d 589, 593 (6th Cir. 2000).

• Therefore, if majority of debtor’s prepetition liabilities

incurred with eye toward profit, debtor not subject to means testing under § 707(b).

49

 Determining whether debt consumer in nature or incurred with

eye toward profit may be clear-cut, but other times debtor’s pre-petition liabilities do not fit squarely into either of these p p q y categories.

• EXAMPLE: The application of the means test is not so clear if

EXAMPLE: The application of the means test is not so clear if the debtor’s pre-petition obligations were limited to $100,000 in personal-income taxes and $50,000 owed on consumer credit cards because the income-tax liability was neither incurred with an eye toward profit, nor was it incurred for personal, family or household purposes.



If profit-motive test not dispositive, the debt is not precluded from being deemed nonconsumer in nature. In re Westerberry, 215 F.3d at 593.

50

• Majority of courts that have considered issue have

generally held that a tax liability is not incurred as part of a consumption activity but is “involuntarily part of a consumption activity but is involuntarily imposed in the course of earning income,” and therefore is not considered consumer debt.

• See In re Brashers, 216 B.R. 59, 60-61 (Bankr. N.D. Okla. 1998); see, e.g., In

re Stovall, 209 B.R. 849, 854 (Bankr. E.D. Va. 1997); In re Dye, 190 B.R. 566, 567 (Bankr. N.D. Ill. 1995); In re Marshalek, 158 B.R. 704, 706 (Bankr. N.D. Ohio 1993); In re Greene, 157 B.R. 496, 497 (Bankr. S.D. Ga. 1993); Goldsby

• v. United States (In re Goldsby), 135 B.R. 611, 613-15 (Bankr. E.D. Ark. 1992);

In re Traub, 140 B.R. 286, 287 (Bankr. D.N.M. 1992); In re Reiter, 126 B.R. 961, 961 (Bankr. W.D. Tex. 1991); Harrison v. IRS (In re Harrison), 82 B.R. 557, 558 (Bankr. D. Col. 1987); Pressimone v. IRS (In re Pressimone), 39 B.R. 240, 244 (N.D.N.Y. 1984).

51

Almost all of the case law dealing with the

• Almost all of the case law dealing with the

issue has examined whether tax liabilities are consumer debts for purposes of the co- debtor stay in chapter 13 cases under §

• 1301. See In re Brashers, 216 B.R. at 60; In

re Traub 140 B R at 28818 re Traub, 140 B.R. at 28818

• However, since § 101(8) is applicable to all

sections of the Code, it applies to § 707(b) as well when determining what constitutes consumer debt in a chapter 7 for means- consumer debt in a chapter 7 for means test purposes. See In re Traub, 140 B.R. at 288

52

 In In re Stovall, 209 B.R. 849 (Bankr. E.D. Va. 1997), the

bankruptcy court in a chapter 13 case examined the issue of bankruptcy court in a chapter 13 case examined the issue of whether personal property taxes imposed on a debtor “by reason

• f the ownership of consumer goods” was a type of consumer

debt.

 The court concluded that debt owed for personal property tax is

not a type of consumer debt, even if the tax is imposed on not a type of consumer debt, even if the tax is imposed on property “held for personal, family or household use.”

 It is not the type of debt that is “incurred” that governs the  It is not the type of debt that is incurred that governs the

determination of the nature of the tax liability, but rather the liability itself: It is an involuntary liability imposed by the government. government.

53

 Another bankruptcy court in a chapter 13

case determined that an IRS lien for unpaid federal income taxes was not a consumer debt “because it [was] not d h f incurred in the course of a consumptive activity.” In re Gault, 136 B.R. 736, 738 (Bankr E D Tenn 1991) (Bankr. E.D. Tenn. 1991).

54

• A handful of courts have addressed the issue of taxes and

consumer debt in the context of a chapter 7 consumer debt in the context of a chapter 7.

• In In re Traub, 140 B.R. 286 (Bankr. D.N.M. 1992), the

court held that income taxes were not consumer debts for court held that income taxes were not consumer debts for the purposes of § 707(b) and that money owed as a failure-to-pay penalty was also not consumer debt.

• Notwithstanding, the majority of the debtor’s debts were

still consumer in nature, and the case was dismissed after the court held that the granting of chapter 7 relief would the court held that the granting of chapter 7 relief would have been “substantial abuse.”

55

 More recently, a bankruptcy court in a chapter 7

l l f d d b d h case also classified a debt owed to the IRS as “undisputed nonconsumer debt.” In re Victoria, 389 B.R. 250, 252 (Bankr. M.D. Ala. 2008). 389 B.R. 250, 252 (Bankr. M.D. Ala. 2008).

 The court further held that a proof of claim

personally against the debtor by the IRS for unpaid corporate income taxes was also not consumer debt Classifying these tax consumer debt. Classifying these tax

• bligations as nonconsumer debt took the

debtor outside the means test of § 707(b)(2).

56

 The only appellate court to render a holding

• n the issue of whether income tax liabilities
• n the issue of whether income tax liabilities

are consumer debts is the Sixth Circuit Court

• f Appeals in In re Westberry, 215 F.3d 589

(6th Cir 2000) hich addressed hether the (6th Cir. 2000), which addressed whether the IRS could collect a tax obligation from a debtor’s spouse in a chapter 13 case.

 In holding that an income tax debt was not a

“consumer debt,” the court of appeals consumer debt, the court of appeals distinguished income tax debt from consumer debt in four ways:

57

1. The income tax debt was not voluntarily incurred on the part

• f the taxpayer.

2. The tax was incurred for a public purpose rather than a personal, family or household purpose. 3. The tax debt resulted from profit earning activities rather than from consumption 4. The taxation did not require or involve the extension of credit, which is a typical characteristic of consumer debt.

 The court concluded that the Code treats tax debts differently

from consumer debts. It also noted that although the profit- motive test is not determinative of the issue of whether taxes constitute consumer debt, it does not prohibit other types of debt from falling outside consumer debt.

58

 Although the Westerberry court held that federal income taxes

were not consumer debts as defined by § 101(8) and for purposes were not consumer debts as defined by § 101(8) and for purposes

• f § 1301, other courts have indicated otherwise.

Th Fifth Ci it C t f A l i I B th 858 B R 1051

 The Fifth Circuit Court of Appeals in In re Booth, 858 B.R. 1051

(5th Cir. 1988), determined what debts should be classified as consumer debt in considering the dismissal of a debtor’s bankruptcy case under § 707(b) Although the court held that a bankruptcy case under § 707(b). Although the court held that a loan secured by the debtor’s residence was not a consumer debt, in dicta the court implied that the debt owed to the IRS was consumer debt. consumer debt.



Similarly in dicta, a bankruptcy court in a chapter 7 case categorized tax debt owed to the IRS as consumer debt for categorized tax debt owed to the IRS as consumer debt for purposes of § 707(b). In re Bell, 65 B.R. 575, 576 (Bankr. E.D.

• Mich. 1986).

59

 In In re Gentri, 185 B.R.368 (Bankr M.D. Fla. 1995), the court

held that tax liabilities constituted consumer debt within the scope of § 101(8) and for purposes of the substantial-abuse scope of § 101(8) and for purposes of the substantial abuse provisions of § 707(b). The debtors defaulted on their home mortgage loan, and the loan deficiency was forgiven by the

• lender. Subsequently, the debtors incurred tax liability for the

forgiveness of the debt forgiveness of the debt.

 The Gentri court treated the tax liability as consumer debt

because absent the triggering event that was the forgiveness of the deficienc the debt

• ld ha e been cons mer in nat re

the deficiency, the debt would have been consumer in nature.

 In addition, the debtor owed property taxes to the county tax

collector for the residence and the court held that this also was consumer debt under § 101(8) and for means-testing purposes under § 707(b).

60

h l h h l

 While it may appear that there is a split in

authority, the majority of the bankruptcy courts have held that tax liabilities are not courts have held that tax liabilities are not consumer debts in either chapter 7 or 13 cases.

 Although the Fifth Circuit’s dicta suggests

• therwise, the Sixth Circuit Westerberry
• therwise, the Sixth Circuit Westerberry

case is the only appellate case to date to specifically rule that tax liabilities are nonconsumer in nature nonconsumer in nature.

61

• The Westerberry court’s reasoning is rational and well thought-out:

The income tax debt was not voluntarily incurred on the part of the The income tax debt was not voluntarily incurred on the part of the taxpayer, the tax was incurred for a public purpose rather than a personal, family or household purpose, the tax debt resulted from earning activities for a profit rather than from consumption activities, d h i d i i l h i f di and the taxation does not require or involve the extension of credit. I f ll h f f l i h f §

• It seems to follow that for purposes of applying the means test of §

707(b), the case law seems to bear out that tax liabilities are considered nonconsumer debt.

62

Equitable Considerations Equitable Considerations

BAPCPA also permits "other necessary expenses," which in some cases exceed I RS allowances: Health care costs; Health and disability insurance; Expenses for elderly, ill or disabled family member; Up to $1,500 per year per child for public i t l t d h l d

• r private elementary or secondary school; and

Contributions to charity up to 15% of gross income.

Burton J. Haynes 63

Equitable Considerations Equitable Considerations

Because the BAPCPA means test is used to determine what debtor could pay on nonpriority unsecured debts, the computation also deducts unsecured debts, the computation also deducts contractually scheduled payments to secured creditors for five years after petition date. For example, this may permit deduction of mortgage payments in excess of I RS housing allowance for purposes of the means test.

Burton J. Haynes 64

Equitable Considerations Equitable Considerations

Conversion of Chapter 7 case to Chapter 11 or Chapter 13 will permit the discharge, but at the price of making monthly payments. price of making monthly payments. Pre-BAPCPA, Chapter 13 plans usually required , p p y q payments for 3 years. BAPCPA requires payments for 5 years if debtor's income is above the median income level for the state income level for the state.

Burton J. Haynes 65

Chapter 7 vs Chapter 13 Chapter 7 vs. Chapter 13

Superdischarge provisions. Prior to BAPCPA, Superdischarge provisions. Prior to BAPCPA, some taxes that were not dischargeable in Chapter 7 were dischargeable in Chapter 13:

• SFR assessments.
• Taxes for years with unfiled returns or filed

less than two years before petition date less than two years before petition date.

• Taxes arising due to fraud.
• Taxes assessable but not assessed.

Unfortunately, these superdischarge features

• f Chapter 13 were eliminated by the BAPCPA.

Burton J. Haynes 66

• f Chapter 13 were eliminated by the BAPCPA.

Chapter 7 vs Chapter 13 Chapter 7 vs. Chapter 13

But even after the BAPCPA, Chapter 13 still has some advantages over Chapter 7:

• Ability to pay priority taxes with monthly

payments under the protection of the Court.

• No post-petition penalties, and no interest
• n unsecured, priority tax debts.
• Ability to discharge some debts even when

Chapter 7 is unavailable due to means test.

Burton J. Haynes 67

Chapter 7 vs Chapter 13 Chapter 7 vs. Chapter 13

Disadvantages of Chapter 13: Disadvantages of Chapter 13:

• Who may be a debtor: Only someone with

regular income; and with debts less than regular income; and with debts less than $360,475 unsecured, $1,081,400 secured.

• Monthly payments are required based on

income and allowable living expenses.

• Must full pay priority debts for plan to be

confirmed.

Burton J. Haynes 68

Contesting Tax Debts Contesting Tax Debts

U.S. District Court or Claims Court.

• Prerequisite is full payment (Flora).
• Deals only with federal taxes.

U.S. Bankruptcy Court. U.S. Bankruptcy Court.

• Court has authority to determine any tax.
• Put taxes at issue by filing objection to I RS
• Put taxes at issue by filing objection to I RS

proof of claim, or an adversary proceeding to determine amount and dischargeability of tax.

Burton J. Haynes 69

Contesting Tax Debts Contesting Tax Debts

Judicial opportunities to contest tax liabilities: U S T C t U.S. Tax Court.

• No jurisdiction unless Petition filed within 90

days of Statutory Notice of Deficiency.

• Lacks jurisdiction over some kinds of taxes.

D l l ith f d l t

• Deals only with federal taxes.

Burton J. Haynes 70

Contesting Tax Debts Contesting Tax Debts

Adversary proceeding is a lawsuit within a bankruptcy case seeking affirmative relief bankruptcy case, seeking affirmative relief. This can include determining the validity, This can include determining the validity, priority, or extent of a lien, and determining the amount and dischargeability of a debt.

Burton J. Haynes 71

After the Discharge After the Discharge

Tax problems often remaining after bankruptcy: S t i th di h

• Some taxes may survive the discharge

(i.e. the “in personam” liability remains).

• Some taxes may have been secured by the

pre-petition filing of tax liens (i.e. the “in ” li bilit i ) rem” liability remains).

Burton J. Haynes 72

After the Discharge After the Discharge

A valid federal tax lien survives a discharge. I f I RS has properly filed a prepetition NFTL, and I f I RS has properly filed a prepetition NFTL, and the lien is still valid (i.e., it was refiled correctly, if applicable) – the lien survives the discharge. I RS may collect discharged taxes from property that is exempt from the estate, excluded from th t t b d d b th t t the estate, or abandoned by the trustee.

Burton J. Haynes 73

After the Discharge After the Discharge

I RS processing of case after discharge: Accounts remaining unpaid are reactivated, g abated or reported as currently not collectible. Discharge relieves taxpayer of personal liability. g p y p y But tax may still be collected from property (including exempt property) encumbered by a pre-bankruptcy lien. SPf reviews collection p p y potential and determines whether accounts should be abated. I f there are no encumbered assets, taxes are abated and liens released.

Burton J. Haynes 74

,

After the Discharge After the Discharge

Possible solutions for taxes surviving discharge: g g

• Second bankruptcy -- Chapter 7 can be

followed by a Chapter 13 (after 4 years) or followed by a Chapter 13 (after 4 years), or even another Chapter 7 (after 8 years).

• I nstallment agreement
• I nstallment agreement.
• Offer in compromise.
• Wait out statute of limitations (10 years from

date of assessment, but extended by OI C, time i b k t CDP h i t t )

Burton J. Haynes 75

in bankruptcy, CDP hearing requests, etc.).

Bankruptcy vs. OIC -- T eatment of Assets Treatment of Assets

Offer in compromise: Retain assets. Pay 20% quick sale discount on hard assets, 100% of value of cash assets (special rules for I RAs, etc.). Chapter 7: Assets in excess of state exemptions are sold by trustee Tax liens survive bankruptcy are sold by trustee. Tax liens survive bankruptcy against pre-petition assets. Chapter 13: Retain assets. Must pay at least the value of non-exempt assets, plus the equity in property encumbered by liens. Five years to pay.

Burton J. Haynes 76

Bankruptcy vs. OIC -- Pa ment Options Payment Options

Offer in Compromise: Two options: Lump sum

• ffer (payable over 5 months); or deferred

payment offer (payable over 24 months). Chapter 7: Paid from (and to the extent of) debtor’s assets Unpaid nondischargeable taxes debtor s assets. Unpaid nondischargeable taxes survive to be dealt with post-discharge. Chapter 13: Trustee determines ability to pay. Pay value of non-exempt assets, plus equity in property encumbered by FTL, over 5 years.

Burton J. Haynes 77

Bankruptcy vs. OIC – S bstit te fo Ret n (SFR) Substitute for Return (SFR)

Offer in Compromise: May compromise -- (b t I RS ill ft i fili f fil d (but I RS will often require filing of unfiled returns so taxpayer is in “full compliance”). Bankruptcy: Nondischargeable (but note special BAPCPA provision for what constitutes a return).

Burton J. Haynes 78

Bankruptcy vs. OIC – Late Filed Ret ns Late Filed Returns

Offer in Compromise: May compromise. Bankruptcy: Dischargeable if petition filed 2 years after return is filed, 240 days after tax is years after return is filed, 240 days after tax is assessed, and 3 years after due date.

Burton J. Haynes 79

Bankruptcy vs. OIC – Non filed Ret ns ( no SFR) Non-filed Returns (w no SFR)

Offer in Compromise: May not compromise until tax returns are filed and tax assessed tax returns are filed and tax assessed. Bankruptcy: Nondischargeable. Bankruptcy: Nondischargeable.

Burton J. Haynes 80

Bankruptcy vs. OIC – F a d lent Ret ns Fraudulent Returns

Offer in Compromise: May compromise (but in some cases I RS may raise public policy argument) some cases I RS may raise public policy argument). Bankruptcy: Nondischargeable. Bankruptcy: Nondischargeable.

Burton J. Haynes 81

Bankruptcy vs. OIC – Trust F nd Ta es (100% Penalt ) Fund Taxes (100% Penalty)

Offer in compromise: May compromise. (but note special rules evaluating offers in (but note special rules evaluating offers in compromise from “in business” taxpayers). Bankruptcy: Nondischargeable.

Burton J. Haynes 82

Bankruptcy vs. OIC – Enfo ced Collection Action Enforced Collection Action

Offer in Compromise: I RS may not levy or seize while offer is under consideration (or rejection is while offer is under consideration (or rejection is being appealed or litigated). Bankruptcy: BC §362 prevents enforcement action by I RS and other creditors.

Burton J. Haynes 83

Bankruptcy vs. OIC – Ta pa e ’s Othe Debts Taxpayer’s Other Debts

Offer in Compromise: Not resolved. Bankruptcy: Discharges all non-priority debts not excepted from discharge (though lien may not excepted from discharge (though lien may remain on pre-petition assets).

Burton J. Haynes 84

Bankruptcy vs. OIC – State Ta Obligations State Tax Obligations

Offer in Compromise: Not settled (but separate

• ffer in compromise with state may be available)
• ffer in compromise with state may be available).

Bankruptcy: Same rules as federal taxes, so that b k t l ll t t t bankruptcy may resolve some or all state taxes along with federal liabilities.

Burton J. Haynes 85

Bankruptcy vs. OIC – Penalties Penalties

Offer in Compromise: I ncluded in offer and resolved upon acceptance and payment resolved upon acceptance and payment. Bankruptcy: Nonpecuniary loss penalties are Bankruptcy: Nonpecuniary loss penalties are discharged if event penalized is over 3 years old.

Burton J. Haynes 86

Bankruptcy vs. OIC – Limitation on Amo nt of Debt Limitation on Amount of Debt

Offer in Compromise: None. Ch t 7 N Chapter 7: None. Chapter 13: Debts cannot exceed limits: Chapter 13: Debts cannot exceed limits:

• $360,475 of unsecured debt, and
• $1,081,400 of secured debt.

Burton J. Haynes 87

Bankruptcy vs. OIC – Ideal Client fo Each App oach Ideal Client for Each Approach

Offer in Compromise: T ith l di h bl t Taxpayer with large nondischargeable taxes, modest present income and future earning potential (on an individual and household basis), p ( ), few assets, and a source of “new” cash with which to fund the offer in compromise.

Burton J. Haynes 88

Bankruptcy vs. OIC – Ideal Client fo Each App oach Ideal Client for Each Approach

Chapter 7: T ith l i ith hi h i Taxpayer with low income, or with high income as long as the taxes and other nonconsumer debts exceed the consumer debt, few assets that , would be includible in the bankruptcy estate, and large dischargeable tax and nontax debts.

Burton J. Haynes 89

Bankruptcy vs. OIC – Ideal Client fo Each App oach Ideal Client for Each Approach

Chapter 13: T ith l i d ith t Taxpayer with regular income, and with assets that would be excluded from the bankruptcy estate but included in the I RS’s computation of p “ability to pay” for purposes of an OI C. T h i bj t t th BAPCPA Taxpayer who is subject to the BAPCPA means test and cannot pass, and who is thus barred from using Chapter 7.

Burton J. Haynes 90

g p

Securing tax information Securing tax information

Complete information about taxes is essential. Don’t rely on client or even client’s accountant. Don t rely on client or even client s accountant. The documents will be incomplete, recollections will be imperfect, and understanding of the relevant issues inadequate relevant issues inadequate. I RS Practitioner Priority Service (866-860-4259). Local I RS Disclosure Office.

Burton J. Haynes 91

Securing tax information Securing tax information

Obtain and review I RS account transcripts: Transcripts show chronological history of events g posted to the I RS I ntegrated Document Retrieval System (I DRS) – return due date, date filed, date assessed, SFRs, statutory notices of deficiency, , , y y, payments, interest, penalties, appeals, collection waivers, innocent spouse claims, litigation holds, prior offers in compromise, etc. p p , Each tax period is tracked in a separate module.

Burton J. Haynes 92

Securing tax information Securing tax information

Reference materials: I nternal Revenue Manual Bankruptcy Handbook. Found at I RM 25.17.1 et seq. I RS Litigation Guideline Memoranda. BJ Haynes’ articles at www.bjhaynes.com

Burton J. Haynes 93

Taxation of Bankruptcy Estates p y

The filing of a petition under any chapter of the Bankruptcy Code creates an estate. But only a petition for an individual in Chapter 7

• r 11 (but not in Chapter 13) creates a separate

taxable entity taxable entity. The trustee or DI P of an individual estate must bt i EI N fil t d t th t

• btain an EI N, file returns, and pay any tax that

may be due if the estate has gross income that meets or exceeds the filing requirement.

Burton J. Haynes 94

g q

Taxation of Bankruptcy Estates Taxation of Bankruptcy Estates

No separate taxable entity results from the bankruptcy of a partnership or corporation bankruptcy of a partnership or corporation. However, the trustee must file all tax returns hi h th t hi ti ld which the partnership or corporation would have been required to file, and must pay all applicable taxes. pp

Burton J. Haynes 95

Taxation of Bankruptcy Estates – IRC 1398(d) Election to Close Ta Yea IRC 1398(d) Election to Close Tax Year

An individual debtor may elect to close his tax year as of the day before the petition is filed. I RC §1398(d) election must be made on or before due date of return for the short year ending on the day before the petition date. g y p I f election is made, debtor's tax year is divided into two short tax years. The first ends the day y y before the petition; the second begins on the petition date. Absent election, bankruptcy does not close the tax year of an individual debtor.

Burton J. Haynes 96

y

Taxation of Bankruptcy Estates – IRC 1398(d) Election to Close Ta Yea IRC 1398(d) Election to Close Tax Year

I f election is made, the income tax for the first short year is a pre-petition debt, and can be paid from property of the estate. Since any such tax would be nondischargeable, the debtor would remain liable after the discharge g if the tax is not paid from property of the estate. I f election is not made, no part of the debtor's tax , p liability for the year in which the petition is filed is collectible from the estate, but rather would be collectible directly from the debtor.

Burton J. Haynes 97

y

Taxation of Bankruptcy Estates – IRC 1398(d) Election to Close Ta Yea IRC 1398(d) Election to Close Tax Year

The 1398(d) election to split the taxable year is available only in Chapter 7 not in Chapter 13 available only in Chapter 7, not in Chapter 13. The election is also not available if the debtor The election is also not available if the debtor has no non-exempt assets. [See I RC §1398(a) and (d)(2)(C)]

Burton J. Haynes 98

Taxation of Bankruptcy Estates – Income and Ded ctions Income and Deductions

Gross income of the estate includes any of the debtor's income to which the estate is entitled. Gross income of the estate does not include amounts received or accrued by the debtor before the petition date before the petition date. The estate may deduct any amount it pays as if th t id b th d bt i i the amount was paid by the debtor in carrying on the same trade, business, or activity in which the debtor was engaged.

Burton J. Haynes 99

g g

Taxation of Bankruptcy Estates – T ansfe of Debto ’s Assets Transfer of Debtor’s Assets

Bankruptcy law determines which assets become property of the estate. These assets are treated the same in the estate's hands as in the hands of the same in the estate s hands as in the hands of the debtor. A transfer from the debtor to the estate is not A transfer from the debtor to the estate is not treated as a disposition for tax purposes. Thus, the transfer does not result in recognition of gain

• r loss, recapture of deductions or credits, or

acceleration of income or deductions.

Burton J. Haynes 100

Taxation of Bankruptcy Estates – T ansfe of Debto ’s Assets Transfer of Debtor’s Assets

When the estate is terminated, a transfer of b k h d b i d assets back to the debtor is not treated as a disposition, and such transfer does not result in the recognition of gain or loss. g g A transfer back to the debtor by abandonment receives similar tax free treatment.

Burton J. Haynes 101

Taxation of Bankruptcy Estates – T ansfe of “Ta Att ib tes” Transfer of “Tax Attributes”

On the first day of the debtor's tax year in which On the first day of the debtor s tax year in which the petition is filed, the estate succeeds to the tax attributes listed in I RC §1398(g), including: 1) net operating loss carryovers, 2) carryovers of excess charitable contributions, 3) credit carryovers, 4) capital loss carryovers, 5) basis holding period and character of assets 5) basis, holding period, and character of assets, 6) passive activity loss and credit carryovers, and 7) unused at-risk deductions.

Burton J. Haynes 102

7) unused at risk deductions.

Taxation of Bankruptcy Estates – T ansfe of “Ta Att ib tes” Transfer of “Tax Attributes”

Tax attributes of the estate are reduced by any Tax attributes of the estate are reduced by any excluded cancellation of debt income. 982 ( d i f ib Form 982 (Reduction of Tax Attributes Due to Discharge of I ndebtedness) is attached to the tax return of the estate for the year of the discharge. y g Tax attributes remaining when the case is closed by the Court revert to the debtor in that year by the Court revert to the debtor in that year. These tax attributes are not available for the taxpayer's use prior to the close of the case.

Burton J. Haynes 103

Taxation of Bankruptcy Estates – Deduction of Administrative Expenses Deduction of Administrative Expenses

Th t t d d t d i i t ti The estate may deduct administrative expenses, including legal fees, court costs, and all other expense allowed under BC §503. I f administrative expenses exceed the estate’s gross income, the excess may be carried back th d f d three years and forward seven years. Administrative expenses can be carried only to a t f th t t d t t f tax year of the estate, and never to a tax year of the debtor. The carry back is first to the earliest possible year.

Burton J. Haynes 104

Taxation of Bankruptcy Estates – Net Ope ating Loss Ca backs Net Operating Loss Carrybacks

I f the estate has a net operating loss, separate from any administrative expense loss and from y p losses passing to the estate from the debtor, it can carry the loss back to its own earlier tax years as well as to the debtor's pre-petition tax years as well as to the debtor s pre-petition tax years. However, an individual debtor may not carry back ta att ib tes a ising in post petition ta ea to tax attributes arising in post-petition tax year to any pre-petition tax year.

Burton J. Haynes 105

Taxation of Bankruptcy Estates – Changing Estate’s Ta Yea Changing Estate’s Tax Year

The estate may change its taxable year once without having to get approval from the I RS. g g pp This allows the trustee to close the estate’s tax year early, before the anticipated termination of year early, before the anticipated termination of the estate, so that he can file a tax return for the short year and apply to the I RS for a BC §505(b) p ompt dete mination of the estate's ta liabilit prompt determination of the estate's tax liability.

Burton J. Haynes 106

Bankruptcy Estates – P ompt Dete mination Req ests Prompt Determination Requests

The trustee may request a prompt determination The trustee may request a prompt determination

• f any liability of the estate for any tax incurred

during administration. (The estate should file all tax returns, including Form 1041 for an individual, and Forms 1120, 941 and 940 for a business.) Within 60 days, the I RS must notify the trustee if it has selected the return for audit. The notice will confirm receipt of the determination request will confirm receipt of the determination request and state whether the return is accepted as filed,

• r is to be examined. I t must also state the full

t d i l di i t t d lti

Burton J. Haynes 107

amount due, including interest and penalties.

Bankruptcy Estates – P ompt Dete mination Req ests Prompt Determination Requests

I f the 60 day deadline is not met amounts owed I f the 60-day deadline is not met, amounts owed in excess of the tax shown on and paid with the return will be discharged as against the trustee, debtor, or a successor to the debtor, except for misrepresentation or fraud. The I RS is barred from collecting any additional amounts owed. from collecting any additional amounts owed. However, even if the deadline is missed, it is still possible for the I RS to collect a deficiency from possible for the I RS to collect a deficiency from undistributed funds held by the estate.

Burton J. Haynes 108

Bankruptcy Estates – P ompt Dete mination Req ests Prompt Determination Requests

Where a determination is sought the debtor and Where a determination is sought, the debtor and the trustee will be discharged of liability upon:

• payment of the tax if I RS does not notify the
• payment of the tax if I RS does not notify the

trustee of an audit within 60 days; or if the I RS does not complete the audit within 180 days (subject to court extension for cause);

• payment of the tax as determined by the

p y y Bankruptcy Court; or

• payment of the tax as determined by the I RS

Burton J. Haynes 109

• payment of the tax as determined by the I RS.

Taxation of Bankruptcy Estates – Claims fo Ref nd Claims for Refund

I f the trustee requests a refund the Bankruptcy I f the trustee requests a refund, the Bankruptcy Court has the authority to determine the refund amount 120 days after the trustee’s request. Absent a determination, the I RS may still deny the claim even after 120 days. But after 120 days y y the trustee may seek a determination of the estate’s refund claim in the Bankruptcy Court (and thus may contest the I RS’s determination) (and thus may contest the I RS s determination).

Burton J. Haynes 110

Taxation of Bankruptcy Estates – Claims fo Ref nd Claims for Refund

A request for refund is deemed made if: A request for refund is deemed made if:

• the trustee files a claim for refund in

h S’ f f l i response to the I RS’s proof of claim;

• or the trustee files a tax return or amended

return showing an overpayment.

Burton J. Haynes 111