In Uncategorized on 02/09/2017 at 16:28

That’s the good news Judge Morrison has for David W. Schieber and Janet L. Schieber, 2017 T. C. Memo. 32, filed 2/9/17.

Dave has a pension from CalPERS. Pursuant to the terms thereof, if Dave dies, Jan keeps getting the payments.

Dave and Jan get foreclosed on a property in which they do not reside, the knockdown price is less than the debt, and the lender doesn’t pursue.

Dave and Jan claim they were insolvent to the extent of part of the forgiven balance, so COD is off the table to that extent.

Dave’s lawyer says “(O)ther than the right to receive the monthly payments, the Schiebers could not access the value in the plan. They could not convert their interest in the plan to a lump-sum cash amount, sell the interest, assign the interest, borrow against the interest, or borrow from the plan.” 2017 T. C. Memo. 32, at p. 3.

IRS concedes this. Both sides stip that if pension is in, no insolvency, but if it’s out, Section 108 bails Dave and Jan.

However, IRS claims the pension is an asset, because even assets exempt from creditors can still be used to pay tax. See my blogpost “I’ve Been Workin’ on the Railroad,” 4/27/15, for an analogous situation.

Thus, says IRS, the pension is in.

But this isn’t collection alternative, where the big idea is the ability to pay over time from all sources.

Insolvency for Section 108 purposes is a snapshot, not a video.

The insolvency question is whether the asset can be realized on to pay, all by itself or in conjunction with all other assets, the amount of tax due all at once, immediately.

And here the pension cannot be turned into present cash. So Dave and Jan are off the hook for most of the COD, to the extent they were underwater.



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