In Uncategorized on 06/17/2019 at 19:31

When Chapter 7 bankruptcy results in a discharge, personal liabilities included in the proceeding are discharged…except some. And the some that aren’t include taxes, additions and interest.

The Judge with a Heart, STJ Robert N. Armen explains it all to Scott Daniel Wilson & Sarah Margaret Wilson, Docket No. 25218-18SL, filed 6/17/19.

SD & SM wanted two past years’ overpayments credited against the liability for the year at issue, but the Form 4530 Cert shows that the overpayments had been so applied, and SD & SM were still short.

Then too, their bankruptcy petition was filed sooner than three (count ‘em, three) years after the liability in question arose, thus triggering 11 USC §523 and §507. “As applicable to the present case, section 523(a)(1)(A) of the Bankruptcy Act, through its cross-reference to section 507(a)(8) of the Bankruptcy Act, excepts from discharge any tax ‘for which a return * * * is last due, including extensions, after three years before the date of the filing of the [bankruptcy] petition’.” Order, at p. 5.

Bankruptcy practitioners, beware! Here be dragons! Note these dates, and catechize clients accordingly. And put IRS on your creditors’ list.

“In the present case, petitioners filed their bankruptcy petition on September 12,2017. Three years before that date was September 12, 2014. Petitioners’ income tax return for 2014 was due on October 15, 2015, pursuant to an extension of time to file. The return filing date was after September 12, 2014. Therefore, petitioners’ income tax liability for 2014 was not discharged in bankruptcy because it was a tax ‘for which a return * * * is last due, including extensions, after three years before the date of the filing of the [bankruptcy] petition’.” Order, at p. 5. Maybe so should’a waited a while before filing, if possible.

As for additions to tax, late payment has the same three-year cutoff. See 11 USC § 523(a)(7).

And STJ Armen wraps it all up.

“Finally, regarding statutory interest on an underpayment of tax, this Court has previously held that debtors remain personally liable after a discharge for both (1) any pre(bankruptcy)petition interest that was not satisfied out of the bankruptcy estate in respect of a nondischargeable tax debt and (2) post(bankruptcy)petition interest in respect of such debt. Leathley v. Commissioner, T .C. 2010-194, at*2. See In re Moore,2017WL934641 (Bankr., N.D. Okl. 2017), at n.7, citing with approval Leathley v. Commissioner, T.C. Memo. 2010-194. Accordingly, statutory interest on petitioners’ liability for income tax for 2014 is not excepted from discharge.” Order, at p. 6 (Footnote omitted, but it says IRS never recovered anything in the bankruptcy proceeding).

Whoever did the bankruptcy proceeding (assuming petitioners weren’t pro sese) is probably in line for The Phone Call.



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