Pottapaug1938 wrote:We might also see the citation... um, "condensed", as follows:
fortinbras wrote:“A tax, in its essential characteristics, ... originates and is founded upon contracts express or implied.”
A. I recognize and appreciate your humor/sarcasm.
B. The essence of the Supreme Court's statement was that tax liability is different from a conventional debt. A conventional debt is entered into by some act of volition, but a tax is imposed without such an act. I might also add that bankruptcy discharges conventional debts but not tax liabilities.
Pottapaug1938 wrote:We might also see the citation... um, "condensed", as follows:
fortinbras wrote:“A tax, in its essential characteristics, ... originates and is founded upon contracts express or implied.”
"A. I recognize and appreciate your humor/sarcasm."
Sadly, the joke will be on the CtC-edjiccated genius who actually tries this kind of editing, and then uses it in court pleadings.
"We've been attacked by the intelligent, educated segment of the culture." -- Pastor Ray Mummert, Dover, PA, during an attempt to introduce creationism -- er, "intelligent design", into the Dover Public Schools
Pottapaug1938 wrote:We might also see the citation... um, "condensed", as follows:
fortinbras wrote:“A tax, in its essential characteristics, ... originates and is founded upon contracts express or implied.”
A. I recognize and appreciate your humor/sarcasm.
B. The essence of the Supreme Court's statement was that tax liability is different from a conventional debt. A conventional debt is entered into by some act of volition, but a tax is imposed without such an act. I might also add that bankruptcy discharges conventional debts but not tax liabilities.
Actually bankruptcy does discharge all types of tax debts, so long as they're not property tax debts and they meet the requirements of 508. Generally speaking they must be over 2 years old, the tax year not accessed more recently than 160 days, and the IRS has not been prohibited from collection during those periods. It also does not remove liens that have been filed (though there is some disagreement about that).
"Some people are like Slinkies ... not really good for anything, but you can't help smiling when you see one tumble down the stairs" - Unknown
Imalawman wrote: It also does not remove liens that have been filed (though there is some disagreement about that).
Are you referring to that property that was claimed by the petitioner as exempt? If so, I think it would be more proper to say that the lien still encumbers that property based on Isom as opposed to saying that the lien doesn't get removed - a discharge would certainly allow release of the lien for all other purposes.
I'm sure Prof will come to the rescue on this one.
"I could be dead wrong on this" - Irwin Schiff
"Do you realize I may even be delusional with respect to my income tax beliefs? " - Irwin Schiff
Imalawman wrote: It also does not remove liens that have been filed (though there is some disagreement about that).
Are you referring to that property that was claimed by the petitioner as exempt? If so, I think it would be more proper to say that the lien still encumbers that property based on Isom as opposed to saying that the lien doesn't get removed - a discharge would certainly allow release of the lien for all other purposes.
I'm sure Prof will come to the rescue on this one.
Under title 11 USC sections 524(a)(1) and 524(a)(2), a bankruptcy discharge is a discharge only of personal liability, not of in rem liability. In other words, to the extent that a lien remains valid in bankruptcy, the liability to which that lien relates, up to the value of the collateral, is not discharged. For example, if the total liability exceeds the fair market value of the collateral, the liability is generally in rem (and nondischargeable) up to the value of the collateral and is personal (and possibly dischargeable) to the extent that the amount of the liability exceeds the value of the collateral.
EDIT: Another wrinkle.
Some courts have held that the discharge provisions of the Bankruptcy Code do not affect a creditor's right (if any) to offset a mutual, pre-petition tax refund claim of the debtor against a pre-petition tax liability owed by the debtor. The general non-bankruptcy law right of the IRS to a setoff is provided by Internal Revenue Code section 6402(a). This right is partially preserved by Bankruptcy Code section 553. In other words, to the extent that the setoff right is still valid in bankruptcy, the tax liability is nondischargeable, since the tax collector still has the right to make the setoff. However, the setoff right may still be subject to section 362.
I haven't researched all this discharge stuff in a while. There may have been changes with the 2005 bankruptcy law, so: caveat lector.
"My greatest fear is that the audience will beat me to the punch line." -- David Mamet
Imalawman wrote:
Actually bankruptcy does discharge all types of tax debts, so long as they're not property tax debts and they meet the requirements of 508. Generally speaking they must be over 2 years old, the tax year not accessed more recently than 160 days, and the IRS has not been prohibited from collection during those periods. It also does not remove liens that have been filed (though there is some disagreement about that).
Depends on the tax. Trust taxes, for example, are not discharged, sales and withholding etc.. I believe the rules for income taxes to be discharged are still that it must have been assessed more than three years prior to the petition if filed timely, two years if filed late and more than 240 days if it's an audit assessment. Those periods are extended by prior bankruptcy stays.
I was going to comment on the lien issue but it got addressed while I was typing.
What taxes are dischargeable? The following is adapted from a memo I wrote some years ago. It hasn't been updated for changes in the law in 2005 (or later), if any. And the footnotes have been omitted.
Section references are references to the Bankruptcy Code (title 11 of the United States Code).
First, please note that although section 507(a)(8) refers to “allowed” claims of governmental units, the following rules make the applicable tax nondischargeable, regardless of whether or not a claim was filed or allowed for that tax (see section 523(a)(1)(A), and sections 523(a)(1)(B) and (C)).
Here are the non-dischargeable taxes. And again, remember that a discharge applies only to PERSONAL liability. Discharge does not, as a general rule, impair a perfected tax lien.
NON-DISCHARGEABLE TAXES
1. A tax with respect to a required tax return which was FILED LATE after the date that was TWO (2) years immediately preceding the date of commencement of the bankruptcy. Presumably this rule is limited, however, to taxes for periods that ended prior to commencement of the case, so that the rule would not apply to “administrative expense” tax returns (although nothing in the statute expressly says this).
2. PRIORITY TAX: A tax on (or measured by) income or gross receipts, where the related tax return was LAST DUE TO BE FILED (considering extensions) during the THREE (3) years immediately preceding the bankruptcy.
3. PRIORITY TAX: A tax on (or measured by) income or gross receipts, where the tax was assessed during the 240 days immediately preceding the bankruptcy (plus, in certain cases, the 30 days during which an offer in compromise was pending).
4. PRIORITY TAX: Basically, any withholding tax for which the Debtor is liable in any capacity. The statute refers to any tax “collected” or “withheld.” For example, the Texas sales tax would be a “collected” tax of a “trust fund” nature with respect to the party collecting the tax. See In re Gulf Consolidated Services, Inc., 110 B.R. 267 (Bankr. S.D. Tex. 1989). Federal payroll withholding taxes would also fall into this category.
5. A tax with respect to a required tax return which was not filed. [EDIT: This almost surely means not filed on or before the date of commencement of the case. Filing a return after you've already filed bankruptcy will not work.]
6. A tax with respect to which the Debtor made a fraudulent return.
7. A tax which the Debtor willfully attempted to evade or defeat.
8. PRIORITY TAX: A tax on (or measured by) income or gross receipts, where the tax was not assessed before commencement of the case -- but was assessable after the commencement of the case -- and such tax is NOT specified in § 523(a)(1)(B) or § 523(a)(1)(C) [THAT IS, where the tax is not described in categories 1, 5, 6, or 7 above].
9. PRIORITY TAX: Certain taxes in involuntary bankruptcies.
10. PRIORITY TAX: A "property tax assessed before the bankruptcy" which is last payable without penalty during the year immediately preceding the filing of the bankruptcy petition.
11. PRIORITY TAX: Certain employment taxes -- on wages earned pre-petition -- for which a return is LAST DUE TO BE FILED (considering extensions) during the 3 years immediately preceding the bankruptcy and, apparently, certain employment taxes – on wages earned pre-petition -- for which the return is last due to be filed after the bankruptcy is commenced. The rule includes certain employment taxes on wages that have not yet been paid as of commencement of the case. The tax period for the employment taxes on wages not yet paid as of commencement of the case will, of logical necessity, end after commencement of the case. Thus, this rule, along with section 502(i), treats certain employment taxes as being pre-petition liabilities, even though the tax period for such taxes ends after case commencement. Section 502(i) provides that a section 507(a)(8) tax arising after commencement of the case shall be determined and allowed or disallowed, as the case may be, AS IF such tax had arisen before the date of the filing of the petition. Section 101(10)(B) provides that the term "creditor" includes an entity having a claim described in section 502(i).
12. PRIORITY TAX: An excise tax on a pre-petition transaction, for which a return is due to be filed (consider¬ing exten¬sions) after the date that is 3 years immediately preceding the bankrupt¬cy. Thus, this includes certain pre-petition excise taxes applicable to a tax return that, as of the date of the petition, is not yet due to be filed. Thus, this rule, along with section 502(i), treats certain excise taxes as being pre-petition liabilities, even though the tax period for such taxes ends after case commencement. Section 502(i) provides that a section 507(a)(8) tax arising after commencement of the case shall be determined and allowed or disallowed, as the case may be, AS IF such tax had arisen before the date of the filing of the petition. Section 101(10)(B) provides that the term "creditor" includes an entity having a claim described in section 502(i).
13. PRIORITY TAX: An excise tax on a pre-petition transaction, for which no return is required, where the transaction occurred during the 3 years immediately preceding the bankruptcy. This rule, along with section 502(i), treats certain excise taxes as being pre-petition liabilities, even though the tax period for such taxes ends after case commencement. Section 502(i) provides that a section 507(a)(8) tax arising after commencement of the case shall be determined and allowed or disallowed, as the case may be, AS IF such tax had arisen before the date of the filing of the petition.
14. PRIORITY TAX: A penalty in compensation for "actual pecuniary loss" where such penalty is related to a "claim of a kind specified in Bank¬ruptcy Code § 507(a)(8)."
15. A tax to the extent that the tax is a secured claim. A bankruptcy discharge covers only the personal liability of the debtor, not his in rem liability to the extent of (and with respect to) property against which a valid lien exists. To the extent that a tax liability is a "secured claim," that tax liability generally is not discharged in bankruptcy. However, a claim is generally a "secured claim" only to the extent of the value of the creditor's interest in the estate's interest in such property, and is an unsecured claim to the extent that the amount of the claim exceeds the value of such creditor's interest.
16. A tax to the extent that the tax could be setoff, under applicable non-bankruptcy law (e.g., 26 U.S.C. section 6402(a)), against a credit or refund due to the taxpayer. In other words, to the extent that the setoff right is still valid in bankruptcy, the tax liability is nondischargeable, since the tax collector still has the right to make the setoff.
There are or used to be some special rules in Chapter 13, though. And Chapter 13 is the dark side of the moon for me.
EDIT: More corrections made. I should have identified the above list as a list of NON-dischargeable taxes. This is what I get for trying to write while my wife is yelling something from the other room. I think I've made the corrections I was supposed to make.
The above list is a list of NON-dischargeable taxes. Thus, if a tax is not on this list, that tax is dischargeable (I think).
"My greatest fear is that the audience will beat me to the punch line." -- David Mamet
A word of caution about item 7. The language regarding taxes that the debtor willfully attempted to evade is very similar to the federal tax evasion statute, yet the courts do not interpret the two statutes the same.
For the federal tax evasion statute, 26 USC 7201, the courts have ruled that there must be an affirmative act, a commission, for the offender to be guilty. A mere failure to file a return, even a willful failure to file, does not qualify as an affirmative act.
However, for bankruptcy purposes, a mere omission - a failure to act such as a willful failure to file, could be grounds for denial of a discharge.
"My greatest fear is that the audience will beat me to the punch line." -- David Mamet
fortinbras wrote:“A tax, in its essential characteristics, ... originates and is founded upon contracts express or implied.”
A. I recognize and appreciate your humor/sarcasm.
B. The essence of the Supreme Court's statement was that tax liability is different from a conventional debt. A conventional debt is entered into by some act of volition, but a tax is imposed without such an act. I might also add that bankruptcy discharges conventional debts but not tax liabilities.
Actually bankruptcy does discharge all types of tax debts, so long as they're not property tax debts and they meet the requirements of 508. Generally speaking they must be over 2 years old, the tax year not accessed more recently than 240 days, and the IRS has not been prohibited from collection during those periods. It also does not remove liens that have been filed (though there is some disagreement about that).
Oop's...(corrected the days) Thanks for the detail, I was just typing that off the top of my head.
"Some people are like Slinkies ... not really good for anything, but you can't help smiling when you see one tumble down the stairs" - Unknown
Other tax obligations include property taxes (ad valorem) which are generally secured by first priority, priming, statutory liens. Like other secured claims, these are not personal obigations of the debtor but -- as secured claims -- are paid from liquidation of the collateral.
Sales taxes, which are held in trust for the taxing authority, are trust fund taxes and are not dischargeable to the individual -- human being-- who is the responsible party. These operate like other trust fund obligations for withholding of income taxes.
Franchise and other taxes are generally not personal obligations.
The Chapter 13 super-discharge for late filed returns (i.e., a return which was once past due but was on file for LESS Than 2 years at the time of the bankruptcy) disappeared in 2005.
