Non-dischargeable IRS debt?

[rwh7425]

My chapter 13 was discharged in April 2015 and within 30 days I received a Notice of Intent to Levy for 2007 and 2008 taxes. I contacted the IRS and they say that the amount owed was non-dischargeable due to the late-filing status of my tax returns for those years. The returns were filed in the fall of 2009 between my petition date and the confirmation date. I had other taxes that were also due from prior years and the IRS was listed as a creditor. They filed a Form B10 Proof of Claim and some of those debts were listed as 'Priority', and some were listed as 'Unsecured General'. I completed the repayment period successfully, and the trustee paid 100% of what the IRS had listed as 'Priority' and some of the 'Unsecured General', as well as some of the General claims of other creditors. I was advised by the IRS that the taxes from 2007 and 2008 are considered non-dischargeable since the BAPCPA ruling in 2005 regarding late-filed tax returns. I have researched that and see their point. HOWEVER, my point is: if that were the case, then those taxes would have - and should have - been included in the 'Priority' classification so that the trustee would have paid them properly ahead of lesser creditors. It is my contention that the IRS 'goofed-up' by not classifying them properly, and then by not filing an amended claim once they discovered their mistake. This is a relatively small amount (800.00) and I don't really want to pay my attorney $2000 to fight it. Do I have a case? Is it feasible to fight this myself (sans advocate)?

[justbroke]

Of course I could be completely wrong, but I don't think you have any legal standing to tell the IRS that it was discharged. You didn't file the tax returns until after you filed your bankruptcy. Taxes enjoy "special" treatment in a bankruptcy and that special treatment doesn't disappear because the IRS didn't realize what had happened between the date your filed and your confirmation. The tax years that you filed with the IRS after your petition was filed would not fall into the exclusion area of 11 USC 523 (which lists which taxes are dischargeable). In order to be dischargeable, the tax would need to have been at least 3 years old at the time of filing, for which a tax return was filed within 2 years of the petition date, and which wasn't assessed within 240 days of filing. You satisfy none of those dischargeability requirements.

The bankruptcy code (in 523) simply reads that a discharge is not granted for such taxes. There is no language that it could somehow pass through the bankruptcy and be discharged.... by omission.

However, I do see your point. Your problem is that this could cost > $2,000 to fight over $800. I don't envy your position. You would spend a lot of money to find an unsympathetic court. Or, you could find the "Border" court below...

The case of In re Border , 116 B.R. 588 (Bankr. S.D. Ohio 1990), dealt with facts similar to this case. In Border , the IRS had a priority tax claim for which a proof of claim had been filed, but another claim for which no proof was filed. The court held that the debt should be discharged upon completion of the Chapter 13 plan, reasoning that the IRS should not be able to get around the obligations of Chapter 13 while at the same time arguing that it is entitled to the benefits of it.

If you wanted to do this on your own, you would have a U.S. Attorney as an adversary and the IRS and U.S. Attorney will overzealously defend their position (it really "costs" them nothing). You would need to motion to re-open and then file a Complaint to Determine Dischareability. This, the complaint, is actually common when there would be a question on whether something was or should be discharged. You're at one disadvantage because the tax would have been non-dischargeable. The question is whether the IRS' claim should be taken at face value and that they chose not to include the "non-dischargeable" portion as priority debt and should suffer the discharge.

Tough choice. If I personally had the time and energy, I would do it... but it's not for the lighthearted.

See my comments below. Border, 116 BR 588, was pre-BAPCPA (2005). The BAPCPA changed dischargeability and under the current code (enacted in 2005) the taxes are more than likely non-dischargeable even if there was an error.

[despritfreya]

I have researched that and see their point. HOWEVER, my point is: if that were the case, then those taxes would have - and should have - been included in the 'Priority' classification so that the trustee would have paid them properly ahead of lesser creditors. It is my contention that the IRS 'goofed-up' by not classifying them properly, and then by not filing an amended claim once they discovered their mistake.

Sorry, but not discharged and not priority. Proof of Claim properly classified taxes that were more than 3 years old as general unsecured. Your failure to timely file the return or file at least 2 years before the bk means not subject to the discharge and simply treated as a general unsecured claim like a student loan would be treated.

Read 11 USC 507(8)(A) - taxes are priority if they are 1) less than 3 years old; 2) were assessed within 240 days prior to filing; or 3) are capable of being assessed post petition by agreement so long as the tax is not the type of tax listed in 523(a)(1)(B).

Your tax:

1. Is more than 3 years old so 1 above does not apply;

2. Was assessed after you filed so 2 above does not apply; and

3 Is exactly the type of tax that is subject to 523(a)(1)(B).

Pay the small amount and be done with it. This is a "fight" you do not want to undertake.

Edt to add. . . I am assuming the tax was for a tax year more than 3 years old at the time of filing. Was it????If not, my analysis probably changes so when did you file bk?

Des.

[justbroke]

despritfreya from what I can gather, they filed in 2010. The 2007 taxes were within the non-dischargeable period because they weren't due until April 2008. Just my guess.

[despritfreya]

despritfreya from what I can gather, they filed in 2010. The 2007 taxes were within the non-dischargeable period because they weren't due until April 2008. Just my guess.

Then it should have been priority regardless of when the return was filed. His attny should have caught it before submitting the Order Confirming. Mistakes happen but. . .

Des.

[justbroke]

despritfreya my thoughts were a mistake would not change the non-dischargeability. But now that I think about it, Border, which I cited above, was PRE-BAPCPA which changed how dischargeability works. So I retract Border and rely on 11 USC 523 as modified under the BAPCPA (2005).