It is a common misconception that debts for taxes are not dischargeable in bankruptcy. The misconception appears to arise from the broad non-dischargeability of taxes under old law,³ from the non-dischargeability of certain taxes under current law (e.g., trust fund recovery employment taxes⁴) and from the legal restrictions that limit the taxes that qualify for discharge. The bankruptcy discharge of taxes can be a powerful tool for tax debtor counsel who can distinguish dischargeable from non-dischargeable taxes and who know the applicable procedural rules. Conversely, practitioners who fail to appreciate the fine points of tax debt dischargeability may leave their clients with the enormous burden⁵ of a tax debt that might otherwise have been discharged.

Substantive Considerations

To receive the benefits of a bankruptcy discharge of a debtor's liability for a tax and its related interest⁶ and penalties⁷ (tax debt), Congress has provided a minefield of qualifications, limitations and restrictions through which the debtor's attorney must navigate with the tax debtor to prove that the tax debt is subject to discharge.⁸ The requirements of dischargeability are discussed below.

The Taxpayer Test. Only individuals filing for liquidation under chapter 7,⁹ individuals and certain corporations and partnerships filing for reorganization under chapter 11,¹⁰ and individuals filing for adjustment of debts under chapter 13¹¹ may discharge tax debts.

The Tax Return Due Date Test. For income taxes and taxes on gross receipts to be discharged, the due date for filing the tax return in which the tax debt was disclosed (including all valid extensions of the due date) must have occurred more than three years before the bankruptcy filing date.¹² For example, if taxes were disclosed in a 1999 income tax return for which extensions to file the return expired on Oct. 15, 2000, the tax return due date test will be satisfied if the bankruptcy petition is filed after Oct. 15, 2003. The three-year period is suspended during the automatic stay of a prior bankruptcy¹³ and during other occurrences.¹⁴ To assure that the bankruptcy petition is filed after the satisfaction of this three-year requirement and other date-sensitive requirements stated below, practitioners should examine the applicable taxing authority's records.¹⁵

The Tax Return Filing Date Test. To support dischargeability, the tax debtor must have filed the applicable tax return at least two years before filing for bankruptcy relief.¹⁶ Continuing the example discussed above under the tax return due date test, if extensions to file the 1999 return expired on Oct. 15, 2000, and the tax return was not filed until April 15, 2002, the filing of a bankruptcy petition on Oct. 15, 2001, will defeat dischargeability. The tax debtor will have satisfied the tax return due date test, but not the tax return filing date test. The tax debtor will not satisfy the latter test until two years after the filing date, or April 15, 2004. In addition to verifying date-sensitive requirements in the applicable taxing authority's records, practitioners should verify that the taxing authority is not likely to contest that the return is the valid return of the tax debtor (e.g., the tax return was not properly signed by the tax debtor, the return was not properly mailed to the taxing authority, the return was not sufficiently complete to be deemed a tax return and the return was not a substitute for a return that was filed by the taxing authority on behalf of the tax debtor and without the tax debtor's participation, which substitute may not be a tax return for the tax return filing date test¹⁷). For tax return filing information, the tax debtor's counsel should examine the applicable taxing authority's records.

The Assessment Date Test. For income taxes and taxes on gross receipts to be discharged, the taxing authority must have assessed (entered the liability on the taxing authority's records¹⁸) the tax against the tax debtor at least the following number of days prior to the filing of the tax debtor's bankruptcy petition: (a) 240 days, plus (b) the number of days each offer in compromise for the applicable tax had been pending, plus (c) the number of days each prior bankruptcy proceeding had been pending after the related tax return due date with valid extensions, plus (d) 30 days for each applicable offer in compromise, plus (e) six months for each applicable bankruptcy proceeding.¹⁹ Prior bankruptcies²⁰ and other occurrences²¹ may extend the 240-day period. Here too, the taxing authority's records are the starting point to verify the assessment date and the dates offers in compromise were pending.

The Tax Deficiency Assessment Test. The tax debt will not be discharged if the tax liability is based on a deficiency that was assessed after the filing of the bankruptcy petition, for which the applicable statutory period of limitations did not expire before the filing of the bankruptcy petition.²²

The Fraudulent Return or Willful Attempt to Evade or Defeat the Tax Test. The tax debtor will fail to have the otherwise dischargeable tax debt discharged if the tax debtor either (a) committed an act of fraud related to the applicable tax return²³ or (b) willfully attempted in any manner to evade or defeat the tax sought to be discharged.²⁴ "Willful attempt" means a voluntary, conscious or intentional attempt, with no requirement of an affirmative act or commission.²⁵ The taxing authority bears the burden of proving the fraudulent return, or the willful attempt to evade or defeat the tax, by a preponderance of the evidence.²⁶ When a joint return is filed, for discharge to be denied to each spouse based on a fraudulent return or willful attempt to evade or defeat the tax, the taxing authority must prove that each spouse committed an act of fraud related to the applicable return or willfully attempted to evade or defeat the tax.²⁷ Because the taxing authority's assertion of fraud may result in the loss of the tax discharge, before filing the bankruptcy petition, tax debtor's counsel should ascertain whether the applicable taxing authority has asserted, or may be expected to assert, that the tax debtor filed fraudulent tax returns or willfully attempted in any manner to evade or defeat the tax sought to be discharged.

The Timely Notification Test. Was the taxing authority notified of the pending bankruptcy in sufficient time to permit the taxing authority timely filing of a proof of claim?²⁸

The Type of Tax Debt Test.The tax sought to be discharged must not be:

(a) The type of tax for which the tax debtor was responsible for collecting from the source and remitting to the taxing authority²⁹ (e.g., FICA, Medicare and income taxes withheld from employees for remittance to the Internal Revenue Service (IRS)³⁰).
(b) The employer's share of third-priority employment taxes paid under Bankruptcy Code §507(a)(3) of up to $4,000 per applicable party.³¹
(c) Excise taxes (including sales, gasoline, special fuel, wagering, highway, truck, estate and gift taxes) (1) on a pre-petition transaction for which a return was due, including valid extensions, within three years before the date of filing the bankruptcy petition, or after the filing of the bankruptcy petition; or (2) related to a transaction, for which no return was required, occurring within three years before the date of filing the bankruptcy petition.³²
(d) In an involuntary bankruptcy, taxes arising between the filing of the petition and the earlier of the appointment of the trustee and the order for relief.³³
(e) Erroneous refunds or credits made by the taxing authority regarding non-dischargeable taxes due to be returned to the taxing authority.³⁴
(f) A tax debt not included on the tax debtor's schedules within sufficient time for the taxing authority to file a timely proof of claim, unless the taxing authority has actual knowledge of the bankruptcy.³⁵

The General Discharge Impediments Test. Finally, and axiomatically, if the bankruptcy court denies the debtor a discharge for any of the reasons set forth in 11 U.S.C. §727, neither the tax debt nor any other debt will be discharged as a result of the bankruptcy.

Procedural Considerations

Tax debtor's counsel, satisfied that the tax debt is dischargeable, must instill the same sense of satisfaction in those officials of the taxing authority who are charged with responsibility to determine when and where to assert a claim of tax non-dischargeability. The road to such satisfaction forks into two paths that, for convenience, may be referred to respectively as "wait and see" and "closure."

Wait and See. The good news is that tax debtors need not obtain a judicial recognition that taxes have been discharged at any particular time or in any particular court. The bad news is that neither must the taxing authority.³⁶ The authority has access to the same resources considered in this article. At the time of bankruptcy discharge, the authority may have consulted these sources and, in a perfect world, will have reached the same conclusion as tax debtor's counsel as to the dischargeability of the subject taxes. Either the taxes were excepted from discharge under 11 U.S.C. §523(a)(1) or they were not. The rule sounds simple, but, as is the case in the rest of the universe, the rule is not so simple as it may sound.

In the absence of objection to discharge or dischargeability, the court will enter an order granting a discharge.³⁷ The claims discharged by such an order, insofar as the tax debts are concerned, are defined by 11 U.S.C. §523(a)(1). As described above, the definition concerns, among other matters, the presence or absence of fraud, the nature of the tax and numerous cutoff dates. Imagine practitioners and tax collectors in their respective offices pouring over debtors' tax records. Will both categories of examiners reach the same conclusions as to the presence of fraud, the date a return was due, the date it was filed, the nature of the tax for which it was filed? Definitely maybe.

And perhaps debtors are satisfied with "maybe." Perhaps practitioners with much patience and touch-tone telephones can communicate with the taxing authority's administrative person charged with the responsibility of informally detecting the presence or absence of dischargeability. And perhaps that person will disclose an official interpretation to the extent of, "Looks okay to me." Practitioners may be hearing the verdict of the last federally employed eyes that will ever gaze upon the debtors' past tax records. The matter may be over, closed and finished with. And yet, no practitioner can be certain that the tax debtor's records will not thereafter be exhumed and further dissected for signs of nondischarged life.

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To be "provided for" in the debtor's payment plan, the tax debts must be included in the payment plan, but full payment of the tax debts in the payment plan may not be required.

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The want of closure notwithstanding, practitioners and their clients may reasonably conclude that, if the tax collectors reappear, the clients will confront the reappearance when it arises. Yet perhaps such clients desire to invest their time and efforts in the acquisition of assets—assets that may later be subject to nondischarged tax claims. Perhaps such clients will be entering into business relationships with others—even family members—whose fiscal lives, like those of the tax debtors, will be complicated by the taxing authority's involvement³⁸ in jointly owned assets. Perhaps the legal expense of obtaining a judicial determination of dischargeability will be less at the time of the bankruptcy, when the tax debtor's counsel is familiar with the details of the case, than at a later time, when he or she may³⁹ not be. Because clients may not recall⁴⁰ their counsels' recommendations against "wait and see" if, at a later date, a taxing authority pursues a claim for nondischarged taxes, tax debtor's counsel will be well advised to fully disclose the risks of future tax claims and confirm in writing the tax debtor's decision to opt for "wait and see" rather than "closure."

Closure. A judicial determination of dischargeability—one that will foreclose further examination of dischargeability by the taxing authority—means the commencement of a proceeding to determine dischargeability. Although tax debtor's counsel may commence such an action at any time and in a state or federal forum,⁴¹ bankruptcy court may be the forum most familiar with alloyed applications of bankruptcy and tax law. Tax debtor's counsel, confident that a tax debt is dischargeable, may opt for bankruptcy court adjudication.⁴²

Such an action in bankruptcy court is an adversary proceeding commenced with a complaint under 11 U.S.C. §523(a)(1).⁴³ The complaint should identify the debtors and taxing authorities, and cite the nature of the proceeding and the bankruptcy court's jurisdiction over such actions.⁴⁴ The complaint should contain a short and plain statement of the claim sufficient to demonstrate pleaders' entitlement to the relief they seek and place their adversaries on notice of the nature of the claim.⁴⁵ By way of example, if the tax debt consists of a claim for federal income taxes, the allegations will include (a) identification of parties, (b) the statute under which the complaint is filed,⁴⁶ (c) the nature of the proceeding as a core proceeding,⁴⁷ (d) the statute under which the bankruptcy court has jurisdiction,⁴⁸ (e) the chapter of the Bankruptcy Code under which, and the date on which, the tax debtor filed for relief, (f) identification of the tax debt by the dates of, and the events that resulted in, the assessment of the tax, (g) the nature of tax and (h) the failure of the tax to qualify either as a priority claim or as a claim specifically excepted from discharge.⁴⁹ The complaint will conclude with a prayer that the subject taxes be declared discharged.

After the adversary proceeding is commenced, the clerk will issue a summons to the adverse parties. The summons and pleading must be timely served.⁵⁰ The taxing authority must serve its answer on the tax debtor within applicable time limits⁵¹ and must bear the burden of proving that its claim is not discharged.⁵² Discovery proceeds in accordance with applicable federal discovery rules,⁵³ and the court renders judgment or default judgment as in cases tried by federal district courts.⁵⁴

Discharge of Certain Non-dischargeable Tax Debts

In a chapter 13 proceeding, all obligations "provided for" are discharged upon completion of all payments under the plan, including all tax debts that otherwise do not qualify for discharge.⁵⁵ Only debts for alimony, child support, property settlements, certain long-term debts, certain student loans, personal injury obligations from drunk driving, and criminal fines and restitution are exempted from discharge upon completion of a chapter 13 payment plan.⁵⁶ The ability to discharge otherwise non-dischargeable tax debts is known as "super-discharge."

To be "provided for" in the debtor's payment plan, the tax debts must be included in the payment plan, but full payment of the tax debts in the payment plan may not be required.⁵⁷ The bankruptcy court's acceptance of a plan that does not result in the taxing authority receiving full payment of its non-discharged liability will result in the discharge of the tax liability that remains unpaid upon completion of the plan.

Arguments have been made that late-filed and non-filed proofs of claim cannot be priority tax claims and, therefore, that a plan may be confirmable without providing for their full payment. Such arguments are based on contentions that the late or non-filed proofs of claim have not been "allowed." Although the law is not well settled, taxes represented by late or non-filed proofs of claims may be dischargeable.⁵⁸

Special reasons exist for consideration of chapter 13, rather than chapter 7, relief when tax claims would be dischargeable under chapter 7, except for either (a) the tax debtor's failure to file a return or (b) the tax debtor's perpetration of fraud or attempts to evade or defeat the tax. Such taxes are not priority claims excepted from discharge under 11 U.S.C. §§507 and 523(a)(1)(B) and (C) and may be dischargeable by a chapter 13 discharge under 11 U.S.C. §1328(a). Tax debtor's counsel should be aware, however, that the election to seek relief under chapter 13 predominantly to take advantage of the broader chapter 13 discharge may be subject to attack in a chapter 13 proceeding under the good-faith requirement of 11 U.S.C. §1325(a)(3).⁵⁹

Post-discharge Collection from Secured Pre-bankruptcy Assets

If the tax debtor manages to traverse the discharge minefield, another obstacle may await the tax debtor on the other side of the minefield.

Pre-petition Tax Liens. After a bankruptcy discharge, the taxing authority retains its in rem rights regarding assets to which its pre-bankruptcy tax lien attached,⁶⁰ which are unaffected by the bankruptcy and remain in effect until the applicable statutory period of limitations expires.⁶¹ For example, if, prior to bankruptcy, the taxing authority filed a tax lien that attached to a parcel of real estate the trustee in bankruptcy disclaimed as not worthy of administration, even after discharge the taxing authority retains post-discharge in rem rights regarding the tax debtor's interest in such real estate.

While the discharge in bankruptcy relieves the tax debtor of individual liability for the underlying tax debts, and the tax debtor's assets acquired after the bankruptcy are not subject to the discharged tax debts, after the discharge the taxing authority may collect the applicable tax debts from the pre-petition assets to which its pre-petition tax lien attached, including, in the example above, the tax debtor's equity in the real estate parcel.

Conclusion

The Bankruptcy Code permits the discharge of many tax debts, although the identification of such debts and the procedures to insure their dischargeability are numerous and technical. Practitioners will serve their clients well by identifying dischargeable tax debts and knowing the circumstances under which the opportunity to discharge them may be won or lost.

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Footnotes

¹ Paul H. Waldman is a certified tax attorney, former IRS senior trial attorney and legal advisor. He holds an LL.M. in taxation. Return to article

² Kenneth J. Berke is a private practitioner in Metairie, La. He holds a J.D. from Tulane University. Return to article

³ No taxes were dischargeable before the 1966 amendments to the Bankruptcy Act that enacted Bankruptcy Act 17(a). 80 Stat. 270 (1966). U.S. v. Soleto, 436 U. S. 268, 98 S.Ct. 1795, 42 AFTR 2d 78-5001 (1978). Return to article

⁴ 11 U.S.C. §§523(a)(1) and 507(a)(8)(C); 26 U.S.C. §§6672 and 3505. Return to article

⁵ Non-discharged taxes, interest and penalties are collectible from the tax debtor after the bankruptcy automatic stay is lifted. United States v. Gurwitch, 794 F.2d 584, 58 AFTR 2d 86-5473 (11th Cir. 1986). Return to article

⁶ In re Larson, 862 F.2d 112, 62 AFTR 2d 88-5797 (7th Cir. 1988) (if the underlying tax liability is non-dischargeable, the related pre-petition interest is similarly non-dischargeable). The tax debtor is personally liable for post-petition interest on non-dischargeable taxes, regardless of the amount of the related tax debt paid by the bankruptcy estate. In re Burns, 887 F.2d 1541, 65 AFTR 2d 90-695 (11th Cir. 1989). Return to article

⁷ If the tax to which a penalty applies is dischargeable, the applicable penalty is dischargeable (11 U.S.C. §§523(a)(7) and 507(a)(8)(G)); a penalty, and the interest thereon, is also dischargeable if the penalty is imposed for a transaction or an event that occurred more than three years before the filing of the bankruptcy petition. In re Burns, supra.; In re Hassel, ___ B.R. ___, 93 AFTR 2d 2004-563 (Bankr. N.D. Tex. 2003). Non-pecuniary loss penalties are dischargeable regardless of whether or not the tax to which the non-pecuniary penalty applies is dischargeable. 11 U.S.C. §§523(a)(7), 727(a), 1144 and 1330. Some charges denominated "taxes" have been held to be penalties, and vice versa. United States v. Reorganized CF&I Fabricators of Utah Inc., supra., 518 U.S. 213, 116 S.Ct. 2106, 77 AFTR 2d 96-2562 (1996) (10 percent tax imposed under Internal Revenue Code §4971(a) for pension plan funding deficiencies is a non-pecuniary loss penalty, despite its label as excise tax); In re Cassidy, 983 F.2d 161, 71 AFTR 2d 93-380, (10th Cir. 1992) (10 percent tax imposed under Internal Revenue Code §72(t) for early distribution from a pension plan is a non-pecuniary loss penalty and is dischargeable); United States v. Sotelo, supra, (tax penalties, here for failure to pay over withheld employment taxes, that compensate the government for pecuniary loss are treated as taxes to determine dischargeability). Return to article

⁸ 11 U.S.C. §§523(a), 507(a)(2) and 507(a)(8). Return to article

⁹ 11 U.S.C. §727(a)(1); partnerships and corporations cannot receive a discharge in chapter 7 proceedings. Return to article

¹⁰ 11 U.S.C. §1141. A corporation or partnership may receive a full discharge upon confirmation of a chapter 11 plan. 11 U.S.C. §1141(d)(1). If the corporation or partnership ceases to engage in any business after confirmation of the plan, or if the plan provides for liquidation of all or substantially all of the estate, the discharge does not apply. 11 U.S.C. §1141(d)(3). The chapter 11 discharge of corporate or partnership taxes, unlike the chapter 11 individual discharge, applies both to dischargeable and non-dischargeable corporate or partnership taxes, known as a "super-discharge." 11 U.S.C. §1141(d)(1). Return to article

¹¹ 11 U.S.C. §§1322 and 1328. Return to article

¹² 11 U.S.C. §§523(a) and 507(a)(8)(A)(i). Return to article

¹³ 11 U.S.C. §§108(c) and 507(a)(8)(A)(i), and 26 U.S.C. §§ 6503(b) and (h). Young v. United States, 535 U.S. 43, 89 AFTR 2d 2002-1258 (2002). Return to article

¹⁴ Suspension occurs if the tax debtor files an application for a taxpayer's assistance order under 26 U.S.C. §7811, or a request for a due process hearing regarding a levy action under 26 U.S.C. §6330. CCA 199910043. In CCA 200404049, the IRS announced its position that the three-year lookback period specified in 11 U.S.C. §507(a)(8)(A)(i) is not equitably tolled during the pendency of an offer in compromise because the IRS is not disabled from collection actions during that period. Return to article

¹⁵ For IRS, Form 4340, Certificate of Assessments, Payments and Other Specified Matters. Return to article

¹⁶ 11 U.S.C. §523(a)(1)(B). Return to article

¹⁷ 11 U.S.C. §523; Moroney v. United States, 352 F.3d 902, 92 AFTR 2d 2003-7381 (4th Cir. 2003) (substitute for return prepared and filed by the IRS, not signed by the tax debtor, is not a return for bankruptcy discharge purposes); In re Brookman, 114 B.R. 769, 71A AFTR 2d 93-3692 (Bankr. M.D. Fla. 1990) (testimony of tax debtor regarding mailing was inadmissable; date that return was mailed may be proven only by a registered or certified mailing receipt); Estate of Wood v. Comm., 909 F.2d 1155, 66 AFTR 2d 90-5987 (8th Cir. 1990) (testimony of U.S. Postal Service employee sufficient to prove return was mailed and filed); cf., Davis v. United States, 230 F.3d 1383, 85 AFTR 2d 2000-1029 (Fed. Cir., 2000) (failure to mail amended return refund claim by certified or registered mail; uncorroborated testimony). In re Hindenlang, 164 F.3d 1029, 83 AFTR 2d 99-509 (6th Cir. 1999), cert. den., 528 U.S. 810 (tax debtor's filing of returns after the IRS made assessments pursuant to substitute for returns served no purpose under tax law; therefore, the filed returns were not returns for bankruptcy discharge purposes); E.C.L. Schmitt, 140 B.R. 571, 92-2 USTC ¶50,315 (Bankr. W.D. Okla. 1992) (income tax forms filed not considered valid returns because the tax debtor altered the jurat clause). Return to article

¹⁸ 26 U.S.C. §6203; R. C. Hardie, 204 B.R. 944, 83 AFTR 2d 99-2529 (S.D. Tex. 1996) (date of assessment by the IRS, not date of decision by the U.S. Tax Court that authorized the IRS to make the assessment, was the beginning date for measurement of the applicable period). Return to article

¹⁹ 11 U.S.C. §§523(a)(1)(A) and 507(a)(8)(A)(ii); In re Aberl, 78 F.3d 241, 77 AFTR 2d 96-1192 (6th Cir. 1996) (offer in compromise submitted before assessment did not trigger interruption of applicable period); In re Hobbs, 78 AFTR 2d 96-5252 (N.D. Iowa 1996) (240-day period applicable to offers in compromise are measured from the date of termination of the applicable filed offer in compromise). Return to article

²⁰ In re Bair, 83 AFTR 2d 99-2457 (Bankr. W.D. Tex. 1999) (the expiration of the 11 U.S.C. §507(a)(8)(A) periods was equitably tolled under 11 U.S.C. §105(a) by the tax debtor's prior bankruptcy). Return to article

²¹ See footnote 12. Return to article

²² 11 U.S.C. §507(a)(8)(A)(iii). Return to article

²³ Fraudulent tax return: 11 U.S.C. §523(a)(1)(C); Levinson v. United States, 969 F.2d 260, 70 AFTR 2d 92-5303 (7th Cir. 1992) (the IRS's waiver of the fraud penalty in an earlier tax action did not preclude the IRS from raising fraud as a defense to discharge of the tax liability); In re Graham, 973 F.2d 1089, 70 AFTR 2d 92-5580 (3rd Cir. 1992) (finding of fraud in U.S. Tax Court proceeding to determine the tax liability does not necessarily control the fraud issue for bankruptcy discharge purposes.); In re Sly, ___ B.R. ___, 93 AFTR 2d 2004-540 (Bankr. N.D. Fla. 2003) (husband denied discharge because joint returns deemed to be fraudulent; wife received discharge because she was not involved in husband's business and merely signed the joint returns). Return to article

²⁴ 11 U.S.C. §523(a)(1)(C). For a tax debtor to be denied a discharge because of willfully attempting to evade or defeat in any manner the payment or collection of the tax sought to be discharged, the government must prove willful attempt to evade or defeat the tax by a preponderance of the evidence, which attempt may be by omission as well as commission. Grogan v. Garner, 498 U.S. 287, 70 AFTR 2d 92-5639 (1991); Griffith v. United States, 206 F.3d 1389, 85 AFTR 2d 2000-1249 (11th Cir. 2000), cert. den., 121 S.Ct. 73 (U.S. S.Ct. 2000), (affirmative act of evasion is sufficient); United States v. Fretz, 244 F.3d 1323, 87 AFTR 2d 1380 (11th Cir. 2001). In Haas v. IRS, 48 F.3d 1153, 75 AFTR 2d 95-1585 (11th Cir. 1995), the issue was whether paying personal and business obligations instead of paying taxes was a willful attempt to evade or defeat payment of the tax for dischargeability purposes. The Eleventh Circuit held that mere non-payment by itself does not constitute an attempt to evade or defeat the payment or collection of the tax, and that denying a discharge of taxes for the mere usage of funds for payment of other personal and business obligations rather than paying taxes would contravene the Bankruptcy Code's purposes of allowing a fresh start for the honest but unfortunate debtor and would render all tax debts non-dischargeable. In Bruner v. United States, 55 F.3d 195, 76 AFTR 2d 5024 (5th Cir. 1995), discharge was denied because of an attempt to conceal income and assets. In Bruner, willful attempt in any manner to evade or defeat the tax sought to be discharged was determined pursuant to a three-part test referred to by other courts under which the government must prove that the tax debtor (1) had a duty to pay the tax, (2) knew of that duty and (3) voluntarily and intentionally violated that duty. In Tudisco v. United States, 183 F.3d 133, 84 AFTR 2d 99-5265 (2nd Cir. 1999), discharge was denied because of submission of false affidavit to employer to establish exemption from income tax withholding. In Griffith v. United States, 206 F.3d 1389, 85 AFTR 2d 2000-1249 (11th Cir. 2000), discharge was denied because the tax debtor transferred assets to his wife for the purpose of defeating payment and collection of the tax debt. In In re Passavant, 91 AFTR 2d 2003-993 (Bankr. M.D. Fla. 2003), and United States v. Fretz, supra., discharge was denied for failure to file returns. In In re Lynch, 92 AFTR 2d 2003-6263 (Bankr. S.D.N.Y. 2003), discharge was denied for lavish spending. In May v. Missouri Dept. of Revenue, 251 B.R. 714, 86 AFTR 2d 2000-5595 (B.A.P. 8th Cir. 2000), aff'd., 87 AFTR 2d 2001-1180 (8th Cir. 2001), discharge was denied for concealing assets. In Griffith v. United States, supra., discharge was denied for transfers to the tax debtor's family. In Sudderth v. United States, 92 AFTR 2d 2003-5589 (E.D. La. 2003), discharge was denied for diverting income from the tax debtor. In In re Eleazar, 271 B.R. 766, 89 AFTR 2d 2002-744 (Bankr. N.J. 2001), appeal dismissed, 89 AFTR 2d 2002-1420 (D. N.J. 2002), discharge was denied for not cooperating with the IRS. In Haesloop v. United States, 86 AFTR 2d 2000-6380 (Bankr. E.D.N.Y. 2000), discharge was denied for avoiding IRS levies. In United States v. O'Day, 79 AFTR 2d 97-493 (Bankr. M.D. Fla. 1996), discharge was denied because of fraudulent conveyance, closing bank accounts and dealing solely in cash. In Grow Sr. v. United States, 79 AFTR 2d 97-2963 (Bankr. S.D. Ala. 1997), discharge was granted because the tax debtor engaged in no lavish spending and was forthright with the IRS. In Snyder v. United States, 79 AFTR 2d 97-2379, (Bankr. M.D. Fla. 1997), discharge was granted because the tax debtor kept adequate records and made no transfers to family. In Turner v. United States, 195 B.R. 476, 77 AFTR 2d 96-1758 (Bankr. N.D. Ala. 1996), discharge was granted because no affirmative act of evading the tax liability was found, including that the tax debtor made no attempt to manipulate the tax collection system. In Huber v. IRS, 79 AFTR 2d 97-3044 (Bankr. M.D. Fla. 1997), discharge was granted because the tax debtor maintained constant contact with the IRS in an attempt to negotiate a payment arrangement and provided the IRS with requested information. Return to article

²⁵ United States v. Toti, 24 F.3d 806, 73 AFTR 2d 94-2022 (6th Cir. 1994). Return to article

²⁶ Grogan v. Garner, supra. Return to article

²⁷ United States v. Binkley, 83 AFTR 2d 99-2906 (M.D. Fla. 1999) (wife had no knowledge that the joint return she filed with her husband was false; fraudulent activities of the husband were not imputed to the wife). Return to article

²⁸ United States v. Hairopoulos, 118 F.3d 1240, 80 AFTR 2d 5169 (8th Cir. 1997) (tax debtor not discharged from tax debts because the IRS did not receive notice of the conversion of the tax debtor's chapter 7 proceeding into a chapter 13 proceeding until after the confirmation of the chapter 13 plan); Thibodaux v. United States, 201 B.R. 827, 78 AFTR 2d 96-6212 (Bankr. N.D. Ala. 1996) (tax debts discharged where IRS was notified of the tax debtor's chapter 13 filing and the IRS failed to file a claim for payroll taxes). Return to article

²⁹ 11 U.S.C. §§523(a)(1) and 507(a)(8)(C). Return to article

³⁰ 26 U.S.C. §§6672 and 3505. Return to article

³¹ 11 U.S.C. §§507(a)(3) and 507(a)(8)(D). Return to article

³² 11 U.S.C. §§523(a)(1)(A) and 507(a)(8)(E). Return to article

³³ 11 U.S.C. §§507(a)(2) and 502(f). Return to article

³⁴ 11 U.S.C. §507(c); Bleak v. United States, 817 F.2d 1368, 60 AFTR 2d 87-5078 (9th Cir. 1987). But, see IRS v. Frontone, 92 AFTR 2d (C.D. Ill. 2003) (erroneous refund of non-dischargeable tax was dischargeable because the refund sought to be recovered is treated as an unsecured obligation rather than a tax debt.) Return to article

³⁵ 11 U.S.C. §523(a)(3). Return to article

³⁶ The subject taxes are not among those claims that must be litigated exclusively in the bankruptcy court. The question of dischargeability may be raised at any time in either a federal or state forum. See 11 U.S.C. §§523(a)(1) and 523(c)(1). Therefore, a tax claim is not discharged by the entry of order for discharge unless affirmative action is taken to determine dischargeability. See, e.g., In re Ekeke, 198 B. R. 315 , 78 AFTR 2d 96-5497 (Bankr. E.D. Mo. 1996). Return to article

³⁷ 11 U.S.C. §727. Return to article

³⁸ This is a euphemism. Return to article

³⁹ Ibid. Return to article

⁴⁰ Ibid. Return to article

⁴¹ See endnote 34. Return to article

⁴² And perhaps the converse is true. Return to article

⁴³ See Fed.R.Bankr.P. 4007(d) and Fed.R.Bankr.P. 7001(6). The adversary proceeding need not necessarily be filed prior to the granting of discharge. See Fed.R.Bankr.P. 4007(b). Return to article

⁴⁴ Fed.R.Bankr.P. 7008(a) and 28 U.S.C. §157(b)(2)(I). The action is a core proceeding under 28 U.S.C. §157(b)(2)(I) over which the bankruptcy court has jurisdiction pursuant to 28 U.S.C. §§1334(b) and 157 (b), and 11 U.S.C. §523(a)(1). Return to article

⁴⁵ Fed.R.Bankr.P. 7008 incorporates by reference Rule 8, F.R.Civ.P. Return to article

⁴⁶ 11 U.S.C. §523(a)(1). Return to article

⁴⁷ See footnote 42. Return to article

⁴⁸ Ibid. Return to article

⁴⁹ 11 U.S.C. §507(a)(8)(A)(i). This allegation negates the exception to discharge found in 11 U.S.C. §523(a)(1)(A). The following conclusory allegations as to the subject tax may serve the purpose of negating the just described conditions of priority: "The tax was not a tax entitled to priority pursuant to 11 U.S.C. §507(a)(7)(A)(i); therefore, the subject tax debt does not come within the exception to discharge provided for in 11 U.S.C. §523(a)(1)(A)." Return to article

⁵⁰ Fed.R.Bankr.P. 7004 and Fed.R.Civ.P. 4(c). Return to article

⁵¹ Fed.R.Bankr.P. 7012(a). Return to article

⁵² Matter of Benich, 811 F.2d 943 (5th Cir. 1987). The debtor is aided by the established principle that non-dischargeability provisions should be interpreted narrowly and in favor of the debtor. See In re Cross, 666 F.2d. 873 (5th Cir. 1982). Return to article

⁵³ Fed.R.Bankr.P. 7026-7037. Return to article

⁵⁴ Fed.R.Bankr.P. 7054(a) and 7055. Return to article

⁵⁵ If the tax debtor does not complete all payments required under the payment plan, and is granted a hardship discharge under 11 U.S.C. §1328(b), the traditional non-dischargeable tax debts are not discharged. Return to article

⁵⁶ 11 U.S.C. §§523(a)(5) and 1328(a)-(c); In re Anderson, 82 AFTR 2d 98-7128 (Bankr. W.D. Va. 1998) (hardship discharge under 11 U.S.C. §1328(b) does not discharge debtor from liability for withholding taxes). Return to article

⁵⁷ See In re Gregory, 705 F.2d 1118 (9th Cir. 1983); In re Vlavianos, 71 B.R. 789 (Bankr. W.D. Va. 1986); In re Goodwin, 58 B. R. 75 (Bankr. D. Me. 1986); In re Richards, 50 B. R. 339 (E.D. Tenn. 1985). Return to article

⁵⁸ In re Jones, 86 AFTR 2d 2000-5521 (Bankr. W.D. Mich. 1999) (discharge granted where the IRS did not file timely proof of claim); Thibodaux v. United States, supra (payroll taxes discharged in bankruptcy because the IRS failed to file proof of claim). Return to article

⁵⁹ In re Norwood, 178 B.R. 683 (Bankr. E.D. Pa. 1995). Return to article

⁶⁰ 11 U.S.C. §522(c)(2)(B); Mulligan v. United States, 83 AFTR 2d 99-2782 (Bankr. D. N.H. 1999) (after discharge in bankruptcy, federal tax lien continued to attach to pre-bankruptcy assets); United States v. Alfano, 34 F.Supp. 827, 84 AFTR 2d 99-6336 (D.C. N.Y. 1999) (IRS properly foreclosed its federal tax lien against real estate that was fraudulently conveyed before the tax debtor filed the bankruptcy petition and that did not become part of the bankrupt's estate); In re Braund, 423 F.2d 718, 25 AFTR 2d 70-804 (9th Cir. 1970), cert. den., 400 U. S. 823 (1970) (the tax lien does not attach to property the tax debtor acquires after the bankruptcy petition was filed). Return to article

⁶¹ 26 U.S.C. §6502 (the statutory period of limitations for collection of federal taxes after assessment is generally 10 years). Return to article