The Impact of Bankruptcy on Tax Debts

Robert Leonard, Esq., CPA

When filing for bankruptcy protection, it is the goal of the taxpayer to resolve tax issues. Resolving these issues in the context of bankruptcy depends on a number of concerns. Firstly, it must be determined that the taxes meet the proper time period requirements set out by the bankruptcy code as per the dischargeability rules and statutory preclusions to dischargeability. Secondly, it must be determined if the taxes are nondischargeable, depending on whether the taxpayer has "evaded payment." And, lastly, current tax liens must be considered.

This article outlines the prerequisites for dischargeability of taxes in bankruptcy; presents current case law regarding the "evasion to pay" exception to discharge; describes the implications on pre- and post-bankruptcy assets due to "secret tax lien" and recorded federal tax liens; and presents an overview of nonbankruptcy IRS alternative resolutions for tax liabilities. If applicable, current case law will be provided.

Discharging Taxes in Bankruptcy

Time Periods for Discharge of Taxes

To determine dischargeability of taxes, three "time-period" rules are applied, the "three-year rule" that only allows dischargeability for tax returns due (with extensions) more than three years prior to bankruptcyi; the "240-day rule" that requires assessment of the tax return no less than 240 days prior to the bankruptcyii; and the "two-year rule" requiring all late-filled returns to have a filing date two years prior to bankruptcy.iii Any time the IRS is prevented from collection because the debtor requests a hearing and an appeal of collection action, or any time the automatic stay was in effect during a prior bankruptcy, or anytime collection was prevented from a confirmed plan, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA)iv, 11 USC § 507(a)(8), extends all of the periods in 11 USC § 507(a)(8) plus 90 days. v It is imperative that practitioners analyze each tax year carefully to ensure that no period has been extended prior to the taxpayer filing for bankruptcy. Section IV discusses the IRS procedures more thoroughly.

Chart 2 sets out the events that impact the IRS 10-year collection statute of limitations and/or the three time measurements for bankruptcy, and is intended to simplify determining the dischargeability of taxes in bankruptcy. Chart 1 lists the applicable statutes.

Other Prerequisites for Discharge of Taxes

Above the time requirements, additional rules prevent the discharge of unassessed taxes vi; trust fund taxes vii; taxes due from unfiled returns  viii; and tax due to fraudulent returns, or unpaid as a result of evasion to pay. ix Further rules exist but are not discussed in this article.

Unified Returns and Discharge of Taxes

There is a lack of definition for "return" under the Bankruptcy Code ("11 USC") or the Internal Revenue Code ("Code Sec.") which has created confusion around whether a taxpayer, for whom the IRS has prepared a return under Code Sec. 6020(b), can file a return afterwards and still have the taxes be discharged in bankruptcy, fulfilling 11 USC § 523(a)(1)(B)(i) requirements. It is believed by some courts that returns filed after an assessment pursuant to Code Sec. 6020(b) are potential returns for dischargeability. x Others disagree and believe that returns filed by a taxpayer after an IRS assessment of taxes serve no tax purpose, and so are not dischargeable. xi Still, others use the failure to file returns in a timely manner as evidence of taxpayer evasion flagging the returns as nondischargeable. xii

Other cases help determine which papers could be considered a return, it was decided that an IRS Form 870 is a return, xiii and other various forms prepared in the course of an IRS examination are returns. xiv Further, courts debated as to whether a Tax Court stipulation was a return. xv

In 2005, the Bankruptcy code was amended to include a "hanging" paragraph after 11 USC § 523 (a)(19) which states:

... the term 'return' means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements.) Such term includes a return prepared pursuant to Code Sec. 6020(a) of the Internal Revenue Code of 1986' or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to Code Sec. 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.

This paragraph was likely inserted to clear up the historical debate over late-filled returns. The late filled return provision requiring at least two years to elapse prior to bankruptcy for the tax to be discharged remains. xvi However, the question still remains whether a return filed by a taxpayer after a Code Sec. 6020(b) assessment is returnable to be discharged. xvii

Where does this question of late-filled returns leave us? If the IRS maintains their position as stated in the notice, there still is a two-year rule that must be applied to late filed returns; if the debtor files no return and the tax is assessed by a Code Sec. 6020(b) or any other nonbankruptcy, the tax is not discharged; if the taxpayer files a subsequent return after a Code Sec. 6020(b) assessment, the court should consult Colsen and Hindenlang lines of cases and test to determine dischargeability; lastly  if by chance the taxpayer undergoes a Code Sec. 6020(a) assessment, or waits and goes to Tax Court or federal district court and either passes judgement that delineates the tax, the tax is then dischargeable, even if no return is filed. xviii

Trust Fund Taxes Are Not Discharged

Withheld taxes not turned over to the IRS or any taxing authority are considered trust fund taxes and are not discharged in bankruptcy. However, in a "no-asset" Chapter 7 case, bankruptcy courts may decline forming a determination on the trust fund. xix The IRS generally see a single-member LLC as a disregarded entity, specifically for liabilities of the LLC prior to January 1, 2008. Which means the owner is subject to all liabilities, but the IRS will only collect those liabilities accrued after January 1, 2008 from the trust fund portion of the single member of the LLC. Even in the case of a single-member LLC, during a bankruptcy proceeding, the proof of claim for the IRS is still subject to the time period rules, the trust fund portion would be priority taxes and so nondischargeable under 11 USC §507(a)(8).

The "Evasion to Pay Exception to Discharge

Pursuant Section 523(a)(1)(C) of the Bankruptcy Code, any debt "with respect to which the debtor… willfully attempted in any manner to evade or defeat such tax" can be exempt from discharge. The government has the responsibility to prove both a conduct requirement and a mental state requirement. xx The government must prove that the debtor, either through commission or omission, acted affirmatively to avoid payment or collection of taxes. xxi Affirmative actions include failure to timely file returns, xxii concealment of income or assets, xxiii fraudulent transfers xxiv and/or unnecessary expenditures.xxv

The debtor may pursue litigation in the bankruptcy court, before or after bankruptcy, in Tax Court following a Collection Due Process hearing and pursuant to a timely filed petition, and in District Court, to reduce federal tax lien to judgement, during a suit by the government. xxvi

Example cases demonstrating these evasion criteria used by courts involving adversary proceedings filed by the debtor include: an debtor who took luxury vacations, transferred property to a nominee, used his business account for personal expenses, never bothering to open a personal checking account xxvii; a debtor who cleaned out her IRA, shopped at Saks, Nordstrom’s, etc., dealt in cash and opened a new bank account, and bought a house with a pool xxviii; a real estate broker who filed late returns, made no estimated payments for nine years, used cash, took extravagant vacations and paid other creditors xxix; a Chapter 11 debtor, dot-com millionaire who bought KPMG tax shelters, owned two expensive houses, a jet, four cars, and lived beyond his means while aware of the huge tax liability xxx; and a CPA-debtor who promoted tax shelters, vacationed across the world, committed a quarter of his income monthly to recreation, paid for personal expenses from his girlfriend’s business bank account, and paid no taxes on the two houses he owned. xxxi In one case, where the debtor had filed multiple bankruptcies as well as multiple offers-in-compromise, lived an opulent lifestyle, put assets in his mother’s name and refused to testify under oath, the IRS filed an adversary to except the taxes from discharge. xxxii

In the case adversary is not filed in bankruptcy, the taxpayer can dispute dischargeability of the tax to reduce the tax lien to judgement and foreclose on property, typically this action should happen right before the 10-year collection statute expires, and well after the bankruptcy discharge. xxxiii In 2010, both cases of debtors filed Chapter 7 bankruptcy, filed late returns, and used trusts, nominees or other entities to hide their assets. xxxiv

The Effect of the "Secret Lien" and the Recorded Tax Lien on Pre- and Post-Petition Assets

A tax lien begins at the time of assessment and attaches itself to all property and rights to property of the taxpayer; it persists until it is satisfied or becomes unenforceable by lapse of time. xxxv xxxvi Because tax liens attach to the debtor’s property, including exempt and abandoned property, if the debtor owns property before the bankruptcy and the IRS has filled a federal tax lien, or perfected their interest in the property, the lien survives the bankruptcy. xxxvii

Thus the IRS can seize property or demand payment of the value of property after bankruptcy, even if the tax is discharged. The IRS could levy a pre-bankruptcy exempt IRA subject to federal tax lien. xxxviii It could also levy on an exempt personal injury recover, xxxix or abandoned property. xl Further, the IRS can re-file a lien post-bankruptcy before the expiration of the collection statute. xli And, post-bankruptcy, a nominee lien can be foreclosed on discharged taxes. xlii But if the tax is discharged, the tax lien will not attach to post-bankruptcy acquired property. xliii Note, the taxpayer must sue the IRS rather than the pension plan to rectify any errors in the case that the IRS levy a pension post-bankruptcy. xliv

The tax has been assessed, and there is no federal tax lien filed: in two cases, the debtors claimed their pensions as "excluded property" but in both, courts showed that the "secret lien" begins at assessment and attaches to the excluded property (which is never part of the bankruptcy estate). Therefore, the IRS can seize pensions for discharges post-bankruptcy.xlv

Despite discharged taxes the IRS can offset pre-bankruptcy refunds against pre-bankruptcy taxes. xlvi Tax refunds for the year that bankruptcy was filed are prorated between pre- and post-bankruptcy liabilities. xlvii But the IRS cannot take post-bankruptcy refunds and apply them to discharged taxes. xlviii Even though the entire pre-bankruptcy claim is paid by the bankruptcy trustee, the IRS may still collect from the debtor interest accrued between the dates of petition and payment. xlix

Under 11 USC §524 exists an automatic stay and/or bankruptcy discharge injunction, in which the IRS can be held in violation if it tries to collect discharged tax originating from post-bankruptcy property. This is typically a long process, and to be successful a Court expects the debtor to exhaust their administrative remedies first. l

Nonbankruptcy IRS Alternative Resolutions for Tax

A debtor has three avenues to resolve unpaid tax liabilities with the IRS. Generally, (1) a debtor can present themselves to the IRS as currently uncollectible; (2) enter into an installment agreement, or (3) make an offer-in-compromise.

In the case a taxpayer does nothing regarding resolution and ignores the IRS, the IRS will take measures to grab the attention of the taxpayer, this can include filing federal tax liens, levying bank accounts, wages, etc., and may seize physical assets, including exempt property—house, IRA, and 401(k). The downside to the taxpayer is they will relinquishing of some collection due process rights.

During a "collection due process" (CDP) proceeding the taxpayer should propose to the IRS a resolution choice. If the IRS issues a Final Notice of Intent to Levy, Notice of Right to Final Hearing (Form 105S), and/or a Notice of Filing Federal Tax Lien and Notice of Right to Hearing (Letter 3172), then the taxpayer must file a timely request for a hearing within 30 days. li Also, if there has been no opportunity to dispute the liability, tax amount, or existence of post-bankruptcy tax, then these issues should be addressed during the CDP hearing. lii If after the IRS determination the taxpayer still disagrees then the determination from the hearing may be subject to Tax Court. liii Timely requesting a CDP hearing will extend some of the bankruptcy dischargeability time periods. liv Despite untimely filing for a CDP hearing, an equivalent hearing can be held, however it will be nonappealable.

Note that typically former revenue officers will be the appeals settlement officers who hear CDP cases, and are required to adhere to same guidelines as collection officers but have a focus on resolution.

Determination of Currently Uncollectible

The IRS may find the tax to be currently not collectible (CNC) ("53" the account) in the case the taxpayer has no assets or ability to pay. lv This determination typically requires support from Form 433A (or 433-F) financial statement for individuals, and in some cases, a Form 433B financial statement for business, with appropriate documentation. However, the IRS enumerates 14 situations to determine a CNC account. lvi The scope of investigation depends on the dollar amount and type of case, and could include a full credit report, real estate records, business licenses, vehicle registrations, wage and income information, open audits and passports. lvii What actions the IRS chooses is determined by the statute of limitations on collection. lviii

To request CNC the taxpayer must be in compliance with all current filing requirements lix; all available assets liquidated; submit copies of recent tax returns; and no asset transfers post due date of tax issue. If the taxpayer cannot meet reasonable basic living expenses they may request a "hardship" CNC lx, typically there is no income or assets, or equity in assets to make payment. If the tax is under a certain amount, no verification of 433A or B financial statements are required, or under these conditions, (1) terminal illness or excessive medical bills; (2) incarceration; (3) Social Security, welfare or unemployment is the sole income; (4) unemployment with no income. lxi

Note, interest and penalties still accrue in CNC case even when the IRS refrains from tax collection action, but the IRS does re-assess the taxpayer’s ability to pay periodically.

Installment Agreement

Code Sec. 6159 authorizes the IRS to enter into an installment agreement (IA), an agreed set schedule of payments. lxii Acceptable IAs follow these requirements: (1) full payment must be met under the statutes of limitations, except in the case of "partial pay" IA lxiii; (2) full tax compliance is required during the term of agreement lxiv; (3) produce to the IRS update financial information if requested lxv; and (4) the taxpayer must pay the appropriate IA form of payment fee, $52 for automatic bank debit lxvi, and $120 for other forms, additionally, the defaulted IA re-instatement fee is $45.

The taxpayer is bound to the terms, and under these circumstances, only the IRS can terminate or change the terms of the IA: (1) taxpayer default lxvii, (2) taxpayer failure to file or pay subsequent taxes or estimated tax payments lxviii,  (3) failure to provide requested updated financial information lxix, (4) a determination is made that the taxpayer provided incorrect information before the IA lxx, (5) the IRS has determined that collection is in jeopardy lxxi, or (6) the taxpayer’s financial position has changed. lxxii Note, a deteriorating financial position after the IA will make it more difficult for the taxpayer to change the terms of the agreement.

Under these criteria the IRS is required to enter into an installment agreement: (1) the tax does not exceed $10,000; (2) tax returns that are due have been filed for the previous five years; (3) for the past five years, all taxes due have been paid, or the taxpayer has been in an IA; (4) an IRS determination states the taxpayer cannot fully pay; (5) the taxpayer is capable of paying within three years; and (6) the taxpayer has agreed to comply during the next three years. lxxiii The taxpayer must receive 30 days written notice if the IRS intends to change or terminate an IA, except in the case it deems collection in jeopardy. lxxiv Failure to do so subjects the IRS to damages under Code Sec. 7433. lxxv

The IRS may agree to a Partial Pay IA (PPIA)lxxvi in the case a taxpayer does have means to pay but cannot pay fully within the statute of limitations. lxxvii The IRS will usually expect from the taxpayer what equity they have in available assets applied as payment toward the liability. lxxviii Although in some circumstances, they may keep this equity in assets. Circumstances include: no loan potential and minor equity; property falls under tenants by the entirety (TBE) and spouse does not consent to changes to the property; the asset lacks a market; the asset is income producing; economic hardship; or, the taxpayer does not qualify for a loan for lack of disposable income. lxxix But in order to obtain a PPIA it must be done in good faith, the taxpayer must make every effort to qualify for financing and be unsuccessful. lxxx

The IRS will make determination before entering into any IA as to the payment amount that the taxpayer can bear. The formula for this monthly payment amount includes, the taxpayer’s financial information on Form 433-F, 433A and/or 433B. Sometimes, the IRS allows submission of these forms via telephone of fax. Then the taxpayer’s gross income and actual expenses are calculated, and based on these calculations and number of dependents the IRS will calculate the allowable expenses using the IRS National Standard Expenses (NSE) for food, clothing, misc., the Local Standard Expenses (LSE) for housing, and allowable transportation expenses, also included are court ordered payments, taxes, insurance, etc. The monthly calculated payment equals the difference between gross income and allowable necessary expenses, and though the NSE and LSE function as guides, typically there are few times when the IRS allows expenses in excess of these allowable standards.

A situation may arise where a taxpayer qualifies to expedite the processing of the IA, known as a "Streamlined" IA, and forego the financial analysis and managerial approval requirements. lxxxi Qualifying criteria for a Streamlined IA include: the balance of the assessed amounts (excluding accruals) is $25,000 or less; full payment is made before the earlier of five years or prior statute of limitations; taxpayer is in full filing compliance before the IA. lxxxii

Starting 2012, the IRS made available "Flexible" installment agreements, essentially a streamlined IA while increasing liabilities up to $50,000, and if the taxpayer uses direct debit they can have a payment plan of 72 months, and the IRS will accept verbal provision of financials with no manager approval. With manager approval, in-business trust fund taxes for business may be paid within two years without requiring financials and trust fund assessments; also available to out-of-business entities with tax $25,000 or less, and for business without income tax. These entities should use Form 9465-FS to request a Flexible IA.

There are several benefits and consequences upon entering an IA: the taxpayer retains their assets; the taxpayer must pay in full the tax under time (excluding partial pay IA); the IRS will not enforce collection lxxxiii; there is no extension of statute of limitation while IA is in effect lxxxiv; the SOL is extended while the IA is "pending" (from formal request of IA by taxpayer until acceptance) lxxxv;  and typical a federal tax lien is filed except when there is justification not to. lxxxvi The taxpayer must cope with three important disadvantages: during the IA a taxpayers living budget will be small; interest and penalties still accrue; and to avoid forced collection the taxpayer must stay in compliance.

Offer-in-Compromise

The Secretary of the Treasury is empowered by Code Sec. 7122 to compromise the amount of tax liabilities to less than what is owed, and then the taxpayer and IRS enter into an offer-in-compromise (OIC) written agreement, agreeing to satisfy the tax liability for less than the full amount owed. lxxxvii OICs exist to fulfill the IRS objects of (1) collecting the most amount, with the least cost, in the quickest time possible; (2) reaching an equitable resolution for the IRS and taxpayer; providing the taxpayer a new start toward voluntary compliance; and collect money otherwise unavailable. lxxxviii

The three types of OICs include: (1) An OIC based on doubt of liability, does the taxpayer really owe the tax? Such cases include, incorrect deficiency, trust fund recovery penaltiy incorrectly assessed or improperly applied payments, or innocent spouse. lxxxix (2) An OIC based on doubt of collectability, wherein the taxpayer does not have the assets or income to pay the full liability, or some other special circumstances warrant a hardship offer despite being able to pay. xc (3) The last OIC, named "effective tax administration" in which the taxpayer can pay the full amount, but this payment would create an economic hardship, or some other special circumstance exists.xci

Separate requirements govern each class of OIC. The first class, OIC based on doubt of liability, is the least strict, and requires Form 656L to be filed by the taxpayer, but does not require financial statements (Form 433A or 433B). But what must be included is proof supporting the bases for doubt of liability. The taxpayer must be in full compliance to time periods included in the OIC. xcii The OIC cannot be reject due to failure to find specific returns by the IRS. xciii

The most common OICs are those based on doubt of collectability. Filing Form 656, Offer in Compromise, with complete financial statements (Form 433A and/or 433), and attached documentation is the first requirement. It must contain all assessed and unassessed liabilities. Do not include taxes which the collection statute (SOL) has expired. xciv The offered amount must equal the quick sale value of the taxpayer’s asset equity xcv, plus the monthly present value of what the IRS could collect, typically 48 x IA monthly amount, except for short SOLs. xcvi And like the first OIC, the taxpayer must be in compliance for all time periods in the OIC, but must also remain in compliance for five years post OIC acceptance. xcvii Further, an $18,600 processing fee is required, unless the taxpayer qualifies as a low-income.  xcviii

The requirements for the last class of OIC, named "effective tax administration" offer (ETA), are the same as the second class OIC based on doubt of collectability. xcix With exception to the need for exceptional circumstances which full collection of tax due would bring about (1) hardship; or (2) a situation that would be detrimental to voluntary compliance. In other words, even if the taxpayer has the funds to pay the amount due, it would leave the taxpayer unable to meet basic living expenses, and in the second case, forcing the taxpayer to pay an unfair sum would drain confidence in the tax system. c

Filing for an OIC requires a large amount of paperwork, and the chances of a successful agreement are against the taxpayer. In several instances, the IRS will reject and OIC, (1) if any documents are not properly submitted; (2) if there is any failure to submit additional requested documents; (3) what is reasonably expected to be collected exceeds what was offered by the taxpayer; or (4) any public policy reason that triggers rejection. ci And as stated previously, typically there is little variance when the IRS applies the National Standard Expenses (NSE) (food, clothing and misc.), and the Local Standard Expenses (LSE) (housing), meaning they tend to see the standards as absolute maximums rather than the guides they are intended to be. To further make difficult the acceptance, the IRS is required to justify acceptance of an OIC, but not to support rejection of an OIC.

Code Sec. 7122 was amended by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), and now requires partial payments when offers-in-compromise are filed. For lump-sum OICs cii, TIPRA requires a taxpayer to attach a partial payment of 20 percent of the OIC amount with the application upon submission. ciii For taxpayers filing periodic payment OICs, civ they must submit the first installment payment according to their proposed payment schedule with the application while the IRS considers the offer. cv

In the case that the taxpayer fails to submit their initial payment with the offer, TIPRA states that the IRS may return the offer as "unprocessable". cvi And in the case of a periodic payment offer, the taxpayer’s failure to comply with their ownv proposed installments may be treated by the IRS as a withdrawal of offer. cvii

No partial payment is refundable, but the taxpayer has the right to choose their application. Under TIPRA the Secretary of Treasure has authority to issue regulations waiving partial payment requirements. cviii This is beneficial to low income taxpayers who may qualify for payment waivers. Under TIPRA, if within 24 months of IRS receipt, an OIC is deemed "accepted" if it is neither withdrawn, returned nor rejected, except in the case where the liability at issue is in dispute in any judicial proceeding for which time period is not included in the 24 months. cix

Changes were made in 2012 to the Offer program to allow for more "flexibility." Flexibility was added by revising the future income calculation and asset equity inclusions, expand on the amounts and categories of allowable living expenses, and allow repayment of student loans and state and local taxes. Advantageous to the taxpayer, the IRS will calculate the acceptable offer amount using only 12 months of future income if the taxpayer offers to pay the amount within five months of acceptance. Further, if the taxpayer’s repayment offer is between six to 24 months, only 24 months of future income will be used to calculated the acceptable offer amount, rather than the 48 to 60 months. The significant changes to computing asset equity value are: income producing assets may be excluded; a $1,000 living expense exclusion may be applied to account totals; any early withdrawal penalties and tax consequences are accounted for in liquidation values; $3,450 in car equity can be excluded but must be used for transportation to work; asset dissipation has limited extent. Considering available monthly income, up to $400 is allowed for car payments even after the car is paid off; older cars are allowed an additional $200 per month for operating expenses; student loan minimum payments are allowed, and state and local tax payments are allowed. cx

For all OICs except the "doubt as to liability" OIC, taxpayers who default within the following five years of acceptance will be subject to re-instated taxes, interest and penalties, and may be opened to enforced collection.

Conclusion

In order to be sure that bankruptcy will produce the desired effect for debtors with tax issues, taxes must be analyze against requisite times periods. The debtor’s situation needs to be detailed so that any possibility of discharge exceptions can be applied. A thorough understanding of the tax liens and debtors assets will help prevent any post-discharge surprises. And thoroughly examining the taxpayer’s rights to resolution with the IRS with an understanding of where they stand before bankruptcy is a must. Refer to chart 1 for collection alternatives to better inform that decision.


i Bankruptcy Code (11 USC) 11 USC § 507(a)(8)(A)(i).

ii 11 USC §507(a)(8)(A)(ii).

iii 11 USC §523(a)(i)(B)(ii).

iv Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (P.L. 109-8) (BACPA).

v 11 USC §507(a)(8) hanging paragraph.

vi 11 USC §507(a)(8)(A)(iii).

vii 11 USC §507(a)(8)(c).

viii 11 USC §523(a)(1)(B)(i); H. McKay, Jr., BC-DC-FL, 2010-2 USTC ¶50,504,430 BR 246. The court held that tax protestor "$0" returns were not returns for purposes of bankruptcy.

ix 11 USC §523(a)(1)(C).

x Colsen, CA-8, 2006-1 USTC ¶50,300, 443 F3d 836 (2006); M. Ralph, BC-DC-FL, 2000-2 USTC ¶50,730, 258 BR 504; W.D. Woods, BC-DC-IN, 2002-2 USTC ¶50,675, 285 BR 284; T.W. Izzo, BC-DC-MI, 2003-1  USTC ¶50,190, 287 BR 158; R. Nunez, BAP-9, 99-1 USTC ¶50,212,232 BR 778; Savage, BAP-10, 218 BR 126 (1998); Sullivan, BC-DC-OH. 200 BR 327 (1996); Hatton, BAP-9, 216 BR 278 (1997); R.J. Crawley, BC-DC-IL, 2000-1 USTC ¶50,461 , 244 BR 121 (the tax was still not discharged because the taxpayer failed the evasion provision).

xi W.C. Hindenlang, CA-6, 99-1 USTC ¶50,214, 164 F3d 1029; J.H. Payne, CA-7. 2006-1 USTC ¶50,106,431 F3d 1055; B.D. Ruching, BC-DC-AZ, 2OO1-2 USTC ¶50,568, 273 BR 223; J.J. Miniuk, BC-DC-IL, 2OO3-2 USTC ¶50,667, 297 BR 532; M.J. Moroney, DC-VA, 2003-1 USTC ¶50, 117.

xii W.D. Fretz, CA-11, 2001-1 USTC ¶50,308, 244 F3d 1323; N.U. Hassan DC-FL, 2003-2 USTC ¶50,622, 301 BR 614; R.M. Epstein, BC-DC-NY, 2OO4-1 USTC ¶50,127, 303 BR 280; Semo, BC-DC-PA, 1BB BR 359 (1995).

xiii Carapella, BC-DC-FL, 84 BR 779 (1988).

xiv Berard, BC-DC-FL, 181 BR 653 (1995); J.H. Mathis, Jr., DC-FL, 2000-1 USTC ¶50,522, 249 BR 324; Lowrie, BC-DC-NV, 162 BR 864 (1994).

xv G.F. Ashe, DC-CA, 98-2 USTC ¶50,675, 228 BR 457; P.C. Wright, BC-DC-CA, 2000-1 USTC ¶50,259, 244 BR 451; Elmore, BC-DC-IN, 165 BR 35 (1994); R.G. Gushue BC-DC-PA, 91-1 USTC ¶50,223, 126 BR 202; E.C.L. Schmitt, BC-DC-OK, 92-2 USTC ¶50,315, 140 BR 571; A.C. Johnson, BC-DC-FL, 99-1 USTC ¶50,415, 236 BR 456.

xvi See 11 USC § 523(a)(1)(B)(ii).

xvii McCoy v. Mississippi State Tax Commission, BC-DC-MS, 2009 Bankr. LEXIS 2542 (2009), CA-5, 666 F3d 924 (2012), cert denied, 2012 US LEXIS 6632 (Oct. 1, 2012); and Links, BR-DC-OH, 2009 Bankr. LEXIS 2921 (2009); Chief Counsel Notice CC-2010-016.

xviii 11 USC § 523(a)(1), hanging paragraph.

xix K.D. Goins, BC-DC-MO, 2010-2 USTC ¶50,655, 437 BR 372; Rowland, BC-DC-NM. 426 BR 874 (2010); D. Paolo, CA-1, 2010-2 USTC ¶50,612, 619 F3d 100; In J.F. Swain, BC-DC-MI. 2010-2 USTC ¶50,664, 437 BR 549, the court dismissed the adversary for lack of subject matter jurisdiction.

xx A.I. Jacobs, CA-11, 2007-2 USTC ¶50,658, 490 F3d 913.

xxi Id.

xxii W.D. Fretz, CA-11, 2001-1 USTC ¶50,308, 244 F3d 1323.

xxiii Jacobs, supra note 20, 490 F3d, at 925-27.

xxiv Id.

xxv C.C. Lynch, BC-DC-NY, 2003-2 USTC ¶50,686, 299 BR 62; J.D. Stamper (G.L. Gardner), CA-6, 2004-1 USTC ¶50,196, 360 F3d 551; Wright, BC-DC-NY, 191 BR 291 (1995).

xxvi The IRS of late has taken the position that unless they intend to pursue collection post-bankruptcy, there is no case or controversy and the debtor’s adversary should be dismissed. Erikson, BC-DC-MI, 2013 Bankr. LEXIS 2049 (2013); But see Murphy, BC-DC-ME, 2013 Bankr. LEXIS 5340 (2013), where the government took the unsuccessful position that the debtor was required to file an adversary in bankruptcy in order to discharge tax.

xxvii J.W. May, DC-AL, 2011-1USTC ¶50,103.

xxviii L.W. Barkley, BC-DC-GA, 2010-2 USTC ¶50,725.

xxix R. Sheehan, BR-DC-OH, 106 AFTR2d (RIA) 6946 (2010).

xxx W.M. Hawkins, BC-DC-CA, 2010-1 USTC ¶50,365, 430 BR 225 (2010).

xxxi B. Bryen, BC-DC-PA, 2010-2 USTC ¶50,568, 433 BR 503.

xxxii T.E. Acker, BC-DC-TX, 2010-2 USTC ¶50,636.

xxxiii Code Sec. 6502. The 10-year collection statute can be extended for various events: (1) taxpayer is outside the United States for at least six months ( Code Sec. 6503(c)); (2) taxpayer is in bankruptcy ( Code Sec. 6503(h)); and (3) anytime the IRS is precluded from levy ( code sec. 6503(i)(5)) (during OIC, Code Sec. 6503(k)(1), while an offer of an installment agreement is pending, Code Sec. 6503(k)(2), during CDP proceeding. Code Sec. 6503(i)(5), and during innocent spouse claim.)

xxxiv Black, DC-WA, 725 FSupp2d 1279 (2010); Beninati, DC-MA, 438 BR 755 (2010).

xxxv Code Sec. 6322.

xxxvi Code Sec. 6321.

xxxvii Code Secs. 6321, 6322

xxxviii C. Miles, CA-9, 2010-2 USTC ¶50,660, 106 AFTR2d (RIA) 6563 (2010). Similarly, Massachusetts Dept. of Revenue tax lien attached to a pension because the debtor was vested even though she had not elected to start receipt of the payments. Drake, BC-DC-MA, 434 BR 11 (2010).

xxxix ln re Vanderhouwen, BC-DC-WA, 2010 Bankr. LEXIS 156 (2010).

xl J.W. Wilson, DC-OK, 2010-2 USTC ¶50,779.

xli C.J. Domenico, DC-FL, 106 AFTR2d (RIA) 5343 (2010).

xlii J.J. Boyd, DC-MN, 2010-2 USTC ¶50,630.

xliii lndiana Bank and Trust Co. v. Hisrich and US, DC-IN, 2010 U.S. Dist. LEXIS 18505 (2010).

xliv Lawrence v. General Motors Hourly-Rate Employees Pension Plan, DC-FL, 2010 U.S. Dist. LEXIS 101070 (2010).

xlv V.L. Wadleigh, 134-TC 280, Dec. 58,243 (2010); S.A. Gross, 100 TCM 118, Dec. 58.299 (M), TC Memo 2010-176.

xlvi Miller, DC-WI, 422 BR 168 (2010); W.S. Maines, BC-DC-NJ, 106 AFTR2d (RIA) 6870 (2010).

xlvii J.W. Bryant, CA-6, 2010-2 USTC ¶50.669.

xlviii Camangian, DC-CA, 2010 U.S. Dist. LEXIS 61132 (2010).

xlix Washburn, BC-DC-KS, 2010 Bankr. LEXIS 4663 (2010).

l Cooper, BC-DC-NC, 2011 Bankr. LEXIS 160 (2011); S.W. Swensen, BC-DC-IA, 2010-2 USTC ¶50,530, 438 BR 195. But see, L.T. Johnston, III, BC-DC-AZ, 2010-1 USTC ¶50,465.

li Code Secs. 6330 and 6320.

lii Code Sec. 6330(c)(2)(B); S. Becker 99 TCM 1507, Dec. 58,232(M), TC Memo. 2010-120; Johnson, TC Summ.Op 2010-69; R.E. Mueller, 99 TCM 1050, Dec. 58,111(M). TC Memo. 2010-10: J. Barnes, 99 TCM 1126, Dec. 58,136(M), TC Memo. 2010-30.

liii Code Sec. 6330(d).

liv 11 USC §507(a)(8) hanging paragraph.

lv IRM ¶5.16.1; Policy Statement P-5-71.

lvi IRM ¶5.16.1.1(2).

lvii IRM ¶5.16.1.1(3).

lviii IRM ¶5.16.1.2.

lix IRM ¶5.16.1.1(6).

lx IRM ¶5.16.1.2(9).

lxi IRM ¶5.16.1.2(3).

lxii Reg. §301.6159-1(a).

lxiii Code Sec. 6159(a); IRM ¶5.14.1.7.

lxiv Code Sec. 6159(b)(4)(a)(B).

lxv Code Sec. 6159(b)(4)(a)(C).

lxvi Reg. §300.1(b).

lxvii Code Sec. 6159(b)(4)(a)(A).

lxviii Code Sec. 6159(b)(4)(a)(B).

lxix Code Sec. 6159(b)(4)(a)(C).

lxx Code Sec. 6159(b)(2)(A).

lxxi Code Sec. 6159(b)(2)(B).

lxxii Code Sec. 6159(b)(3).

lxxiii Code Sec. 6159(c).

lxxiv Code Sec. 6159(b)(5)(A).

lxxv R. Grant, DC-FL, 2003-2 USTC ¶50,600, 289 FSupp2d 1361.

lxxvi IRM ¶5.14.2.2.

lxxvii The IRS has 10 years to collect the tax from the date of assessment, absent certain events that might extend the 10 years. Code Sec. 6502(a)(1).

lxxviii IRM ¶5.14.2.2(2).

lxxix IRM ¶5.14.2.2.2(2).

lxxx IRM ¶5.14.2.2.2(3).

lxxxi IRM ¶5.14.5.1.

lxxxii IRM ¶5.14.5.2(1).

lxxxiii Code Sec. 6331(k)(2).

lxxxiv Code Sec. 6331(k)(2) and (3).

lxxxv Code Sec. 6331(k)(2) and (3).

lxxxvi Code Sec. 6323(j).

lxxxvii IRM ¶5.8.1.1.1(1).

lxxxviii IRM ¶5.8.1.1.4.

lxxxix Code Sec. 7122(c)(3)(B).

xc IRM ¶5.8.11.2; IRM ¶ 5.8.1-1.

xci IRM ¶5.8.11.2; IRM ¶ 5.8.1-1.

xcii Form 656.

xciii Code Sec. 7122(c)(3)(B)(i).

xciv IRM ¶ 5.8.1.2; IRM ¶ 5.8.1.7.3.

xcv The IRS has added another "asset" to this ability to pay which includes any assets that the IRS has deemed the taxpayer "dissipated." Which could make the amount required for the OIC to include assets the taxpayer no longer owns or to which he has access.

xcvi IRM ¶l 5.8.5; IRM ¶ 5.8.1.1.3(3); ¶ 5.8.1-1; Form 656.

xcvii Form 656.

xcviii 26 CFR Part 300 (Nov. 1, 2003). User fees made in conjunction with an offer-in-compromise will be treated as payments against tax, interest, and penalties to which the offer relates. Code Sec. 7122(c)(2)(B).

xcix Form 656; 26 CFR Part 300 (Nov. 1. 2003).

c IRM ¶ 5.8.11.2.

ci Public Policy is only supposed to be used to reject an OIC if acceptance is detrimental to the interest of the IRS, even though the amount offered is greater than the collectible amount. However, it is not to be used merely because public interest might be generated or the taxpayer was criminally prosecuted. IRM ¶ 5.8.7.6.1.

cii Defined as any offer of payment made in five or fewer installments. Code Sec. 7122(c)(1)(a)(ii).

ciii Code Sec. 7122(c)(1)(A)(i).

civ Defined as any offer of payment made in six or more installments.

cv Code Sec. 7122(c)(1)(B).

cvi Code Sec. 7122(d)(3)(C).

cvii Code Sec. 7122(c)(1)(B)(ii).

cviii Code Sec. 7122(c)(2)(C).

cix Code Sec. 7122(f).

cx IRM ¶5.8.5.