Bankruptcy Taxation Committee Meeting Minutes
2007 Annual Spring Meeting
2006 Winter Leadership Conference
Bankruptcy Taxation Committee met on Friday, Dec. 1, 2006 in
Ms. Zepeda provided an overview presentation of various tax aspects of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which covered 10 highlighted areas of the law.
Conceding that the IRS is cumbersome, Mr. Unger discussed the topic of "How to Deal with the IRS" and focused on various aspects and changes in the centralized insolvency program.
Mr. Bean's presentation included a thorough analysis of the IRS offer-in-compromise program. Mr. Bean noted his impression that the IRS is getting tougher on offers in compromise.
Covering "hot topics" and recent cases, Mr. Bayley provided an overview of several significant cases in the bankruptcy taxation area of interest from the prior six-month period.
Mr. Pruitt opened the floor for general discussion and comment. Joe Peiffer discussed a recent case of first impression, In re Knudsen, No. 05-03136, 2006 Bankr. LEXIS 3179 (Bankr. N.D. Iowa Nov. 20, 2006), which addressed 11 U.S.C.§1222(a)(2)(A) and allows income taxes occasioned by the sale of farm assets used in the debtor’s farming operation to be crammed down by treating them as unsecured claims and not priority claims.
meeting of the Bankruptcy Taxation Committee is scheduled to coincide
with ABI’s 2007 Annual Spring Meeting, April 12-15, 2007,
2006 Annual Spring Meeting
The Bankruptcy Taxation Committee met on Saturday, April 22, 2006, at 9:30 a.m. during the 2006, ABI Annual Spring Meeting in Washington, D.C. Committee Chairman David H. Stein of Duane Morris LLP in Newark, N.J., introduced the panelists for the presentation: Miriam Howe, assistant division counsel with the Internal Revenue Service in Washington, D.C.; T. Keith Fogg of the Office of the Chief Counsel of the Internal Revenue Service in Richmond, Va.; Gregory Germain, an assistant professor of law at Syracuse University College of Law; and Eric Pruitt, an attorney with Baker, Donelson, Bearman Caldwell & Berkowitz, P.C. in Birmingham, Ala.
Ms. Howe discussed the IRS reorganization process and answered questions from the audience.
Mr. Fogg delivered his presentation entitled “Tax Changes in the 2005 Bankruptcy Code Amendments.” A copy of the materials is attached.
Prof. Germain led a discussion on income taxes in the year of bankruptcy. An upcoming edition of The Tax Lawyer will include an article by Prof. Germain entitled “Income Taxes in the Year of Bankruptcy: A Congressionally-Created Quagmire.”
Mr. Pruitt briefly reviewed IRS Revenue Ruling 2006-16 and several recent cases involving the bankruptcy and taxation areas. Revenue Ruling 2006-16 provides that a bankruptcy filing by a husband and wife does not necessarily prevent one spouse from later filing for innocent spouse relief under the Internal Revenue Code. A copy of Revenue Ruling 2006-16 is above.
The next meeting of the Bankruptcy Taxation Committee is tentatively scheduled to be held at the 2006 ABI Annual Winter Leadership Conference, Nov. 30–Dec. 2, 2006, in Scottsdale, Ariz. Please email David Stein or call (973)424-2022 if you have any suggestions for meeting topics or if you are interested in writing a brief article for the Bankruptcy Taxation Committee’s electronic newsletter.
The committee meeting consisted of a presentation by, and a Q&A with, Joan Peterson, the IRS Territory Manager from St. Paul, Minn. She provided a PowerPoint presentation of the new IRS automated proof of claim program that is to be activated early in 2005. The IRS will be centralizing in four locations the preparation of proofs of claim for all bankruptcy cases. While such a program cannot respond to the myriad variations that can occur with respect to proofs of claim, the program will enable the IRS to file the vast majority of claims within days of a bankruptcy petitition having been filed. The program will also alert IRS local office Insolvency Unit Bankruptcy Specialists and Technicians to the need to semi-manually prepare those claims that cannot be automated completely.
It is believed that significant time will be saved by this new program so that local IRS personnel will be better able to review schedules and statements of affairs, identify bankruptcy issues, and resolve more quickly inquiries that are received from debtor's counsel. The one weakness that was identified by those in attendance concerned unfiled tax returns. While the IRS will make a good-faith estimate of the amount of tax due on unfiled tax returns, and while a notice of the unfiled returns will be mailed to the debtors asking that they file the returns so that more precise amended claims may be filed, no notice of the unfiled returns is to be sent to debtors' counsel even though they can readily be identified from PACER.
The committee met to discuss several substantive topics concerning bankruptcy and tax issues and engaged in a lively discussion over the recent 11th Amendment case, several interesting property of the estate issues, and tax claims and lien situations. After the presentations, the committee focused on several potential projects that may benefit the broader ABI audience. These projects included:
Those interested in participating in any of these projects should contact Jack Williams at firstname.lastname@example.org.
The meeting was called to order by Chuck Rosen, vice-chair. An attendance roster was circulated. The following topics were discussed:
I. Status of the 2002 bankruptcy amendments bill.
While the bill is now moot but will likely be resurrected next year and as the 25+ tax related provisions are not in dispute by any parties, these are likely to be included in next year's bankruptcy bill. A list of the proposed tax-related provisions was distributed to those in attendance. Several of the proposed amendments were discussed briefly.
II. Addition of §1519 to Title 18 U.S. Code as contained in the recently enacted Corporate Fraud Accountability Act of 2002 (aka the Sarbanes-Oxley Act of 2002).
This change to the U.S. Criminal Code, specifically made applicable to bankruptcy cases as well as to almost any communication with any federal agent or employee, (a) substantially increases from 5 years to 20 years, the maximum sentence for lying and/or falsifying documents, and increases the maximum fine to an infinite amount, and (b) seems to lower the standard of proof required to establish criminal liability.
III. California Franchise Tax Board/State Board of Equalization Penalty & Interest Waiver Program
A brief discussion followed concerning the recently enacted amnesty program established by California. The program, designed to enhance state revenue collect during a tight budget year, enables many taxpayers/debtors to resolve their older tax debts by paying just the tax—with the penalties and interest both to be waived. Further, while the program is technically open only to those taxpayers who receive letters from either the FTB or SBE, the state has indicated a willingness to include other taxpayers who have not received the letters, if their accounts are old, there is no known levy source and, in many cases, where the taxpayer is out of state and collection would be difficult. A current financial statement is required from the taxpayer, but the state will conduct no due diligence to determine the accuracy of the statement. For more information,contact the FTB at 800-522-4144.
IV. IRS Chief Counsel's interpretation of IRC 6103(e)(6) and (h)(4) concerning the limitations on the disclosure of tax return information to the debtors' attorneys, chapter 7/11 trustees and/or chapter 13 trustees.
On Feb. 25, 2002, IRS Chief Counsel's office (Chief, Disclosure, Branch 1) issued a legal memorandum interpreting when and to whom tax return information may be disseminated to bankrupt debtors attorneys, trustees and chapter 13 trustees. The memo was released for public consumption on April 12, 2002, and may be found at 2002 TNT 72-76 and CCH IRS Letter Rulings Report No. 1311; IRS reference is ILM 200215051.
Written in a question-and-answer format, the memorandum restricts the release of tax return information (including amounts due, liens filed, status of collectibility and the negotiation of resolution of matters related to unpaid and/or unfiled tax returns) basically up to the time that the case is closed by the court. Thus, if there is no objection to claim, contested matter, adversary or other litigation is pending, the IRS may not disclose to a trustee the amounts remaining unpaid, whether a tax return was filed, etc. Further, with respect to a discharged tax liability, IRS personnel may not discuss with debtor's counsel administrative abatement of the tax liability or release of recorded tax liens, nor negotiate a payoff of the tax lien on exempt and/or abandoned property. IRS personnel also may not discuss with a chapter 13 trustee whether post-petition tax returns have been filed even if required by the confirmed plan, nor disposition of post-petition refunds unless the plan specifically provides that the trustee is to receive those refunds in partial ayment of the chapter 13 plan. Service personnel may not disclosure information of the current balances due to a trustee or chapter 13 trustee. Further, attorneys and/or other employees of a trustee or chapter 13 trustee may not be given taxpayer information absent specific written authorization in each individual case.
The Tax Committee voted to seek the approval of ABI for authorization to request the tax committees of congress to consider amending the IRC 6103 subsections to allow for the freer flow of information between the IRS and debtors' attorneys, trustees and chapter 13 trustees. This does not appear to be a controversial matter, nor is it one that is substantive in nature and thus would not violate the ABI's policy of taking sides on bankruptcy related matters. To that end, the committee will also seek to enlist the support of IRS Chief Counsel, the congressional liaison fficer of the Tax Division of the Department of Justice, as well as the National Association of Bankruptcy Trustees and the National Association of Chapter 13 Trustees, and possibly the National Association of Consumer Bankruptcy Attorneys.
Ron Maroko (Office of US Trustee, Los Angeles) gave an interesting presentation on "Equivalent Individual Tax Returns and Bankruptcy Discharge Issues," which sparked much interest and response from the committee members. What might have appeared to be a bland subject turned out to be very interesting.
Vernon Calder (Neilson Elggren LLP, Salt Lake City) gave an interesting presentation on "Issues Affecting Individual Debtors In Chapter 11 and Chapter 7." Vernon did an excellent job moderating a group discussion of the issues impacting individuals.
Jim Jenkins (Lain, Faulkner & Co., PC, Dallas) did an outstanding job chairing the committee meeting.
1999 Winter Leadership Conference
The Bankruptcy Taxation Committee held a general discussion of tax articles for "Cracking the Code," including obtaining several volunteers. Jim Jenkins of BDO Seidman LLP, Dallas, presented a detailed discussion of the new regulations dealing with the adjustment of the basis of property due to income from the cancellation of indebtedness under §1017 of the Internal Revenue Code. Mr. Jenkins described the need for the regulations and the problems that were encountered in applying the regulations. A copy of his outline can be obtained by contacting Prof. Newton at (541) 858-9187. In addition, the committee held a general discussion regarding the status of the tax provisions in both the Senate and House Bills. Members were asked to send suggested topics for the next meeting to Prof. Newton.
1998 Winter Leadership Conference
Co-chair Prof. Jack F. Williams (Georgia State University College of Law) directed a discussion of the current status of tax law changes that may be part of bankruptcy bills introduced in the 106th Congress. The comments made during the discussion are as follows:
The committee also discussed future topics for ABI programs, and several favorable comments were made about the Dischargeability of Taxes Program developed by the Association of Insolvency Accountants and the committee. It was suggested that the dischargeable taxes topic should be brought up in 1999's Winter Leadership Conference. In addition, the committee discussed the development of a list of people to prepare tax articles for "Cracking the Code." Those interested should contact Prof. Newton.