GHS: 724(b)
| ID | Name | Group | Other | Code
Sec |
Cross
Ref | Problem
Referenced | Proposed
Solutions |
NBRC-
0009 | Hon. James E. Yacos | Judiciary; United
States Bankruptcy Court for the District of New
Hampshire |
| 507(a)(8) |
| The straight bankruptcy liquidation process for business cases
does not create an incentive to aggressively pursue and address tax
issues. | Eliminate or reduce priority given
to certain tax claims in bankruptcy. |
NBRC-
0026 | "United States Law Week" |
|
| 101(27) | 553(a) | In Chapter 12 case, whether the U.S. (SBA) can offset amounts due
to debtors under 1992 Price Support and Production Adjustment
Programs | Turner v. SBA (5/23/96). U.S. is
unitary creditor for setoff purposes in bankr. reorg. |
NBRC-
0012 | Saul Eisen | President; National
Association of Bankruptcy Trustees | March 29,
1995, Letter |
|
| The interrelationship between
the Internal Revenue Code and the Bankruptcy Code is confusing and
overly burdensome. | The taxation of
bankruptcy estates, and the duties of trustees with regard to filing of
tax returns, should be reviewed, clarified, and amended, where
appropriate, in order to insure that trustees will have clear guidelines
within which to perform their statutory duties. |
NBRC-
0014 | Stephen W. Sather | Practitioner;
Overstreet, Winn & Edwards, P.C. |
| 505(a)(2) |
| Section 505, with regard to ad
valorem taxes, is being used to interfere with the efficient functioning
of state administrative procedures and to give debtors in bankruptcy
dramatically improved rights over nondebtors. The statute permits
bankruptcy courts to interfere with the administration of local taxes by
allowing debtors to redetermine established property valuations upon
which the tax is based. | Congress did not
intend give the bankruptcy courts the authority to interfere with a
uniform system of appraisel and § 505(a)(2) should be amended to
prevent bankruptcy courts from redetermining property tax
values. |
NBRC-
0014 | Stephen W. Sather | Practitioner;
Overstreet, Winn & Edwards |
| 724(b) |
| Section 724(b) conflicts with
the protections granted to lienholders elsewhere in the Code by
diverting proceeds without any compensation to the lienholder; it
therefore effectively permits the subordination of tax liens and the
payment of priority claims regardless of whether the lienholder derived
any benefit. Thus, when property subject to secured tax liens is sold
in Chapter 7, the amount which would have been paid to secured tax liens
becomes a fund for the payment of priority and administrative
claims. | Section 724(b) does not serve any
legitimate purposed and should be repealed. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 503(b) |
| While the "benefit to the
estate" test as a criteria for the payment of normal trand and
employee expenses of the estate under § 503(b), it does not have
any relevance in the context of statutorily mandated requirements such
as taxes, minimum wages, or safety regulations. | The definition of an administrative expense in § 503(b)
should be amended to expressly provide that the actual and necessary
costs of compliance with all governmental laws and otherwise be
applicable to the debtor with respect to its activities during the case
had it not filed for bankruptcy are administrative expense claims.
*Statutory language included. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 959(b) |
| Section 959(b), which requires
the trustee or dip to "manage and operate the property in his
possession . . . according to the requirements of valid laws of the
State in which such property is situated . . . ." The provision
omits federal and local laws and regulations from which debtors are
surely not exempt. Additionally, the statute's use of the terms
"manage and operate" suggests that the dip may be exempt from
the law when the debtor is in liquidation; the statute also limits its
application to property in the debtor's "possession" despite
the fact that many laws place continuing responsibility on a party even
after the property leaves its physical possession and thereby leaves
room for the argument that the debtor is exempt from obeying those
requirements. | Section 959(b) should be
amended to make clear that the trutee or dip is required to comply with
all governmental laws and regulations with respect to property either
presently or formerly in its possession. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 342 |
| The legislative history to the
1978 Code suggests that Congress intended the Rules Committee to
establish notice provisions with teeth, particularly with respect to
notice to governmental units. Section 342, which imposes minimal
requirements of notice and then providing that the absence of those
requirements shall have no legal effect, should demand that the debtor,
who is seeking the benefit of a discharge, provide truly adequate notice
to creditors. Moreover, the schedules do note adequately enable a
taxing authority to determine the debtor's current tax
liabilities. | Section 342 should be amended
to provide that a failure to supply the required information shall
result in the notice being given no legal force or effect unless the
debtor demonstrates that the entity had actual notice of the particular
proceeding and its relationship to the debtor in sufficient time to
adequately protect its rights. *Statutory Language Included. Statutory
and/or rules changes should be made to require additional information to
be provided on the debtor's schedules, including a listing of all
property owned by the debtor; all relevant tax identification and
license numbers; names of any predecssor corporations, affiliates,
d.b.a.'s and a.k.a.'s; tax returns for the last three years or a
statement explaining why they were not filed. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 727(c) |
| Notice provisions are
inadequate. | Section 727(c) should be amended
to provide that, where a party has not been given notice of a bankruptcy
case, that the times to object to a discharge and/or move to revoke a
discharge should be extended until the full amount of time provided for
under the Rules has passed since the creditor did receive
notice. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 507(a)(1) | 960 | Taxing authorities should not be
required to make requests for the payment of tax obligations that accrue
during the case in the ordinary course of the operation of the debtor's
estate. | Section 507(a) and/or 960 should be
clarified to require that taxes that accrue during the case should be
paid in the ordinary course of operation of the debtor's estate
(regardless of whether there is an actual "business" being
conducted) unless some other specific provision of the Code exempts the
estate from payment of such taxes. It should be made plain that the
debtor is not just liable for taxes that accrue during the case, but
must actually pay them in a timely fashion as they become due,
regardless of whether or not the taxes are given secured
status. |
| NBRC0021 | James
I. Shepard | Practitioner; Commissioner,
National Bankruptcy Review Commission |
|
|
| The Code does not adequately
make it clear that our self-reporting system of taxation requires
debtors to promptly file all tax returns. | The Code and/or the Rules should make clear that a failure to
promptly file all tax returns owing at the time the case is filed, to
continue timely filings during the case, and to pay all taxes owed in a
timely fashion is grounds for automatically converting or dismissing the
case and for denying motions to extend exclusivity. This requirement
should not be a matter of discretion, but should be a nonwaivable
provision of the Code that must be complied with in order to obtain a
discharge. Moreover, Chapter 7 debtors should not be exempted from
filing income tax returns during the course of the case even if it may
be reasonable to exempt the estate from paying taxes owed by
non-operating Chapter 7 debtors. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 724(b) | 362(b)(18) | The recent amendment to
§ 362(b)(18) has made clear that governments are entitled to
continue to accrue liens for unpaid property taxes even during the
pendency of the case. However, that provision is made largely worthless
by § 724(b) which automatically subordinates all secured tax claims
to other administrative claims. The net result of § 724(b) is that
valid tax claims are used to satisfy other unsecured liabilities of the
debtor, either pro tanto with administrative tax claims, or in
preference to secured tax claims that do not otherwise receive first
priority treatment. | Section 724(b) should be
repealed. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 506(c) |
| It is inappropriate for a
secured creditor to be able to avail itself of the benefits provided by
local governments that are funded by property taxes without having any
obligation to pay such taxes. Under nonbankruptcy law, governments are
normally given priming liens for such taxes, thereby requiring that the
taxes be paid before even an earlier lienor may receive payment from the
property. There is no equitable reason why this should be different
merely because the loan has been fortuitously been made to a party that
has filed a petition. As it now stands, the combination of cases that
limit liability for property taxes to only the property itself, and then
bar the surcharge of the secured creditor's interests mean that neither
the debtor, nor the estate, nor the secured creditor, ever pay such
taxes--a windfall with no legitimate basis. | Section 506(c) should be amended to provide that property taxes
that accrue during the case may be surcharged against a secured
creditor's interest. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
|
|
| The treatment of prepetition
trust fund taxes in bankruptcy is unclear. | Where a debtor has collected funds from third parties and is
responsible to hold for the use of the government, there should be a
recognition that the cash held by the debtor when the petition is filed
represents those trust funds to the extent they remain unpaid since
other creditors have no equitable claim to be paid from money that was
never the debtor's to begin with. There should no requirement for
tracing and any cash collateral hearing should be required to deal with
the issue of whether the funds being used are trust fund
taxes. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 541 |
| Courts are not altogether
uniform in holding that trust fund taxes collected postpetition are not
property of the estate. | Section 541 should
be clarified to ensure that trust fund taxes collected postpetition are
not property of the estate and that the trustee holds them as a
fiduciary to the government. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 704 |
| There are too many disputes in a
bankruptcy case over which funds are trust fund proceeds and which are
not. | Section 704 should be amended to
require that the trustee or debtor set up a segregated bank account for
trust fund proceeds immediately upon filing for bankruptcy. In addition
to eliminating much of the dispute and ensuring the timely payment of
trust fund taxes, this amendment would ensure that the debtor could not
disguise its operating losses by commingling trust funds with its
general funds. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 105(b) |
| Allowing a debtor, or its
officers, to decide how to allocate the payment of taxes in bankruptcy
between trust and non-trust fund defeats the purpose of the scheme which
makes responsible parties jointly liable for the payment of trust fund
taxes. The debtor's management is responsible for the company's
performance and the circumstances which precipitate the bankruptcy
filing and the failure to pay taxes that were received from third
parties. They should not be allowed to personally benefit by deciding
how to designate the taxes the debtor pays under the
plan. | Section 105(b) should be amended to
eliminate the power of the bankruptcy court to allow a debtor to decide
how to allocate taxes paid in a bankruptcy case between trust and
non-trust fund taxes. This result would effectively overrule the
decision of the U.S. Supreme Court in U.S. v. Energy Resources, 495 U.S.
545 (1990). |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 105 |
| The law is unclear whether the
bankruptcy court has the authority to grant third-party injunctions in
favor of nondebtor principals who argue that they are crucial to the
debtor's reorganization and that they will be distracted by litigation
commenced against them under responsible parties laws, or whether the
Tax Injunction Act or the Anti-Injunction Act have continuing validity
in the context of bankruptcy. | Taxing
authorities, attempting to collect the payment of trust fund taxes, need
to have the law clarified so that the scope of their lawful activities
may be determined. If Congress intends not only to protect debtors, but
also all of their corporate officers from any collection activity during
the pendency of a bankruptcy case, then the Code should be clarified to
provide for this explicitly. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 960 |
| Section 960 needs to be revised
and strengthened. If a business cannot pay its taxes while in
reorganization (or convince a court that it can do so in short order),
it hasno business continuing to operation and incur new debts that will
only consume the assets that would be otherwise available to those who
held claims prepetition. A trustee that allows this to happen, without
seeking court authorization, should be held personally
liable. | Section 960 should be amended to
make a trustee personally liable to the same extent that any other
operator of a business is personally liable for the failure to pay
required taxes unless the court specifically authorizes the trustee to
delay paying. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 362(b)(9) and
(18) |
| Section 362(b)(9) and (18) have a number of pitfalls and
ambiguities. One problem is the fact that the Code does not define what
is an "assessment" and that term may be used to mean different
things in different states, or may not even be used at all.
Additionally, IRS setoffs in violation of the automatic stay serves a
constant source of litigation | It would be
helpful to redraft any provision refering to an "assessment"
and use a functional definition rather than a shorthand term of art that
may be susceptible to many interpretations. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 724(b) | 362(b)(18) | Section 362(b)(18) makes
clear that governments are entitled to continue to accrue liens for
unpaid property taxes even during the bankruptcy case. However, that
provision is rendered largely worthless by § 724(b) which
automatically subordinates all secured tax claims to other
administrative claims. | Repeal §
724(b). |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 523(a)(7)(B) |
| Tax penalties on taxes over
three years old should be nondischargeable if the underlying tax is
nondischargeable. | The dischargeability of
penalties should turn on the dischargeability of the underlying
tax. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 503(b) |
|
| Section 503(b) should be clarified to provide that postpetition
interest on administrative tax claims should be viewed as part of the
claim and be awarded administrative status. |
NBRC-
0021 | James I. Shepard | Practitioner;
Commissioner, National Bankruptcy Review Commission |
| 505 |
| A frequent issue in tax cases is
the determinationn of whether the bankruptcy court must apply
nonbankruptcy substantive law, including burdens of proof. Moreover,
allowing the debtor an unlimited period of time to challenge unpaid
taxes, pursuant to § 505(a), is inappropriate. No other category
of debt may be reopened long after the applicable time periods for
challenge have expired. The language of § 505(a) is ambiguous with
respect to whether a bankruptcy court has the authority to redetermine
the tax liability of nondebtors. | There is no
reason tax law should differ from other substantive areas where it is
clear that applicable nonbankruptcy law governs--including choice of
laws and burdens of proof. Section 505(a) should be amended to clarify
that bankruptcy courts do not have the authority to redetermine the tax
liability of nondebtors. Section 505(b) should be strengthened to
emphasize that "refunds" must be sought in a timely
fashion. |
NBRC-
0077 | Thomas C. Ford | Chair, Bankruptcy
Committee, CA Ass'n of County Treasurers and Tax
Collectors |
| 507(a)(7)(C) |
| Three year priority is currently
given to Federal government tax claims. Historically, state and local
taxes had the same priority as government tax claims. Appropriate to
provide the same period of priority for all tax
claims. | First recommendation is that section
should be deleted. In the alternative, (C) should read "A property
tax assessed before the commencement of the case and last payable
without penalty after three years before the date of filing the
petition. |
NBRC-
0077 | Thomas C. Ford | Chair, Bankruptcy
Committee, CA Ass'n of County Treasurers and Tax
Collectors |
| 724(b) |
| 1978 Code omitted the word "Personal" at the beginning
of subsection (b), making all property liens, including real property
tax liens subject to subordination. Amounts that would otherwise be
returned to local governments that are now shifted to unsecured
administrative creditors. | Add the word
"Personal" before the word "property" at the
beginning of section 724(b). |
NBRC-
0077 | Thomas C. Ford | Chair, Bankruptcy
Committee, CA Ass'n of County Treasurers and Tax
Collectors |
| 1141(d)(2) |
| Senate's legislative history states that taxes would be
nondischargeable in the case of a corporate and partnership debtor
emerging from a ch. 11 reorganization. Also consistent with the
bankruptcy act. | Modify section 1141(d)(2) to
read as follows: (2) The confirmation of a plan does not discharge a
debtor from any tax debt, nor an individual debtor from any debt
excepted from discharge under section 523 of this
title." |
NBRC-
0077 | Thomas C. Ford | Chair, Bankruptcy
Committee, CA Ass'n of County Treasurers and Tax
Collectors |
| 505(a)(1) | 505(a)(2) | No problem
referenced. | Section 505(a)(1) should read as
follows: "(1) Except as provided in paragraph 2 of this subsection,
the court may determine the amount or legality of any tax, any fine, or
penalty relating to any tax or any addition to tax, whether or not
previously assessed, whether or not paid. (remainder
deleted). |
NBRC-
0077 | Thomas C. Ford | Chair, Bankruptcy
Committee, CA Ass'n of County Treasurers and Tax
Collectors |
| 505(a)(2) | 505(a)(1) | No problem
referenced. | Amend section 505(a)(2) to read
"(2) The court may not so determine (A) the amount of the legality
of a tax, fine, penalty or addition to tax, if such an amount or
legality was contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction. (remainder deleted)
(B) the amount or legality of any unpaid tax if a claim has not been
filed; or (C) the right of the estate to a tax refund if the time for
appeal under state law has expired." (remainder deleted).
Amendment would permit the bankruptcy court to undertake another
valuation of the property. What is meant by amount and legality is to
correct math errors or determine gov'tal jurisdiction over the property,
and whether tax was lawfully imposed. |
NBRC-
0077 | Thomas C. Ford | Chair, Bankruptcy
Committee, CA Ass'n of County Treasurers and Tax
Collectors |
| 545 |
| Under some statutory schemes, the filing of a section 546(b)
notice will not perfect a local government's interest in the
property. | Amend section 545 to state:
"Except for property tax liens, the trustee may avoid the fixing of
a statutory lien on property of the debtor to the extent that such
lien..." |
NBRC-
0110 | Peter H. Arkison | Law Offices of Peter
H. Arksion |
|
|
| Requiring Chapter 7 debtors to file income tax returns wastes
valuable estate assets. | Impose a flat tax of
5% on all funds received by a Chapter 7 estate. |
NBRC-
0151 | Earle I. Erman | Attorney; Erman,
Teicher, Miller, Zucker & Friedman |
| 724(b)(2) |
| Proposal to eliminate the
carve-out of prepetition tax liens for the benefit of certain priority
creditors. Focus of proposal states that the gov't is losing
significant amounts of money because of section 724(b),all for the
benefit of bankruptcy expenses of administration such as attorney and
trustee fees. | This analysis totally
disregards the fact that section 724(b)(2) is being utilized in many
bankruptcy cases to pay wages, vacation pay and other fringe benefit
contributions for workers who did not get paid those vital wages and
benefits wihtin the 90 and 180 day period prior to the filing. Proposal
also focuses significantly on the detriments to local communties and the
loss of personal property tax revenues as a result of 724(b)(2).
Analysis disregards that gov't entities have lien authority which absent
section 724(b)(2) would prevent employees from receiving these wages.
Employees do not have the swift and immediate mechanism available to
them that the taxing authorities have -- immediate nonconsensual liens
against the company's assets. |
NBRC-
0175 | Kenneth P. Childs, on behalf of the Bankruptcy Review Committee
of the Oregon State Bar Debtor-Creditor Section | Attorney |
|
|
| Limitations on the dischargeability of taxes are too restrictive.
In many cases, taxes are the largest debts owed and often the reason
for a bankruptcy filing. Denying debtors the ability to discharge taxes
frustrates the objective of providing a fresh start, and sometimes
forecloses the possibility of meaningful rehabilitation. Taxes are
essentially no different from any other debt and no rationale exists for
according taxes nondischargeability status. | In order to provide debtors a true fresh start and opportunity
for rehabilitation, a much broader range of taxes should be
dischargeable. This dischargeability need not extend to tax obligations
resulting from tax fraud. |
NBRC-
0175 | Kenneth P. Childs, on behalf of the Bankruptcy Review Committee
of the Oregon State Bar Debtor-Creditor Section | Attorney |
| 26 USC § 6012(a)(2), Reg. §
1.6012-2(a)(2) |
| Requirement for filing corporate tax returns in Chapter 7
bankruptcy cases is too burdensome and costly in situations where the
estate has little income and no taxable income. Currently, Chapter 7
bankruptcy trustees are required to file tax returns in all corporate
cases. 26 USC § 6012(a)(2); Reg. § 1.6012-2(a)(2); Reg.
§ 1.6012-3(b)(4). A Revenue Ruling permits trustees to present
facts to the IRS to relieve the filing requirement in cases with no
assets or income. Rev. Rul. 84-123 1984-2 CB 244. This procedure may
not be applicable in limited income cases because corporations typically
have some assets, even if they are fully encumbered. While the IRS
appears to apply the Revenue Ruling liberally, administrative practice
is subject to change at any time and trustees using the procedure must
employ the cumbersome and costly procedure of presenting facts to the
District Director and awaiting a response. Trustees often have
difficulty obtaining prior tax returns and other financial information
necessary for preparation of returns. Moreover, trustees in no-asset
cases frequently do not have the funds to pay for tax return
preparation, and the estates infrequently have any tax
liability. | Requirement for filing corporate
tax returns in Chapter 7 bankruptcy cases should be eliminated in
situations where estate income falls below a certain amount and the
estate has no taxable income. |
NBRC-
0178 | Gary White, on behalf of the Natl. Assoc. of Credit
Management | Chair, Government Affairs Comm.,
Natl. Assoc. of Credit Management |
|
|
| Working group proposed
"deemed file rule" would facilitate a more equitable system by
allowing all legitimate claims to be filed without regard to which
creditor filed first. | NACM supports the
working group's proposed "deemed file rule." |
NBRC-
0178 | Gary White, on behalf of the Natl. Assoc. of Credit
Management | Chair, Government Affairs Comm.,
Natl. Assoc. of Credit Management |
| 724(b)(2) |
| Working group's proposal
regarding § 724(b)(2) would create an imbalance in the absolute
priority schedule, and would unfairly give government taxing agencies a
higher priority status than secured creditors. | NACM opposes the working group's proposal on §
724(b)(2). |
NBRC-
0178 | Gary White, on behalf of the Natl. Assoc. of Credit
Management | Chair, Government Affairs Comm.,
Natl. Assoc. of Credit Management |
|
|
| Working group's proposal
regarding trust fund taxes would allow government agenices to
unilaterally and arbitrarily dictate how tax payments from insolvent
companies should be allocated. | NACM opposes
the working group's proposal on trust fund taxes. |
NBRC-
0184 | Robert A. Greenfield | Attorney | Attorney Mark S. Wallace's
statement re § 724(b)(2) | 724(b)(2) |
| Author states that "to repeal § 724(b) would be to
ignore the lessons of history and to encourage a proliferation of state
laws creating tax liens. Repeal of 724(b) is bad bankruptcy
policy." The author of the attached statement also opposes
revision or deletion of § 724(b)(2). He provides a research
memorandum analyzing § 724(b)(2), and concluding that this section
should not be repealed. Repeal would make it difficult for certain
debtors to find an attorney willing to file a bankruptcy petition on
their behalf because of uncertainty surrounding the eventual payment of
administrative expenses. Repeal of this section would also make it
difficult for trustees to administer Chapter 7 cases over the opposition
of taxing authorities holding secured tax claims. | Section 724(b)(2) should be retained as it presently
exists. |
NBRC-
0193 | James V. Stanton and Richard A. Steyer, on behalf of Natl. Assoc.
of Bankruptcy Trustees | Attorneys and
bankruptcy trustees | Stmt. by Saul Eisen,
& attached ltr. from Jesse Collier, Board
member |
|
| In the attached statement, the
president of the National Association of Bankruptcy Trustees
("NABT") states that tax issues for trustees have become more
complex, subjecting trustees to personal liability that was not
anticipated. He attaches a letter from an accountant who is a member of
NABT's Board of Directors, regarding various tax issues. In this
letter, the Board member raises a number of tax issues:
1) Should the Internal Revenue Code be amended to expressly provide
that the special treatment of a bankruptcy abandonment as non-taxable to
the estate would apply to all abandonments, including those occuring
during case administration Also, should favorable tax treatment be
extended to all bankruptcy estates (e.g., corporations, partnerships,
etc.) in all cases The author provides the citation for a related
article.
2) Should the law limit the repsponsibility of a fiduciary in
bankruptcy to file returns and pay taxes which were due to be filed or
paid prior to the time the fiduciary assumed responsibility for the case
3) Should Chapter 7 estates be afforded relief from liability for
penalties and interest, due to the pervasive difficulties in obtaining
sufficient information to timely file returns and pay tax
4) Should § 505(b) be amended to explicitly provide for the
discharge of liability of the estate itself, not merely the trustee,
debtor, and successor to the debtor The author provides the citation of
a related article.
5) Should Internal Revenue Code § 1398 be amended to state that
the filing of a petition by husband and wife in a joint case under
Bankruptcy Code § 302(a) results in two separate estates for tax
purposes
6) Should provisions be established to govern situations where a
transfer to or from a trust created in a bankruptcy case would be a
non-taxable transaction
7) Should provisions be created to delay the timing of the reduction of
tax attributes of the bankruptcy estate resulting from the debtor's
discharge | Same. |
NBRC-
0248 | Thomas C. Ford | Chair, Bankruptcy
Committee, California Association of County Treasurers and Tax
Collectors |
| 507(a)(7)(C) |
| Hitorically, state and local
taxes had the same priority as the federal tax claims under the Code,
and therefore, in order to provide uniform treatment as well as to
provide fair and equitable treatment of all tax claims, it is
appropriate to provide the same period of priority for all tax
claims. | Section 507(a)(7)(C) should be
deleted, or amended to provide that "(C) A property tax assessed
before the commencement of the case and last payable without penalty
after THREE YEARS before the date of the filing the
petition." |
NBRC-
0248 | Thomas C. Ford | Chair, Bankruptcy
Committee, California Association of County Treasurers and Tax
Collectors |
| 724(b) |
| In the 1978 Bankruptcy Reform Act the word "personal"
was omitted, thereby making all property liens, including real property
tax liens, subject to subordination. This change, which now includes
all property tax liens, has greatly expanded the amount of revenue that
would otherwise be returned to local governments but are now shifted to
unsecured administrative creditors. | Section
724(b) should be amended to read "PERSONAL property in which the
estate has an interest and that is subject to a
lien..." |
NBRC-
0248 | Thomas C. Ford | Chair, Bankruptcy
Committee, California Association of County Treasurers and Tax
Collectors |
| 505(a)(1) and (a)(2) |
| Sections 505(a)(1) and (a)(2)
should permit deteminations by the bankruptcy court only of the amount
or legality of any unpaid tax if it has been contested or adjudicated by
an administrative or judicial body. | Section
505(a)(1) should be amended to delete "whether or not paid, and
whethher or not contested before and aadjudicated by a judicial or
administrative tribunal of competent jurisdiction." Section
505(a)(2)(A) should be amended to delete "before the commencement
of the case under this title; or," and §§ 505(a)(2)(B)
and (a)(2)(C) should be amended to be consistent (sample language
provided). These amendments would clarify that if a tax is paid and the
time for contesting this tax has not run under applicable state law,
then the trustee may apply for a refund and seek a determination of the
amount or legality of the tax. |
NBRC-
0248 | Thomas C. Ford | Chair, Bankruptcy
Committee, California Association of County Treasurers and Tax
Collectors |
| 545 |
| A trustee should not be able to avoid a statutory tax lien on
property of the debtor. Under some statutory schemes the filing of a
§ 546(b) notice will not provide perfection of the local
government's interest in the property. | Section 545 should be amended to read "EXCEPT FOR PROPERTY
TAX LIENS, the trustee may avoid the fixing of a statutory lien on
property of the debtor..." |
NBRC-
0257 | Joyce E. Bauchner | Assistant Chief
Counsel, General Litigation, Internal Revenue
Service |
| 1322, 1305, 1328 |
| Internal Revenue Service's
unique limitations as an involuntary creditor warrant different
treatment as a creditor under the Bankruptcy Code and Rules. In order
to improve the administration of bankruptcy cases with repect the the
IRS's claims and benefits tax collection, chapter 13 proceedings should
be amended. | Chapter 13 proceedings should be
revised to: (1) require that tax returns be current as a condition of
confirmation in chapter 13 plans; (2) treat postpetition tax claims in
chapter 13 as priority claims; (3) broaden exceptions to discharge in
chapter 13; (4) require payment of priority taxes and interest in
chpater 13 plans; and (5) require interest on secured tax claims in
cahpter 13 at the statutory rate. Suggested statutory language is
provided. |
NBRC-
0257 | Joyce E. Bauchner | Assistant Chief
Counsel, General Litigation, Internal Revenue
Service |
| 109, 523, 505, 105 |
| Internal Revenue Service's
unique limitations as an involuntary creditor warrant different
treatment as a creditor under the Bankruptcy Code and Rules. In order
to improve the administration of bankruptcy cases with repect the the
IRS's claims and benefits tax collection, the Code should be amended to
correct abuses. | In order to stem abuse of
the Bankruptcy Code, the Code should amended to: (1) reduce successive
bankruptcies by limiting chapter 13 filings after the chapter 7
discharge; (2) allow discharge of penalties only when the underlying tax
is also discharged; (3) disallow designation of payments (overrule
Energy Resources case); (4) provide regulations for where a request for
a prompt audit os to be made; and (5) suspend the 240-day period under
§ 507(a)(8)(A)(ii) during the pendancy of installment agreements.
Suggested statutory language is provided. |
NBRC-
0257 | Joyce E. Bauchner | Assistant Chief
Counsel, General Litigation, Internal Revenue
Service |
| 1129, 505, 506, 507, 101(28A), |
| Internal Revenue Service's
unique limitations as an involuntary creditor warrant different
treatment as a creditor under the Bankruptcy Code and Rules. In order
to improve the administration of bankruptcy cases with repect the the
IRS's claims and benefits tax collection, several legal clarifications
should be made to the Code. | Legal
clarifications should be made to the Code: (1) require secured taxes to
be paid over a six year period; (2) clarify the burden of proof of
debtors and trustees; (3) tax lien should not to be released before
payments are completed; (4) clarify the priority of income taxes
incurred by corporate debtors for their straddle tax year; (5) limit
jurisdiction to the debtor's or estate's tax liability, not third party
tax liabilities; and (6) authorize setoff of postpetition refunds
agaisnt prepetition nondischargeable taxes. Suggested statutory
language is provided. |
NBRC-
0257 | Joyce E. Bauchner | Assistant Chief
Counsel, General Litigation, Internal Revenue
Service |
| 1141, 1112, 1208, 1307, 362, 505, 553, 1129,
507 |
| Internal Revenue Service's unique limitations as an involuntary
creditor warrant different treatment as a creditor under the Bankruptcy
Code and Rules. In order to improve the administration of bankruptcy
cases with repect the the IRS's claims and benefits tax collection, the
general efficiency of the Code should be improved. | In order to imrpove the general efficeincy of the Code, the
following revisions should be made: (1) clarify the treatment of taxes
upon dismissal or default of the plan; (2) provide specific grounds for
conversion or dismissal; (3) authorize setoff of prepetition refunds
against prepetition taxes; (4) require interest on deferred payments of
tax claims in chapter 11 at the statutory rate; (5) require equal
payments over the life of the reorganization plan; (6) require eighth
priority for excise taxes and employment taes; (7) clarify when priority
is denied for taxes attributable to fraudulent and infiled returns; and
(8) suspend periods under § 507 during the period of a previous
bankruptcy. Suggested statutory language is provided. |
NBRC-
0264 | Joan E. Pilver | Assistant Attorney
General of Connecticut |
| 724(b) |
| Section 724(b) is unnecessarily
complicated and obscure, and is therefore applied inconsistently
throughout the country. This inconsistentcy imposes a hardship on
debtors and creditors alike, and fosters substantial
litigation. | Section 724(b) should be
repealed not only because of the reasons articulated in the Working
Group proposal, but also because it is complicated and produces
inconsistent results. |
NBRC-
0303 | Commercial Law League of America | Commercial Law League of America (CLLA) |
|
|
| The Commerical Law League of
America believes that the following issue should be considered by the
NBRC: Should the bankruptcy trustee's tax responsibilities be modified
and streamlined through the creation of a specific chapter of the
Internal Revenue Code devoted solely to issues unique to bankruptcy
reporting, sales of assets from the debtors estate, and avilability of
tax attributes to the benefit of the estate | None. |
NBRC-
0303 | Commercial Law League of America | Commercial Law League of America (CLLA) |
| 505(a) |
| The Commerical Law League of
America believes that the following tax issues should be considered by
the NBRC:
1) Should traceable payments of trust fund taxes to segregated funds
be immunized from voidable perference recapture (CLLA believes that this
issue should receive "high priority")
2) Should the list of exceptions to the anti-injuction provisions of
the Internal Revenue Code be amended to incorporate Bankruptcy Code
§ 505(a) (CLLA believes that this issue should receive "high
priority")
3) Should § 505(a) be amended to empower the bankruptcy court to
enjoin the IRS from collecting trust fund taxes from responsible persons
if this injunction would aid rehabilitation of the debtor, or to permit
the debtor to allocate payments under the plan (CLLA believes that this
issue should receive "high priority")
4) What effect should the automatic stay have on environmental claims
(CLLA believes that this issue should receive "high priority")
5) How should the existence of co-obligers with resources affect the
estimation and allowance of claims against the estate Should non-debtor
parties who have disbursed remediation costs have subrogation rights
agaisnst the debtor (CLLA believes that this issue should receive
"high priority") | No additional
details are provided. |
NBRC-
0316 | Commercial Law League of America | Commercial Law League of America
("CLLA") | Copies of survey
responses |
|
| The CLLA presents the
"Results of An Empirical Study: Impact of Potential Capital Gain
Taxes on Sale of Assets in Bankruptcy Cases." The CLLA concludes
that potential capital gains taxes are forcing chapter 7 bankruptcy
trustees to abandon tens of millions of dollars of assets. The study
revealed that over the last four years at least $78 million was
unavailable for distribution from the estates of bankrupt debtors
because the impact of capital gains taxes prevented trustees from
selling thousands of pieces of real property. As a result, creditors
are being deprived of a source of funds from which they could recoup
some portion of the billions lost each year to bankrupt debtors.
Results of the study and the concerns it raises are discussed in detail,
and copies of each completed survey are attached. | The CLLA's survey studied possible solutions to this problem.
Survey respondents ranked several suggested solutions as follows: (1)
allow a trustee a "stepped up basis" in the property similar
to that which exists with the transfer of assets upon death; (2) exclude
an amount of capital gains from the estate's taxable income. Based on
this study, the CLLA recommends that the Internal Revenue Code be
amended to provide for a stepped up basis for chapter 7 bankruptcy
estates when the trustee sells capital assets. |
NBRC-
0320 | Robert M. Zinman, on behalf of the Bankruptcy
Institute | American Bankruptcy Institute
("ABI") | Numerous position papers,
memoranda and research material | 505(a) |
| The author concludes that: (1) Taxes should not encourage
companies to file one petition over another; (2) Tax laws should not
hinder the bankruptcy process; (3) The Supreme Court's decision in
Beiger v. IRS, 495 U.S. 53 (1990), finding that tax collected as a trust
is not property of the debtor, mistakenly placed taxing authorities in a
position superior to what they could obtain in a non-bankruptcy
environment; and (4) Allocation is a right given to a taxpayer and thus
there is no reason why they should not be permitted to allocate in a
reorganization case. | The author recommends
that: (1) Bankruptcy laws should be structured to prevent debtors from
chapter shopping for the greatest tax advantage; (2) Tax laws should
facilitate the restructuring process and not overburden the debtor; (3)
Special tax considerations that are given to companies in a bankruptcy
petition should be available to an out-of-court workout, thereby
avoiding a structural preference for either option; (4) The Code be
amended to abrogate the tax consequences of the Supreme Court's decision
in Beiger v. IRS; (5) The Internal Revenue Code should be amended to
provide that payments under a plan are volutary, and thus the debtor has
authority to allocate them; and (6) The anti-injunction provision of the
Internal Revenue Code should be modified to incorporate Bankruptcy Code
§ 505(a), thereby recognizing the preemptive jurisdiction of the
bankruptcy court over tax matters. |
NBRC-
0349 | Arthur J. Spector | Bankruptcy Judge
(E.D. Mich.) |
|
|
| The author, whose opinion in In re Premo, 116 B.R. 515 (Bankr.
E.D. Mich. 1990) discussess the issues surrounding burden of persuasion
in tax claims, suggests that the burden should not fall on the taxpayer
when the taxpayer is a party in the litigation. This can occur, for
example, when either another creditor or the trustee is the party
objecting to the tax claim. A trustee is situated no differently than
the government with respect to the taxpayer's records. In such a case,
the government should be treated as other creditors and be required to
prove that its claim is valid. | Bankruptcy
Code should be amended to provide that to the estent the benefit of a
successful outcome to the disputes goes to the taxpayer, the taxpayer
bears the burden of persuasion; but if a successful challenge to the tax
will inure solely to other creditors of the estate, the government
carries the burden. |
NBRC-
0349 | Arthur J. Spector | Bankruptcy Judge
(E.D. Mich.) |
| 1111(a) |
| The author supports application of the "deemed filed"
rule to all chapters of the Code for federal, state and local
governments. He concludes, however, that the rule should also be
extended to all creditors and not just governments because most small
businesses and consumer debtors do know what they owe, and thus allowing
claims in uncertain amounts would do them no
injustice. | Bankruptcy Code should be amended
to extend the deemed filed rule to all creditors. |
NBRC-
0416 | Arthur J. Spector | U. S. Bankruptcy
Judge, U.S. Bankruptcy Court for the Eastern District of
Michigan |
|
|
| Author writes concerning the burden of persuasion in tax claims.
He is author of In re Premo case, 116 B.R. 515 (Bankr. E.D. Mich. 1990).
In litigation between the taxpayer and the government it might be fair
to place the burden on the taxpayer who is responsible for keeping
adequate records and who can be expected to have all necessary
information. However, this rule ought not to apply when the taxpayer is
not one of the parties to the litigation, as in the case of a coporate
debtor where the principals are no longer present. A trustee is
situated no differently than the government with respect to the
taxpayer's records. In such a circumstance, it would not seem unfair to
treat the governmental agency exactly as every other creditor, requiring
it to prove that its claim is valid. | A rule
might be drafted which accomodates both concerns, perhaps that to the
extent the benefit of a successful outcome to the dispute goes to the
taxpayer, the taxpayer bears the burden of pursuasion; but if a
successful challenge to the tax will inure solely to other creditors of
the estate, the government carries the burden. |
NBRC-
0426 | Paul H. Asofsky | Attorney, Member of
ABA Section of Taxation Special Task Force on the
NBRC |
|
|
| Author gives history of participation by ABA Section of Taxation
in development of tax and bankruptcy legislation. General notice that
Section is working on proposals which it will put before the
Commission. |
|
NBRC-
0437 | Murray S. Lubitz & Judith Greenstone
Miller | President, The Commercial Law League
of America, & Chair, CLLA Government Working Group,
respectively |
| 724(b)(2) | 507(a) | The Government Working Group of the Bankruptcy Review Commission
has suggested that Section 724(b)(2) should be repealed. The primary
reason articulated for repealing this section of the Code is the
government's need for revenues. The Working Group also believes that
subordination of the tax claimant's lien also unfairly discriminates
against the government. Finally, because the categories of priority
claims have expanded, the tax claimant's lien position has been
substantially eroded since the original adoption of Section 724(b)(2).
None of these reasons mandate a repeal of Section 724(b)(2),
particularly when other impaired classes of creditors, for whom the
legislation was originally intended, could be protected through a less
drastic approach. The loss of potential revenues is not a sufficient
basis to repeal this section. Finally, the concerns of the tax lien
claimant can be minimized by reducing or eliminating the classes of
priority creditors entitled to receive the benefits of subordination
under Section 724(b)(2). | Section 724(b)(2)
should not be repealed, but rather the extent to which a tax claimant's
lien is subordinated should be limited to only administrative expense
claims and wage claims arising under 11 U.S.C. §§ 507(a)(1),
(2), (3), and (4) in order to conform to its orginal legislative
purpose. |
NBRC-
0440 |
Robert H. Waldschmidt |
Vice President, National Association of Bankruptcy
Trustees, no address, date stamped |
|
|
|
The National Association of Banruptcy Trustees (NABT),
on behalf of Chapter 7 trustees, hereby objects to prpoposal #1
submitted by the Government Working Group, which seeks to eliminate the
necessity for governmental creditors to file proofs of claim, and deems
the inclusion of a governmental entity on the debtor's schedules as a
valid proof of claim. Experience indicates that consumer debtors never
accurately list the amount of a tax liability on Schedule E. The
proposed change would result in the filing of a "motion to
determine the amount, priority status, and secured status of
claim", or the filing of an "objection to claim", for
every governmental entity listed on the debtor's schedules. This would
increase the costs of administration of a bankruptcy estate (attorney's
fees), and force the governmental entity to incur additional time and
expense in responding to and/or defending the motion/objections filed by
the trustees. |
NABT is open to any suggestions which would simplify
the burden on governmental entities in protecting their interests in
bankruptcy proceedings. However, the proposal currently before the
Review Commission would not accomplish that goal. |
NBRC-
0476 | Kirk Swinney | Attorney, McCreary,
Veselka, Bragg & Allen, P.C. |
| 724(b) |
| "In my observation,
§724(b) has accomplished nothing but an unmitigated plundering of
public revenues for no discernable public policy." "The
effect of §724(b) is to totally upend the state ordered property
rights at the expense of the local jurisdictions which have provided
police protection, fire protection, education, roads, a judicial system,
and all other forms of local govenrnment that enhance the value of the
taxed property." "One of the more unpleasant tasks I
undertake in my practice is to explain to my client public officials
that even though the vast majority of citizens, including poor and
financially struggling citizens, pay their taxes, the large corporation
or business entity that has gone into bankruptcy does not have to pay
its taxes." | "I write to express my
support for the repeal of 11 U.S.C. §724(b). |
NBRC-
0480 | Elizabeth Weller | Attorney |
| 724(b) | 505 | § 724(b) is written in such a manner so as to leave many
issues open and is unfair in its application. | "Based upon my experience representing local taxing
authorities in cases across the country, I recommend the repeal of
§724(b) in its entirety." In the event the Commission decides
not to recommend repeal of § 724(b), please consider making the
suggested amendments. "The most important amendment which could be
made to §724(b) wiithout changing the position of administrative
creditors is to delete the provisions which allow the tax claim to be
subordinated to the junior non-tax lienholders." |
NBRC-
0484 | Jonathan V. Maxwell | County Attorney,
Guilford County, North Carolina |
| 724(b) | 505 | "In recent years I have
observed an increase in a number of situations where creditors, often
unsecured, "gang up" on the Tax Collector in order to deprive
the Tax Collector of the preferred status he is afforded by state and
bankruptcy laws." Because of the services provided by the
governement, "North Carolina law, and I believe most state laws,
afford these taxes a preferred lien status as against real property.
Section 724 and to a lesser extent Section 505 are being used in
creative ways to circumvent this preferred lien
status. | "I would respectfully request
that the Board repeal Section 724(b) or, at the least, make the
amendments requested in [the letter dated 14 February 1997 from
Elizabeth Weller to James I. Shepard]." |
NBRC-
0493 | Ray Valdes | Seminole County Tax
Collector | Local Government Recommendations
for Reform of the United States Bankruptcy Code |
| 11 | Author is forwarding "Local Governments Recommendations for
Reform of the United States Bankruptcy Code" on behalf of the
National Association of County Treasurers and Finance Officers.
"The primary concern of local governments is the treatment of ad
valorem taxes within the Bankruptcy Code failing to take into account
two fundamental principles of the constitutional and sovereign right of
taxing authorities. First, taxes are not a "debt" in the
traditional meaning of the term. Taxes are an "obligation"
shared by all citizens to fund a needed government benefit. Second,
taxation is a limited function of government." | The Recommendations paper suggests and discusses specific
language changes for many sections of the Code. |
NBRC-
0495 |
Mary Ellen Sloan |
Deputy Salt Lake County Attorney |
|
724(b) |
10> |
"Section 724(b) was enacted without any
consideration for the impact it would have on local government. There
is no legitmate reason that property tax revenue of local governments
should be used to finance the bankruptcy policy of the federal
government." |
"Salt Lake County strongly supports amending 11
U.S.C. §724 (b) either to eliminate it entirely or to restrict its
applicaation to personal property tax liens only or to statutory liens
of the United States." |
NBRC-
0500 | Melody A. Bowers | Assistant County
Attorney, Lee County, Florida |
| 724(b) |
11 |
"The problem with §724(b) is that it
subordinates payment of the tax claim to payment of the administrative
claims and to the payment of the junior lienholder on the
property." |
"If §724(b) is not repealed, it should be
amended to provide the following: 1. Post petition taxes should be
paid similarly to every other §503 claim as required by §726,
including being paid under §724(b); 2. Taxes not paid due to the
operation of §724(b) retain their status as §503 or
§507(a)(1) and (8) priority claims; 3. Other lienholders should
be surcharged with the expenses of administering their collateral to
prevent the entire expense from falling on the tax creditors; and, 4.
Trustees should exhaust unencumbered funds to pay administrative
expenses prior to distributing any monies which secure tax
claims. |
NBRC-
0503 | Jimmy Weeks | Clay County Tax
Collector |
| 724(b) |
11 |
There is no justice in 724(b). Many large corporations
and businesses go into bankruptcy to keep from paying taxes owed taxing
authorities. Both [the letter from Elizabeth Waller and the Local
Governments Recommendations for Reform of the United States Bankruptcy
Code] point out the need of reforms in the Bankruptcy Code without me
going into further detail. |
"I wish to express my support for repeal of 11
U.S.C. §724(b)." "At this point, I too ask for your
consideration to each of the specific language recommendations stated on
behalf of the National Association of County Treasurers and Finance
Officers." |
NBRC-
0515 | Norine S. Gilstrap | Tax Collector,
Citrus County, Florida |
|
| 11 | Author gives "a short
synopsis of some but not all recurring problems encountered with
bankruptcy proceedings..." | No solutions
suggested. |
NBRC-
0520 | Richard Charles Grosenick | Attorney,
represents "several local governments in Virginia for tax
collection and banktruptcy matters" |
| 724(b) |
| "In Virginia, like other
states, real estate taxes are the primary source of income ofr local
government." "As involuntary creditors, local governments
should not be subordinated to sophisticated institutional lenders which
receive a windfall through the application of §
724(b)." | "I ask you to strongly
consider the repeal of § 724(b). |
NBRC-
0525 | John D. Schwartz | Chief Judge, U.S.
Bankruptcy Court, Northern District of Illinois | Copy of In Re McAllister, 123 B.B. 393 (Bkrtcy.D.Or.
1991) | 1325 | 1328(a) | Judge Schwarz is forwarding a
letter from Jim Ryan, Attorney General of the State of Illinois, who
writes of problems encountered in Chapter 13 cases where debtors have
failed to file prepetition tax returns. This makes it difficult, if not
impossible, for the State to determine the amount of debtor's liability,
and to therefore file a claim against debtor's
estate. | First, Section 1325 should be
amended to require, as a condition to confirmation, that all prepetition
tax returns be filed. This could be imited to a 6 year "look
back" period. Second, the Section 1328(a) superdischarge should be
amended to except from discharge taxes for which a return has not been
filed...and taxes with respect to which the debtor has filed a
fraudulent return or otherwise wilfully attempted to evade or defeat
payment of taxes. |
NBRC-
0574 | Ronald D. Smith | Chairman,
Legislative, legal & Administrative Committee, Kent County Levy
Court | Resolution 1686 of the Kent Count Levy
Court | 724 (b) |
| Recovery of unpaid tax
obligations by Local Government. Author is forwarding a resolution by
the Kent County Levy Court. | "...the
Kent County Levy Court urgently requests that the National Bankruptcy
Review Commission recommend the repeal of Section 724 (b) to permit,
within bankruptcy proceedings, the orderly and secure recovery of
legitimate unpaid tax obligations, demonstrated through perfected
liens;..." |
NBRC-
0587 | W. Fred Petty, CFC | Tax Collector,
Pinellas County |
| 11 |
| Author is concerned about loss of tax revenue and cost of
attorney's fees in trying to protect local government revenue in
bankruptcy proceedings. | "Anything your
Bankruptcy Review Commission can do in changing the laws that would
cause bankruptcy courts to more favorably respect local government
responsibilities, would be appreciated." |
NBRC-
0591 | Lanard A. Krause | Manager/CEO, State
Police Credit Union, Inc. |
|
|
| Author is concerned that people
who can no longer pay their mortgage and get a reduction in payment from
the creditor, because of hardship such as a job loss, then have to pay
tax on the forgiven portion of the debt. This then forces people into
bankruptcy. | Don't asses taxes on a forgiven
debt against a person who is already having trouble with their
finances. |
NBRC-
0603 | Members of Committee on Bankruptcy and Corporate
Reorganizationand Members of Council on Taxation | Association of the Bar of the City of New
York | Article: The Bankruptcy Court's Power
to Designate Tax Payments to Trust Fund Taxes First: United States v.
Energy Resources |
|
| Authors write to convey their
views and recommendations on proposed changes regarding the treatment of
taxes in bankruptcy cases. "If adopted, those changes would to a
large extent insulate tax claims and the tax determination process from
the operation of the bankruptcy laws. As discussed below, we believe
such treatment would unfairly prejudice other creditors, delay
bankruptcy cases, and impede a debtor's ability to reorganize or to
obtain a fresh start." | Authors urge the
Commission to consider their proposals carefully in light of bankruptcy
policy and to adopt the recommendations which they have
outlined. |
NBRC-
0610 | Heidi Heitkamp, et al. | Attorney
General of North Dakota and Chair, Bankruptcy and Taxation Working
Group, National Association of Attorneys General; and, Attorneys General
of member states. | Specific Proposal
Recommendations |
|
| Many debtors fail to comply with
obligation to file tax returns and pay taxes as they come due
postpetition. Bankruptcy should not be a means for a taxpayer to avoid
universally applicable rules of law, and other claimants are not
required to satisfy a higher burden of proof to establish the merits of
their claim in bankruptcy court than in nonbankruptcy court.
Governments want the setoff of a debtor's tax refund against its
outstanding tax claims to be excepted from the automatic stay. A number
of district already have a general order granting this
relief. | Trustee's office should review
filings for their compliance at an early stage of the case, with
deadlines being set for prompt compliance or dismissal of the case.
Authors support Working Group Proposal #8 that would ensure that the
same burdens of proof for establishing tax claims is applicaable in and
outside of bankruptcy court. They also support Working Group Proposal
#13 that would except the government's setoff of a debtor's tax refund
against its outstanding tax claims from the automatic stay, unless the
debtor disputed the government's proposed action. |
NBRC-
0610 | Heidi Heitkamp, et al. | Attorney
General of North Dakota and Chair, Bankruptcy and Taxation Working
Group, National Association of Attorneys General; and, Attorneys General
of member states. | Specific Proposal
Recommendations | 724(b) |
| Section 724(b) providing for the
subordination of rax liens to allow payment of priority claims in
Chapter 7 cases is not well understood or applied and should not be
maintained. | Drop § 724(b). |
NBRC-
0614 | W. Fred Petty, CFC | Tax Collector,
Pinellas County |
|
| 11 | The taxing authorities establish their budget based on the
projected revenue from ad valorem taxes. As bankruptcy is increasing,
author is concerned that less revenue will be collected. He also has to
spend much money in attorney's fees trying to protect the local
government revenue. | "Anything your
Bankruptcy Review Commission can do in changing the laws that would
cause bankruptcy courts to more favorably respect local government
responsibilities, would be appreciated." |
NBRC-
0623 | Barbara Holley | Tax Collector, Santa
Rosa County |
| 11 |
| Author supports NACO and National Association of Treasurer's
position on revising the bankruptcy code. |
|
NBRC-
0654 | William Mark Bonney | Standing Chapter
13 Trustee, Eastern District of Oklahoma |
|
| 10 | "If Chapter 13 is only
available once every 6 years, the Debtor must have an effective way of
satisfying his pre-petition tax liabillities." | None "I will of course be anxiously waiting to see where
the Commission lands on the tax dischargeability
issue." |
NBRC-
0662 | Chris Quinn-Brintnall | Sr. Deputy
Prosecuting Attorney, Pierce County, Washington |
| 724(b) |
| Governments are involuntary
creditors who provide services to the public and the bankrupt, and its
security must be rpovided by law and priority. | Give tax obligations priority under the Bankruptcy
Code. |
NBRC-
0671 | John D. Schwartz | Chief Judge, U.S.
Bankruptcy Court, Northern District of Illinois | Letter from James D. Newbold to Hon. John Schwartz dated 4/11/97
with enclosures. |
|
| The judge is merely forwarding a
letter he received from James D. Newbold, Assistant Attorney General,
State of Illinois. Mr. Newbold writes as a follow-up to his previous
letter "describing the problems encountered by the Illinois
Department of Revenue wit debtors in Chapter 13 who do not file tax
returns. He sends the results of a survey of Chapter 13 filers who had
one or more "open" prepetition years for Illinois income
tax. | "[I]f the requirement for filing
returns is made a condition to confirmation, it is my view that the only
exceptions to discharge of taxes that need to be incorporated into
Chapter 13 are taxes with respect to which the debtor still has not
filed returns or has filed fraudulent returns." |
NBRC-
0684 | Sharon Outland, C.F.A. | Property
Appraiser, St. Johns County, Florida |
|
| 11 | Author writes in support of the
changes proposed by the National Association of County Treasurers and
Finance Officers with regard to ad valorem taxes. | "Your review of the "Local Governments Recommendation
for Reform of the United States Bankruptcy Code" is greatly
appreciated." |
NBRC-
0686 | John R. Ellis | Chief, Bankruptcy &
Collections Unit, Attorney General of Washington | Washington State Revenue Forecast - June 1995; Washington State
1995-97 Operating Budget. |
|
| Author submits documentation showing that ninety cents of every
dollar lost by the state in bankruptcy proceedings comes out of
Education and Human Services programs. | No
specific solutions proposed. |
NBRC-
0730 | Thomas C. Leduc | Director of
Regulatory Issues, Michigan Credit Union League |
|
|
| No discussion, just
recommendation as below. | "Although it
may be beyond the scope of the National Bankruptcy Review Commission,
the Task Force recommends a revision to the Internal Revenue Code to
deny a bad debt deduction for bankruptcy losses to creditors who charge
excessive interest rates or otherwise fail to exercise prudence in the
extension of credit." |
NBRC-
0740 | Michael A. Raley | Barnwell County Tax
Collector |
|
|
| "I am writing to you regarding the proposed legislation
amending the federal bankruptcy laws to preserve the priority of local
tax claims and liens. I wnated to let you know of my support in favor
of legislation revising the Federal Bankruptcy Code." "The
long delay in the collection of bankruptcy claims is having a
detrimental effect of Barnwell County's
operation." | "Please give
consideration to this legislation." |
NBRC-
0741 |
Pickens Williams, Jr. | Barnewll County Treasurer (handwritten note, no
date) |
|
|
| "I was please to see there may be an amendment to the
federal bankruptcy laws that would treat ad-valorem tax liens more
favorably to the benefit of local
governments." | "We will appreciate
efforts to adopt the changes." |
NBRC-
0781 | Grover Hartt, III | Assistant Chief,
Department of Justice Tax Division for the Southwestern Region, Civil
Trial Section, but comments are being offered as his personal comments,
not as official views of IRS or DOJ. |
|
|
| Author is commenting on the Tax
Advisory Committee Final Report dated May 12, 1997. With respect to
Issue No. 311, author feels that "The problem of 'serial filings'
with respect to the priority and dischargeability of tax claims has
become acute in the last few years. The consensus recommendation to
correct this problem through the proposed amendments would go far to
alleviate this problem. According the the Committee's report the open
issue upon which a consensus has not been reached is whether an
additional 30-day period should be added to the time during which
tolling is applied pursuant to Section 507(a)(8)(ii) or whether the
longer periods of 26 U.S.C. § 6503(h) should
apply." | "Since this additional
notice [given to debtor before IRS resumes its collection process after
getting notice of dismissal of a bankruptcy proceeding] is provided to
protect the rights of the taxpayer, and since the serial fining
situations are often the result of abusive conduct by the taxpayer, I
submit that the Service should receive the additional
time." |
NBRC-
0781 | Grover Hartt, III | Assistant Chief,
Department of Justice Tax Division for the Southwestern Region, Civil
Trial Section, but comments are being offered as his personal comments,
not as official views of IRS or DOJ. |
|
|
| Author is commenting on the Tax
Advisory Committee Final Report dated May 12, 1997. With regard to
Issue 211, author supports conforming the burden of proof in tax
controversies litigated in bankruptcy courts to that which would be
applicable in other courts. Proposal 3 which would create an equitable
exception to this new general rule is troubling to author, because he
feels that it would be invoked almost every time it is requested. The
rational for the exception is that the trustee, unlike the debtor, may
have no personal knowledge of the facts. However, author feels this is
no different then the case of an executor who is required to file tax
returns when the taxpayer has died. | "The bankruptcy trustee is entitled to all of the tax
benefits, such as refunds due to the estate, and should bear the burdens
as well." |
NBRC-
0781 | Grover Hartt, III | Assistant Chief,
Department of Justice Tax Division for the Southwestern Region, Civil
Trial Section, but comments are being offered as his personal comments,
not as official views of IRS or DOJ. |
|
|
| Author "strongly object[s]
to the recommendation to support Energy Resources (underlined) and the
power of a bankruptcy court to force the Service to allocate Chapter 11
payments to trust fund taxes." "As it stands, Energy
Resources (underlined) exposes the Government to genuine and severe
risks that these tax revenues will be lost and that it will be forced to
subsidize failed attempts to reorganize." | Do not accept the rational of Energy Resources (underlined) to
allow the bankruptcy court to force IRS to allocate Chapter 11 payments
to trust fund taxes. If the rational is accepted, it should be limited
to reorganizing Chapter 11 cases. |
NBRC-
0837 | Francis M. Allegra | Deputy Associate
Attorney General, U.S. Department of Justice | Memorandum dated June 16, 1997 from Fran Allegra to Jonathan
Gruber re: Treasury Comments on Bankruptcy Commission Position on Asset
Exemption Levels. |
|
| "Tax return filing has been
a significant problem in a large number of Chapter 13 cases. A uniform
method of dealing with this problemis needed." | "We believe that the filing of prepetition tax returns
should be an express condition to the confirmation of a Chapter 13 plan,
and the failure to file such returns should be treated in the same
manner as the failure to file schedules, a budget or information
requested by the Chapter 13 trustee." |
NBRC-
0888 | Polly S. Higdon | U.S. Bankruptcy
Judge, District of Oregon |
|
|
| Author is concerned that,
because of the difficulty or boringness of tax issues, and because
representatives of the Department of Treasury did not take part in the
Tax Advisory Committee because changes to the Internal Revenue Code were
considered, the NBRC may not act on the recommendations for change in
the tax area. "PLEASE DO NOT ALLOW LACK OF CONSENSUS ON THESE
PROPOSALS TO DICTATE THAT YOU DO NOTHING ABOUT THEM.(emphasis in
original) This is probably the only chance for meaningful change on
these proposals. Your failure to act would result in a tremendous
opportunity lost." | Author urges action
on the recommendations of the Tax Advisory Committee and suggests that
"when there is a lack of consensus on a proposal, that the
Commissioners follow the lead of the votes, where possible, of the four
Independant Committee members." |
NBRC-
0942 | Barbara Ford-Coates | Sarasota County
Tax Collector |
| 11 |
| Local governments rely on taxes to cover the cost of services
provided. A shortfall can have serious consequences for the health and
safety of a community. In Florida, tax liens are auctioned off on
unpaid taxes to investors at a tax certificate sale. The rates of
interest are determined by a competitive bid process, and as such,
reflect the risk and marketability of the particular certificate
involved. In the General Development case, the bankruptcy court lowered
the interest rate substantially despite the fair market process that was
used to determine the rate. This action can have a devastating impact
on the future sale of certificates, and consequently reduce the revenue
raise for schools, counties and other jurisdictions." "In
addition, we have incurred sizable administrative costs in handling the
effects of the reduced interest and reclassified
fees." | "We support the "Local
Governments Recommendations for Reform of the United States Bankruptcy
Code" and urge you to consider it's merits." |
NBRC-
0948 | Stephen W. Tulcus | Certified Public
Accountant |
|
|
| Author wrote previously concerning tax issues. Another tax issue
author wishes to raise concerns splitting the tax year into two
"short tax years." For federal tax purposes, and individual
may elect to do so under 26 U.S.C. §1398(d)(2), in which case the
first year ends on the day before the bankruptcy filing. For state tax
purposes, 11 U.S.C. §§ 728(a) and 1146(a) require an
individual to split the year, but the first short year ends on the day
of the bankruptcy filing. These inconsistencies result in complexity
for tax return preparation and create ambiguity in other areas as
well. | No specific solution
proposed. |
NBRC-
0983 | Paul H. Asofsky |
|