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Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.

The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

Government: Tax
IDNameGroupOtherCode
Sec
Cross
Ref
Problem ReferencedProposed Solutions
NBRC-
0009
Hon. James E. YacosJudiciary; 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 ProgramsTurner v. SBA (5/23/96). U.S. is unitary creditor for setoff purposes in bankr. reorg.
NBRC-
0012
Saul EisenPresident; National Association of Bankruptcy TrusteesMarch 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. SatherPractitioner; 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. SatherPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; Commissioner, National Bankruptcy Review Commission
507(a)(1)960Taxing 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.
NBRC0021James I. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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 litigationIt 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. ShepardPractitioner; 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. FordChair, 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. FordChair, 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. FordChair, 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. FordChair, 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. FordChair, 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. FordChair, 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. ArkisonLaw 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. ErmanAttorney; 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 SectionAttorney


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 SectionAttorney
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 ManagementChair, 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 ManagementChair, 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 ManagementChair, 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. GreenfieldAttorneyAttorney 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 TrusteesAttorneys and bankruptcy trusteesStmt. 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 dischargeSame.
NBRC-
0248
Thomas C. FordChair, 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. FordChair, 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. FordChair, 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. FordChair, 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. BauchnerAssistant 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. BauchnerAssistant 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. BauchnerAssistant 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. BauchnerAssistant 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. PilverAssistant 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 AmericaCommercial 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 estateNone.
NBRC-
0303
Commercial Law League of AmericaCommercial 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 AmericaCommercial 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 InstituteAmerican Bankruptcy Institute ("ABI")Numerous position papers, memoranda and research material505(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. SpectorBankruptcy 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. SpectorBankruptcy 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. SpectorU. 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. AsofskyAttorney, 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 MillerPresident, 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 SwinneyAttorney, 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 WellerAttorney
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. MaxwellCounty 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 ValdesSeminole County Tax CollectorLocal Government Recommendations for Reform of the United States Bankruptcy Code
11Author 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 SloanDeputy 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. BowersAssistant 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 WeeksClay County Tax Collector
724(b)11There 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. GilstrapTax Collector, Citrus County, Florida

11Author gives "a short synopsis of some but not all recurring problems encountered with bankruptcy proceedings..."No solutions suggested.
NBRC-
0520
Richard Charles GrosenickAttorney, 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. SchwartzChief Judge, U.S. Bankruptcy Court, Northern District of IllinoisCopy of In Re McAllister, 123 B.B. 393 (Bkrtcy.D.Or. 1991)13251328(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. SmithChairman, Legislative, legal & Administrative Committee, Kent County Levy CourtResolution 1686 of the Kent Count Levy Court724 (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, CFCTax Collector, Pinellas County

11Author 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. KrauseManager/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 TaxationAssociation of the Bar of the City of New YorkArticle: 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 Recommendations724(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, CFCTax Collector, Pinellas County

11The 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

11Author supports NACO and National Association of Treasurer's position on revising the bankruptcy code.
NBRC-
0662
Chris Quinn-BrintnallSr. 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. SchwartzChief Judge, U.S. Bankruptcy Court, Northern District of IllinoisLetter 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

11Author 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. EllisChief, Bankruptcy & Collections Unit, Attorney General of WashingtonWashington 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. LeducDirector 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. RaleyBarnwell 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, IIIAssistant 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. AllegraDeputy Associate Attorney General, U.S. Department of JusticeMemorandum 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. HigdonU.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-CoatesSarasota County Tax Collector

11Local 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. TulcusCertified 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. AsofskyAttorneyTask Force Positions, Subordination of Certain Tax Liens in Chapter 7: Section 724(b)(2) of the Bankruptcy Code.724(b)(2)
Author writes to Senator Grassley with copy to Commissioner Brady C. Williamson to voice his objection to the way in which the hearing on the effect of the bankruptcy laws on local school finance, which was held on August 1, 1997, was conducted. Author was upset that so little advance notice was given, and that all of the scheduled speakers shared a single point of view.None
NBRC-
0994
John K. ClarkTax Collector, Palm Beach County
36211Local governments depend on ad valorem taxes for their operating expenses. The filing of a bankruptcy impedes the collection of these taxes and results in a loss to the local government."I strongly urge you to recommend that Section 362(b)(18) of the Bankruptcy Code be amended to clearly allow ad valorem property tax collections to continue without regard to a bankruptcy filing. The remaining Bankruptcy Code provisions and rules should be changed accordingly."
NBRC-
1004
Russell D. FeingoldUnited States Senator, Wisconsin


Author requests information about the status of proposals to treat property taxes as a higher priority in bankruptcy cases for one of his constituents.N/A
NBRC-
1074
Karen CordryBankruptcy Counsel, National Association of Attorneys General
523(a)(1)(C)
1) Author feels that the Energy Resources allocation does nothing concrete for the debtor, and subsequent cases have expanded the application of this doctrine. 2) "The Advisory Committee's report contains a proposal for clarifying Section 523(a)(1)(C) to deal with what sort of conduct constitutes a "willful" attempt to evade taxes. However, the proposed change does not seem to make the issue any clearer." 3) "The Attorneys General are on record as supporting abolition of the Chapter 13 superdischarge. Thus, the proposal to make at least some taxes nondischargeable is an appropriate step in that direction."1) The Energy Resource exception should be abolished. 2) "I believe the proper line is the one drqwn by most courts which look at what the debtor has been spending his money on, in lieu of paying his taxes, and I hope that the Commission endorses that position. But, in any event, whatever proposal is adopted should include specific examples of what conduct is or is not subject to discharge. 3) The AG's would like to see taxes nondischargeable.
NBRC-
1115
Gordon S. Raneycitiz
 

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