Recent Tax Court Case: Unassessed Taxes are Not Discharged in Bankruptcy

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Matthew L. Roberts

Matthew L. Roberts

Principal

469.998.8482
mroberts@freemanlaw.com

Mr. Roberts is a Principal of the firm. He devotes a substantial portion of his legal practice to helping his clients successfully navigate and resolve their federal tax disputes, either administratively, or, if necessary, through litigation. As a trusted advisor he has provided legal advice and counsel to hundreds of clients, including individuals and entrepreneurs, non-profits, trusts and estates, partnerships, and corporations.

Having served nearly three years as an attorney-advisor to the Chief Judge of the United States Tax Court in Washington, D.C., Mr. Roberts leverages his unique insight into government processes to offer his clients creative, innovative, and cost-effective solutions to their tax problems. In private practice, he has successfully represented clients in all phases of a federal tax dispute, including IRS audits, appeals, litigation, and collection matters. He also has significant experience representing clients in employment tax audits, voluntary disclosures, FBAR penalties and litigation, trust fund penalties, penalty abatement and waiver requests, and criminal tax matters.

Often times, Mr. Roberts has been engaged to utilize his extensive knowledge of tax controversy matters to assist clients in their transactional matters. For example, he has provided tax advice to businesses on complex tax matters related to domestic and international transactions, formations, acquisitions, dispositions, mergers, spin-offs, liquidations, and partnership divisions.

In addition to federal tax disputes, Mr. Roberts has represented clients in matters relating to white-collar crimes, estate and probate disputes, fiduciary disputes, complex contractual and settlement disputes, business disparagement and defamation claims, and other complex civil litigation matters.

Recent Tax Court Case: Unassessed Taxes are Not Discharged in Bankruptcy

A recent Tax Court opinion demonstrates the complexities involved when a taxpayer attempts to discharge tax liabilities through bankruptcy proceedings.  The case emphasizes the need for an attorney knowledgeable in both tax and bankruptcy cases to ensure that the the best, most-viable tax arguments are put forward in the proceedings.

A brief outline of the case is set forth below:

Barnes v. Comm’r, T.C. Memo. 2021-49 | May 4, 2021 | Lauber, J. | Dkt. No. 6330-19L

Short SummaryThe taxpayers challenged a proposed deficiency in the Tax Court related to their 2003 tax year.  Prior to the Tax Court issuing an opinion, the taxpayers filed a voluntary chapter 11 petition in the U.S. Bankruptcy Court for the District of Columbia.  The IRS participated in the bankruptcy proceedings and filed a proof of claim for tax deficiencies—however, the 2003 tax year was not included.

After the plan was confirmed, the IRS moved to lift the automatic stay to permit the Tax Court to render a decision on the taxpayers’ 2003 tax year.  The bankruptcy court granted the motion, and the Tax Court held that taxpayers owed deficiencies, penalties, and additions to tax for 2003 as determined in the notice of deficiency.

The IRS later assessed the 2003 liability and issued a Notice of Federal Tax Lien for the taxpayers’ 2003, 2008, and 2009 tax years.  The taxpayers filed a timely request for a Collection Due Process (CDP) hearing.  The IRS Settlement Officer agreed to a partial release of the NFTL, finding that the 2008 and 2009 tax liabilities were including in the taxpayers’ bankruptcy.  However, the SO concluded that the lien filing as to 2003 was appropriate.

Key Issue:  Whether the SO abused its discretion in determining that the 2003 tax debt was collectible after the bankruptcy discharge.

Primary HoldingsThe SO did not abuse his discretion in determining that the 2003 tax debt was collectible after the bankruptcy discharge because unassessed tax liabilities are nondischargeable.

Key Points of Law:

InsightThe Barnes decision shows the complexities involved when a taxpayer attempts to discharge tax liabilities through bankruptcy proceedings.  In these cases, taxpayers should ensure that they have an attorney knowledgeable in both tax and bankruptcy cases to ensure that their best arguments are put forward in those two proceedings.