Where a Chapter 13 debtor sued to stop the IRS from collection activities for 2005 and 2006 tax liabilities, but the debts were assessed under a provision that makes them non-dischargeable, he was precluded from receiving a discharge.
The debtor filed his Chapter 13 bankruptcy petition on April 22, 2015, and noted significant tax liabilities in his schedules. On May 11, 2015, the IRS filed a proof of claim listing tax liabilities from 2004 to 2014. The IRS later filed an amended proof of claim on July 15, 2015, reducing the debtor’s tax liabilities. Critically, the IRS assessed the debtor’s tax liabilities for 2005 and 2006 pursuant to 26 U.S.C. § 6020(b) on June 22, 2009, after the debtor failed to file a tax return for those years.
Prior to confirmation, the debtor filed a special notice in which the debtor noted that the IRS would not negotiate a payment arrangement for post-petition tax liabilities during the pendency of his case. The debtor stated he was not seeking a discharge of any post-petition tax liabilities, but would ask the court to enter an order of discharge for “all of his pre-petition debts that are subject to discharge . . . .” The debtor served the special notice on a bankruptcy specialist for the IRS by first-class mail.
The court confirmed the debtor’s amended Chapter 13 plan on Oct. 2, 2020, and entered an order of discharge on Nov. 18, 2020. After the court entered the discharge order, the IRS began collection activities on the debtor’s 2005 and 2006 tax liabilities including interest owed.
The debtor commenced an adversary proceeding on June 24, 2021, seeking: (1) a declaratory judgment that the debtor’s 2005 and 2006 tax liabilities were discharged on Nov. 18, 2020 and (2) an injunction requiring the IRS to cease all collection activities with respect to the 2005 and 2006 tax liabilities. Now before the court are cross motions for summary judgment.
Under 11 U.S.C. § 523(a)(1)(B)(i), a debtor cannot discharge “debt— for a tax . . . with respect to which a return, or equivalent report or notice, if required— was not filed or given.” Prior to 2005, neither the Internal Revenue Code nor the Bankruptcy Code defined “return.” In 2005, Congress amended § 523(a) to now include a definition for “return” under bankruptcy laws.
Commonly cited as § 523(a)(*), the new “hanging” paragraph defines “return” as: “a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, . . . but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986 . . . .”
The debtor’s tax debt here is unquestionably non-dischargeable. The IRS assessed the debtor’s 2005 and 2006 tax liability under § 6020(b) and § 523(a)(*) clearly defines “return” to exclude returns made by the IRS under § 6020(b). The debtor, therefore, did not file a “return” in either 2005 or 2006 and the IRS’ assessment of those tax liabilities under § 6020(b) precludes the debtor from receiving a discharge as to these debts.
Although the debtor argues that the IRS did not object to the special notice he served on the agency, the special notice only requested that the court enter an “order of discharge for all of [the debtor’s] pre-petition debts that are subject to discharge . . . .” The debtor’s 2005 and 2006 tax debts are not subject to discharge and the IRS’ decision to stay silent therefore has no effect on their dischargeability.
Debtor’s motion for summary judgment denied. IRS’ motion for summary judgment granted.
Johnson v. United States of America, No. 21-07009, May 2, 2022. WDVA Bankr. at Roanoke (Black). VLW No. 022-4-007. 7 pp.