Recent Bankruptcy Court Ruling Addresses The Jurisdiction of Bankruptcy Courts To Hear Innocent Spouse Relief Cases

The recent case of In re Bowman, Case No. 20-11512, Section A (Bankr. E.D. La., July 12, 2021) addresses an interesting intersection of tax and bankruptcy law.  Specifically, it looks at the issue of whether bankruptcy courts have jurisdiction to grant a debtor relief as an “innocent spouse” under § 6015 of the Internal Revenue Code, and ultimately determines that it does.

Although it is true that Section 6015(f) does not allow a bankruptcy court to exercise initial subject matter jurisdiction over an innocent spouse defense because only the Secretary of the IRS receives the equitable power to grant innocent spouse relief under that Section, in this case, it was undisputed that the Debtor sought such relief from the Secretary in July 2019 and the Secretary denied the request.  The bankruptcy court determined that § 6015(e)(1)(A) confers subject-matter jurisdiction to determine whether innocent spouse relief should be granted when it is denied by the Secretary. Citing to Pendergraft v. I.R.S. (In re Pendergraft), Adv. No. 16-3246, 2017 WL 1091935, at *3-4 (Bankr. S.D. Tex. Mar. 22, 2017), the Court explained:

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Venar Ayar- Bankruptcy And The Internal Revenue
Bankruptcy And The Internal Revenue

Bankruptcy may temporarily delay collection activities by the IRS. However, some types of tax debt are not dischargeable in bankruptcy, so the IRS may be able to resume their collection efforts once the automatic stay is lifted.If you are considering filing for bankruptcy primarily due to delinquent tax debt, you should first consult with a tax resolution attorney to weigh your options.

The Automatic Stay In Bankruptcy

The automatic stay in bankruptcy immediately stops all collection activities by your creditors, including the IRS. Once you file for bankruptcy, creditors can’t send you collection notices in the mail or attempt to seize your assets. If they try to collect during this time, they are breaking the law.

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