Discharging Taxes In Bankruptcy – United States v. Helton

The recent case of United States v. Helton, Case No. 20-5686 (6th Cir., 2021) addresses the dischargeability of taxes under 11 U.S.C. § 523(a)(1)(C).  The dischargeability of taxes is a somewhat complicated maze of Bankruptcy Code provisions that requires a little bit of analysis.

The Code starts with a general rule that taxes are not dischargeable.  See 11 U.S.C. § 523(a)(1).

However, taxes may be dischargeable if three tests can be met.  Those tests are summarized as follows:

  1. The 3-year test;
  2. The 2-year test; and
  3. The 240-day test.

3-year test

Read More

Greg Mitchell - Taxes And Bankruptcy

In re Minor; 127 AFTR 2d 2021-XXXX (DC CA); Case No. 2:20-cv-03626 (DC, C.D. CA)

This case involves taxes in a bankruptcy case that were priority taxes under the Bankruptcy Code.

The Debtor in this case filed for Chapter 7 bankruptcy in May, 2013 and received a discharge in May, 2015.  In March, 2018, the IRS filed an amended proof of claim in the bankruptcy case for almost $26 million for unpaid federal income taxes owed by Minor for tax years 2007, 2008, 2009, and 2011 (the “IRS Claim”).  The IRS Claim consisted of a secured claim of $24,857,210.48, a priority claim of $997,869.07, and an unsecured claim of $61,398.90.

The California Franchise Tax Board (“FTB”) also filed its own proof of claim, the details of which were not relevant for purposes of this case.  What was relevant was that the bankruptcy trustee did not have enough funds to pay both the IRS and the FTB claims in full.  Therefore, the bankruptcy trustee (“Trustee”), the IRS, and the FTB entered into a stipulation regarding the division of available funds (the “Stipulation”).

Read More