Once a case is initiated in the U.S. Bankruptcy Court, the IRS and state taxing agencies must stand in line with all other creditors, although in some instances, tax claims are afforded special treatment.

The aim of the bankruptcy code is to provide debtors with a fresh start which includes protection from creditors and the resolution of disputed claims – including tax claims. Because taxing agencies can assess taxes statutorily, they typically do not need to obtain a judgement (which is not the case for most other creditors). Consequently, the taxing agency creditor can employ enforced collection attempts quicker than most other creditors. Therefore, bankruptcy can provide considerable protections from the collection efforts of the IRS and other taxing agencies, and at the same time, offer the taxpayer a meaningful forum for challenging and litigating tax claims, available to both individuals and business entities.

Taxpayers considering bankruptcy with tax claims should strongly consider hiring a tax attorney to advise them regarding the dischargeability of their tax claims and if not dischargeable, to dispute and litigate the tax claims, whenever possible.

Besides disputing or determining the dischargeability of a tax claim, there are a variety of other matters and issues which can be contested and resolved in connection with tax claims in the U.S. Bankruptcy Court, including:

• Adjudicating the amount of the tax claim
• Objecting to tax claims (without adjudication)
• Attacking and valuing or avoiding tax liens
• Forcing turnover or recovery of property in the possession and control of the taxing agency
• Enjoining the taxing agency from pursuing enforced collection
• Eliminating penalties
• Eliminating or stopping the further accrual of interest
• Obtaining information and documentation, often in an expedited fashion

The U.S. Bankruptcy courts are separate units of the U.S. District Courts and have exclusive jurisdiction over cases falling under the Bankruptcy Code. All cases in the bankruptcy court are heard by one judge (there are no jury trials) with easy access to formal and informal discovery and presenting witnesses. As is the case with the U.S. Tax Court, the taxpayer need not pay the tax claims to litigate them.

“Why not kill 2 birds with one stone . . . “

Our Tax-Bankruptcy practice group is comprised of bankruptcy attorneys who are also tax attorneys with expertise in IRS practice and procedure (including tax collection procedures) and the interrelationship between the federal and state tax laws and the the U.S. Bankruptcy Code.