Dismissing Tax Court Case while Client is in Bankruptcy

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  • #23058
    Dawn Whiting
    Participant

    Does anyone have thoughts about best way to file a Motion to Dismiss or withdraw a Tax Court case while client is in bankruptcy? Facts: Client had filed in tax Court based on CDP appeal. IRS was unwilling to negotiate. Client ultimately filed bankruptcy – Chapter 13, 4 years ago. Client is compliant with bankruptcy which will be done July 2020. Client is also now 74 years old. Tax Court judge wanted a status report every 6 months and client is in compliance. In speaking with the IRS attorney handling the case, he is willing to assent to such motion, pending supervisor approval. He would like to close his file and move on. However, he states that client would have to file a stay in bankruptcy before the tax court judge would consider dismissing the case. Bankruptcy attorney is leary of filing a release of stay, even if it is limited to this motion, since he said it could open the door for the IRS to begin collections again. Any thoughts on how to get the tax court case dismissed or withdrawn since the initial case is actually moot now? Does there have to be a release of the stay for the tax court judge to be able to rule on a dismissal or withdraw? My fear as long as this is open in tax court is that the IRS will be looking to potential not release liens or tack on additional penalties or interest at the end of the bankruptcy if it is still in the limelight. The IRS has not been “polite” to my clients in this matter throughout their ordeal.

    #24134
    James Wade
    Participant

    Dawn,

    I am not going to pretend to be an expert in tax issues in bankruptcy but I do practice bankruptcy law so my thoughts are this: 1) what does the Chapter 13 plan say about the IRS tax debt and 2) is there any issues left to litigate in US Tax Court?

    If you want to private message me with a redacted plan I would gladly look it over and see what I find. Hopefully another bankruptcy attorney here might put in his/her two cents.

    jwade@jdwadelaw.com

    Sincerely,

    Jim Wade

    #31251
    Eric Green
    Keymaster

    Dawn
    I would like to discuss the specifics of the case with you further as I do not fully understand what is happening here.
    1. A bankruptcy will not discharge tax liens.
    2. Liens can be stripped in a chapter 13. Thus, if the property is underwater on filing, the liens can be stripped to their fair market value.
    3. Based on the information you have provided, it seems that the taxes will be full paid through the Plan and you want to get the liens off before full payment.
    4. The IRS will not release liens until the completion of the chapter 13 plan.
    5. If you are in tax court on a CDP and the chapter 13 plan has effectively given you your resolution alternative, what is the point of maintaining the tax case? However, withdrawing the tax case will not affect the liens either.

    I suggest we speak so that I can get additional information and provide you accurate guidance.

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