Taxes in Chapter 13: put up or shut up
One of the most powerful attributes of Chapter 13 is its treatment of tax
liabilities for which the taxing authorities don't file a claim:
claim is filed, the tax
is discharged upon completion of the plan, even though under no other legal
theory could the debtor escape liability without payment!*
Chapter 13 can therefore be used to make the taxing authorities come forth
and assert any claims they have, or risk being discharged.
may be particularly powerful where individual corporate officers may have
liability for unpaid trust fund taxes which has not been assessed against the
the taxing authority does not file a claim within the time period set out in
law (6 months from filing) then the taxing authority loses its rights to
assess or collect the tax after the Chapter 13 discharge.
In our experience, the IRS is not particularly efficient in matching the
trust fund liability of a corporate or partnership entity with the bankruptcy
case of an individual who may be liable for that tax if properly
If a claim is
filed, the debtor can pay it according to the priority of the tax and the
terms of the plan. If the amount of the tax is too large to be paid from
projected income, the debtor is free to dismiss the bankruptcy and pursue an
offer in compromise with the taxing authorities.
If there is a dispute about the calculation of the
tax or the debtor's liability for the tax, the bankruptcy court has
jurisdiction to hear and decide the dispute, usually quicker and at less
expense than a suit in Tax Court.
of Chapter 13
Tax relief in bankruptcy