PROGRAM SUMMARY-April 23, 2022
By: Gary R. Wallace-Program Summary Committee Chair
cdcbaa Holds
On April 23, 2022, the CDCBAA held its fourth members meeting
and MCLE program of the year. To help
mitigate the spread of COVID-19, the meeting and program were conducted as a live
webinar via Zoom video. The program topic
was: "Taxes
and Bankruptcy." The
distinguished panel consisted of Najah Shariff, an Assistant United States
Attorney in the Tax Division of the United States Attorney’s Office for the
Central District of California, and Steven L. Walker, Esq. of the Law Offices
of Steven L. Walker. CDCBAA former president
and current board member Hale Antico moderated.
Mr. Walker began the lecture with a discussion of commonly
encountered tax compliance issues. As a
preventive measure for business clients, Mr. Walker stressed the importance of
having an accountant, a bookkeeper, a software program for maintaining books
and records, and a payroll service provider.
Ms. Shariff cleared up a fundamental threshold issue that
often confuses less experienced bankruptcy counsel confronted with tax issues,
namely how to interface with the government on behalf of the client. She explained that it the U.S. Attorney’s
office that represents the IRS in bankruptcy court. However, the U.S. Attorney’s involvement
usually commences only after a referral or when an issue is otherwise deemed
sufficiently important for that office’s involvement. Instead, many tax issues, including simple
fact inquiries, can be resolved directly with the IRS local field insolvency
office, without the need for U.S. Attorney office involvement. Frequently, a bankruptcy insolvency specialist
is assigned to a case. The specialist will
usually be the one who prepares and files any IRS proofs of claim in the case
and his/her name will appear on the claim, so he/she is typically a good person
to contact first. Ms. Shariff also
provided telephone numbers and website information for additional IRS contact
points.
Ms. Shariff also reminded counsel to add the following IRS
address to debtors’ master mailing lists: IRS, P.O. Box 7346 Philadelphia, PA
19101. Ms. Shariff then explained how to
understand an IRS proof of claim by showing samples. She also explained the important distinctions
among secured, unsecured priority and unsecured general tax claims. She further discussed the broad powers under
11 U.S.C. section 505 that bankruptcy courts have to determine the amount and
extent of tax liability.
Mr. Walker explained the tax debt exceptions to
dischargeability under 11 U.S.C. sections 523, 1141 and 1328. Mr. Walker pointed out the significance of a
notice of federal tax lien, which, if filed before a petition date, rides
through a debtor’s case and attaches even to exempt assets that were part of
the estate at the time of the bankruptcy filing, such as a homestead and
retirement accounts, notwithstanding entry of discharge. Ms. Shariff further addressed dischargeability
of tax penalties, which may be dischargeable in certain instances (such as when
they relate to debt for tax returns that were filed outside the three-year
window and when they relate to a general unsecured tax debt).
Regarding late-filed returns, Mr. Walker noted that being
late with a return is not as bad as being really late in filing: i.e., the
longer a client waits to file an already-late return, the more difficult it can
be obtain a favorable resolution with the IRS or in court. To emphasis that point, Mr. Walker then
discussed the Ninth Circuit’s Hawkins case
regarding willful tax evasion.
Ms. Shariff then explained in even more detail how to verify
and distinguish among the types of tax debt, and their significance in a typical
case. Ms. Shariff strongly urged counsel to obtain client’s IRS transcripts and
review them before filing a case,
especially when the client has made counsel aware that there is likely significant
tax debt. Ms. Shariff and Mr. Walker
also explained, with examples, how the three-year look-back period and the
240-day assessment rule work for determining the dischargeability of income
taxes.
Our speakers also pointed out that, per the Ninth Circuit’s
decision in Smith v. United States IRS (In
re Smith), 2016 U.S. App LEXIS 12859 (2016), a tax debt for a late-filed
return may be dischargable if it is filed before the IRS assesses a Substitute
for Return (SFR), especially when it can be shown that the taxpayer/debtor made
“a reasonable attempt to comply with the Tax Code.” For unfiled returns, it was observed that the
IRS generally has a six-year look-back rule, but the CA FTB has a 20-year
collection statute.
Our speakers also reminded counsel to advise their clients
that, once they file a bankruptcy petition, no taxing agency is likely to
consider an offer and compromise, at least not without first obtaining a court
order for relief from the automatic stay to engage in such discussions.
Our speakers also provided another important practice tip in
situations where a client’s federal taxes increase, whether by amended returns
or otherwise. California Revenue and
Tax Code section 18622 require the taxpayer to notify the FTB of such
change within six months. The failure to
do so may result in nondischargeability as to the FTB for such increase. See Berkovich v. Cal. Franchise Tax Bd. (In re
Berkovich), 619 B.R. 397 (B.A.P. 9th Cir. 2020).
The program culminated with a prepared “problem and answer”
session. Two very detailed and helpful
outlines containing discussions, case authorities and flowcharts were provided
to all registered participants.
There was a great deal more very useful information provided
to listeners during this superb nuts and bolts seminar. The foregoing summary is therefore intended
to be just that. For more information,
please go to our website, where members can view the seminar and materials at
their convenience.
The next CDCBAA members meeting
and Zoom MCLE program will be held on June 11, 2022. The topic will be “MEET THE U.S. TRUSTEE AND HIS STAFF.” The speakers will include:
Peter Anderson, US Trustee for Region 16; Jack Arutyunyan, Regional
Auditor; Jill Sturtevant, Assistant US Trustee; Abram Feuerstein,
Assistant US Trustee; Kenneth Misken, Assistant US Trustee; Kate
Bunker, Trial Attorney; and Everett Green, Trial Attorney. We
hope you will join us.
Gary R. Wallace
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