Consumer Bankruptcy Journal Winter 2016 | Page 41

manner . Hence , when proposing a chapter 13 plan counsel should consider the effect of 11 U . S . C . § 1327 that provides that property of the estate revests with the debtor unless otherwise provided for by the plan .

Failure to add time during which collection is tolled , plus 90 days , in applying the time rules is easily overlooked . For example , the court in McDaniel 16 stated “ Bankruptcy counsel did not consider the toll period when calculating the time to file the case , and as a result counsel had filed the bankruptcy petition too early .” In that case the debtor had filed two prior bankruptcy cases .

In another case , counsel filed the chapter 7 petition only 7 days short of the eligible discharge date . 17 The prior bankruptcy had stopped the clock on the 240-day period .

Partial prohibition of tax collection

Does a partial prohibition of collection result in tolling ? If the stay protects the property of the estate but not the debtor personally , can it be said that collection was prohibited , such that it tolls the time ? See , for example , In re Dowden 18 , which struggled with the question of what , exactly , are the consequences of relief from stay .

Penalties are not affected

In another case the issue was , does tolling of the tax also toll the time period for discharge of the penalties , and the interest on the penalties , arising from such things as failure to pay , or timely file a return , for that tax ? The court held 19 that the provision for discharge of penalties is governed by a different section and is not affected by a tolling event . Hence , tolling of the tax does not affect the time period for discharge of penalties prescribed at Bankruptcy Code § 523 ( a )( 7 ), which is that the event causing the penalty occurred over three years before the bankruptcy is filed .

Another “ premature ” issue

In some cases , the bankruptcy may be filed on the eve of the expiration of the federal or state statute of limitations (“ SOL ”) for collection . For example , in Hoffman 20 the petition was filed 4 months before the expiration of the IRS 10-year limitations to collect . 21 The question arises , was the taxpayer apprised that by waiting only 4 months the taxes and liens might go away without having to file a bankruptcy ? 22 Counsel should not be too hasty filing bankruptcy without at least glancing at the debtor ’ s opportunity for expiration of the SOL .

Tolling the 2-year rule

The Bankruptcy Code has no language prescribing the tolling of the 2-year rule , to wit , that the taxpayer must have filed his / her return more than 2 years before the bankruptcy is filed in order to be discharged . 23 Hence , the author has lectured for years that “ nothing tolls the running of the 2-year period .” However , the IRS has in some cases taken the position that notwithstanding there is no Code language tolling the 2-year period , it may be tolled in the case of a prior bankruptcy based on equitable tolling . Equitable tolling was the basis for the original rule that the 3-year period was tolled by a prior bankruptcy , before the Code adopted such language , by the Supreme Court in Young v . United States 24 . In plain terms , equitable tolling is just a fancy way to say the IRS should have a “… fair opportunity to collect taxes ” 25 before they become dischargeable . In dicta the court in Putnam stated that equitable tolling does not allow the IRS to sleep on its rights , i . e ., wait too long to attempt collection .. In another case , the court took the opposite approach , ruling that the lack of prompt collection by the taxing entity while it had the chance removed equitable tolling from the equation . 26 The extent to which equitable tolling may apply in any particular case is not certain .

Effect of filing an amended return

The question of whether the filing of an amended tax return before the time periods expire stops the clock on the running of the time period as to the original return . Few courts have addressed this issue , but those have held that the respective time period as to the original return is not tolled or negated by the filing of an amended return . 27

Another “ serial filing ” issue

The issue of tolling is subject to unsettled law on some of the respective questions . Issues for which the cases are not settled include serial filings of tolling events raising the question , do you add 90 days to each tolling event , or only once ? 28

Use a checklist

It ’ s fair to say that many cases of tolling will not involve these kinds of issues . Nevertheless , counsel is wise to at least have a checklist of them to help spot potential problems .

( Endnotes )

1 These rules are thoroughly explored in the author ’ s book , King ’ s Discharging Taxes in Consumer Bankruptcy Cases ( KingLawPublishing . com aka BankruptcyBooks . com and Kings Press ), commencing at Part 2 , ¶ 2.9 , Tolling Effects . 2 The rule on discharge of the interest that attaches to a particular tax liability is , the interest follows the tax . Hence , if the tax is dischargeable , so is the concomitant interest . 3 This date is typically April 15 or October 15 of the year following the taxable year . 4 The date of assessment

National Association of Consumer Bankruptcy Attorneys Winter 2016 CONSUMER BANKRUPTCY JOURNAL 41