Tolling The 2-Year Period Prescribed At 11 U.S.C. § 523(A)(1)(B)(ii) For Discharge of Taxes

By Morgan D. King, Esq. Dublin, CA

Late-filed and more than 2 years before filing bankruptcy

Does a prior bankruptcy, to the extent it’s automatic stay overlaps the running of the 2-year period, stop the clock on the two-year period?

Nothing in the Bankruptcy Code provides that anything tolls the 2-year period.

Prior bankruptcy tolls the 3-year and the 240-day periods for the time the stay is in effect plus 90 days. 11 U.D.C. § 507(a)(8)(G) (“hanging paragraph”)

Prior rule – nothing suspends the clock on the 2-year period. New IRS position – automatic stay of the period stops the clock based on equitable tolling and 11 U.S.C. § 108(c).

Equitable tolling is based on the aphorism the Code allows the IRS two years to collect the taxes before they become dischargeable. First used in Young v. United States, 535 U.S. 43 (S.Ct., 2002) (plus 6 months).

Rule: a statute of limitations is tolled by equitable tolling. The two-year period is a statute of limitations.

Rule adopted in Putnam v. United States

Main arguments against:

  1. 523(a)(1)(B)(ii) is not a statute of limitations. IRS does not lose ability to collect after the period expires; it depends on if or when the taxpayer filed bankruptcy. Is it a “statute of repose”?
  2. Congress addressed tolling in BAPCPA amendments that specifically addressed both the 2-year rule and tolling, and did not include the 2-year period. Hence, lack of adding tolling to the 2-year rule suggests legislative intent to not toll the 2-year period.

Putnam rejects both theories.

________________________

morgan-kingMorgan D. King is a member of the California Bar and has been practicing over 40 years. He received his BA in Political Science from U.C. Berkeley, and his JD from U.C. School of Law, Davis, Ca. King has written four articles for legal journals on the topic, The McCoy Rule, and lectured on it for various organizations of consumer bankruptcy attorneys. He presented the topic of discharging taxes in consumer bankruptcy cases at the annual NACBA convention for 17 years, and received NACBA’s Distinguished Service Award iin 2003. He is a member of the California State Bar Tax Section. In addition to 27 published articles on various issues in consumer bankruptcy law, he is the author of the “bible” on discharging taxes, King’s Discharging Taxes in Consumer Bankruptcy Cases, as well as Fees & Ethics, the Fundamentals of Consumer Bankruptcy Law, and the Guide to Practice Under BAPCPA, and on the topic of delinquent tax remedies, King’s Guide to IRS Offers-in-Compromise, and King’s Guide to IRS Collection Due Process. He hosts an annual 2-day seminar on discharging taxes under his own King Bankruptcy Academy marque. On the topic of the McCoy rule, he has posted a web page, LateFiledReturn.com, with links to key cases and articles.

No Author Biography has been linked to this Article.

Related Articles

Copy of Hildebrand-2016
July 10, 2022
Failure of Chapter 13 debtors to satisfy post-petition property tax payments to the county, specifically required in the debtors’ Chapter 13 plan, renders the debtors ineligible for a discharge, even where the debtors proposed a loan modification to repay the mortgage creditor which had advanced the post-petition taxes. (Rodriguez) In re Villarreal, 2022 WL 1102223 (Bankr. S.D. Tex. April 12,...
Members
May 10, 2020
By Elizabeth Gunn, Assistant Attorney General, Virginia Division of Child Support Enforcement, Bankruptcy Specialisti In late April, the federal government began issuing economic impact rebate payments to qualifying individuals under the CARES Act. While the CARES Act specifically identified and exempted the rebate payments from reduction or offset against certain debts including federal taxes and student loans in default, the...
Members
August 11, 2019
By Henry E. Hildebrand, III, Chapter 13 Standing Trustee (Nashville, TN) Exemptions in consumer cases have always presented difficult problems for practitioners and trustees. In a bow to states’ rights, the Bankruptcy Act of 1898 deferred to exemptions created by state law. When BAPCPA was enacted in 2005, Congress continued the practice of allowing each state to “opt out” of...
Members
August 25, 2019
By Gretchen D. Holland, Standing Chapter 13 Trustee for the Greenville/Spartanburg Division of South Carolina The Bankruptcy Code does not – and thus a trustee cannot – require a debtor to treat nondischargeable student loan debts in a separate class from other general unsecured claims under § 1322(b)(1), even when including them all in the same pool will result in...
Members
September 29, 2019
By Katherine B. Brewer, Esq. (Westerville, OH) One of the first things we focus on in law school (other than the Rule Against Perpetuities, which always brings back fond memories), is that our clients come first. We learn the complexities of the law, memorize rule statements, and read thousands of pages of case law in order to learn how best...
Members
June 16, 2019
On 6/14/19, the CFPB (Bureau) announced a settlement with Student CU Connect CUSO, LLC (CUSO), a company set up to hold and manage private loans for students at ITT Technical Institute. The Bureau filed a complaint and a proposed stipulated judgment in federal district court for the Southern District of Indiana alleging that CUSO provided substantial assistance to ITT Educational...
August 18, 2019
By Rebecca Garcia and Jan Sensenich, Chapters 12 and 13 Standing Trustees The Association of Chapter 12 Trustees (ACT2) had a wonderful day and a half conference in advance of the NACTT Seminar on July 15 and 16 in Indianapolis. In addition to Trustee participants, we had judges, debtors, and creditors counsel and representatives attend and participate. We kicked off...
April 21, 2019
By Henry E. Hildebrand, III, Chapter 13 Standing Trustee (Nashville, TN) Introduction In 2016, the American Bankruptcy Institute’s president, Eugene Wedoff, retired bankruptcy judge from the Northern District of Illinois, proposed to the ABI Board that a commission be established to examine the current status of consumer bankruptcy laws, rules, and cases with the goal of its making general suggestions...
Members
September 29, 2019
By Academy Staff Jeffrey M. Kellner graduated from THE Ohio State University in 1975. Between then and entering law school, Jeff worked in Montana for the park service. He graduated from Capital University College of Law in 1985. After law school, he worked for two years as a law clerk for Judge Calhoun in Columbus, OH. He then went to...
greenburg
August 6, 2023
Practice Point: Just because it is an unsecured claim does not mean that it should be ignored. Review all claims for inappropriate violations and disclosure of personal identifiers! Keep track of serial violators for possible use in future requests for contempt and sanctions. With all of the emphasis these days on transparency and the requirement for more and more information...
Members

Looking to Become a Member?

ConsiderChapter13.org offers a forum to advance continuing education of consumer bankruptcy via access to insightful articles, informative webinars, and the latest industry news. Join now to benefit from expert resources and stay informed.

Webinars

These informative sessions are led by industry experts and cover a range of consumer bankruptcy topics.

Member Articles

Written by industry experts, these articles provide in-depth analysis and practical guidance on consumer bankruptcy topics.

Industry News

The Academy is the go-to source for the latest news and analysis in the Chapter 13 bankruptcy industry.

To get started, please let us know which of these best fits your current position: