by Katarina Galic
St. John's University School of Law; Jamaica, N.Y.
When do state income taxes become “payable” to taxing authorities for purposes of chapter 13 bankruptcy? Disagreeing with the Fifth Circuit, the Ninth Circuit Court of Appeals adopted a liberal view and held that taxes become due when they are “capable of being paid” in the recent case of Joye v. Franchise Tax Bd. (In re Joye). [1]
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by Yana Knutson
St. John's University School of Law; Jamaica, N.Y.
The question of whether a debtor can obtain an exemption under 11 U.S.C. § 1146(a) from having to pay stamp or similar tax in a pre-confirmation asset transfer was decisively answered in the negative by the U.S. Supreme Court last year. [1] However, whether the exemption applies to a pre-confirmation sale that closed post-confirmation remains an issue with which courts must continue to struggle.
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by Robert Griswold
St. John's University School of Law; Jamaica, N.Y.
In U.S. v. White, [1] a debtor owed $8,922.40 to the Internal Revenue Service (IRS), $1,780.52 of which was considered priority debt. [2] The debtor filed for chapter 13 in February 2004 and claimed as exempt a $3,148 tax overpayment for the 2003 tax year. [3] The IRS moved to lift the automatic stay in order to allow it to setoff the entire 2003 overpayment against its pre-petition tax claim. [4] In the lower court decision, the Pennsylvania bankruptcy court allowed the IRS to setoff only to the extent of the priority debt, requiring that the remainder of the overpayment to be returned to the debtor as a tax refund. [5] The district court reversed, holding that the IRS could setoff the entire 2003 overpayment. [6] The court acknowledged a split of authority regarding whether the IRS’ right to setoff non-priority debt is allowed against exempt assets of the debtor or whether its right to setoff is limited to priority claims, but found the reasoning behind the cases allowing setoff of the overpayment against entire pre-petition claim more compelling. [7]
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