How to Sue the IRS in Bankruptcy Court

IRS Transcript Codes for Bankrupting Taxes

Perhaps you want to sue either the IRS or the state tax department. Ask us how to sue the IRS in bankruptcy court and determine if the taxes are dischargeable.  Only income taxes can be discharged but if you get the judge to determine dischargeability the issue is settled. You don’t have to just guess whether the tax department can collect you can know it from the start.  If you file an adversary proceeding, the caption must have both the adversary and main case number. It must also be properly served on the attorney general, USA, tax department, and tax commissioner.

Income Taxes and Bankruptcy - Did You Know?Also, if the case is against the IRS, you must serve it on the local attorney general. Preferably it was served on the bankruptcy division of the tax department as well. However, you must sue the director personally to obtain damages or avoid sovereign immunity.

How to Sue the IRS in Bankruptcy Court

To sue the IRS in Bankruptcy Court you have to do one or all of the following:

  1. Object to a claim.
  2. Raise an objection to a motion they file.
  3. File an adversary proceeding.
  4. File an action for contempt.

⎆ Reasons to sue the IRS in bankruptcy court.

Why sue the IRS in Bankruptcy Court? The two reasons are as follows:

  1. Determine the real amount due.
  2. Seek protection from the bankruptcy court.

The tax department must file its proof of claim within 180 days. If it does not file its claim the tax is discharged if it is unsecured. However, a tax is never discharged if the tax is non-dischargeable.

So a debtor may wish to file a claim for the tax department to fix the status and amount which needs to be paid if no claim is timely or properly filed. Amended claims can’t include additional taxes such as a different tax or additional tax years.  Here is our article on how to file bankruptcy on income taxes.

⎆ Litigation advantages to suing the IRS in bankruptcy court.

There is less abuse or discrimination in bankruptcy court than there is when suing in tax court or by trying to resolve things internally with the IRS. Although there is an obligation to exhaust administrative remedies first, in some cases, the bankruptcy judge is the way to go. In bankruptcy court, you can do the following:

  1. Determine the validity or amount of the tax 11 USC 505 you can’t re-litigate but the default was never litigated.
  2. Resolve dischargeability.
  3. Settle proof of claims and amended or improperly filed or previously discharged claims.
  4. Fix the status of whether the tax is secured priority or unsecured.
  5. Object to a tax lien that was improperly filed or cramdown the lien.
  6. Determine innocent spouse status.
  7. Correct a violation of the stay or discharge.
  8. Shift burdens to the IRS to prove the tax is valid after you make an initial case Nunez 232 B.R. 778.
  9. You can seek damages by suing the state tax director personally.

⎆ Obtaining damages.

To obtain damages you have to exhaust all the administrative remedies first. However, sometimes a due process hearing or appeal might not be possible or might be futile. See 28 USC 524 362 and 28 USC 7433 (e) (1), and 7433(b) see also In Re Parker 279 BR 596 (S.D. Ala. 2002S). We use tax discharge determinator to determine whether the debt is dischargeable and we have also taught how to discharge debts with Morgan King and attended seminars with Larry Heinkel.

Free Bankruptcy Manual Nick Thompson Bankruptcy by Nick Thompson, Bankruptcy AttorneyResources for Bankruptcy

Income Tax Bankruptcy Forms

IRS Transcript Codes for Bankrupting Taxes

Chapter 13 and IRS Tax Returns and Refunds in Bankruptcy

How to Sue the IRS in Bankruptcy Court

File Bankruptcy on Income Taxes

If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.

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