To Sue IRS in Bankruptcy Court you have to either
- object to a claim,
- raise an objection a motion they file
- file an adversary,
- File an action for contempt
You may be suing either the IRS or the state tax department. If you file an AP the caption must have both the Adversary and main case number. It must be properly served on the attorney general, USA, tax department, tax commissioner and if the case is against the US it must also be served on the local attorney general. Preferably it will be served on the bankruptcy division of the tax department as well. You have to sue the director personally to obtain damages or avoid sovereign immunity.
Reasons to sue the IRS in Bankruptcy Court
Why sue the IRS in bankruptcy Court? Well you may want to:
- determine the real amount due.
- Seek protection of the bankruptcy Court.
The tax department must file it’s proof of claim within 180 days. If it does not file it’s 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 far less abuse and discrimination in bankruptcy court than in 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
- Determmine the validity or amount of the tax 11 USC 505 you cant relitigate but a default was never litigated.
- Resolve dischargeability
- Settle proof of claims and amended or improperly filed or previously discharged claims
- Fix the status of whether the tax is secured priority or unsecured
- Object to a tax lien which was improperly filed or cramdown the lien
- Determine innocent spouse status
- Correct a violation of the stay or discharge
- Shift burdens to the IRS to prove the tax is valid after you make an initial case nunez 232 B.R. 778
- You can seek damages be sure to sue the state tax director personally.
To obtain damages you have to exhaust all the administrative remedies first. However sometimes a due process hearing or appeal may not be possible or may 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. 2002)