IRS Can't Use Mistaken But Good Faith Belief That Debt Hadn't Been Discharged

June 14, 2018

Summarized by DAVID BAKER, Law Office of David G. Baker

Case Type:

Consumer

Case Status:

Affirmed

Citation:

17-1601 (1st Circuit, Jun 07,2018) Published

Tag(s):

1st Circuit, Discharge/Dischargeability, Bankruptcy Taxation, 362, 524, 727

Ruling:

Under 26 USC § 7433(e), the IRS's good faith belief that it has a right to collect the purportedly discharged debts is not relevant to determining whether it "willfully violate[d]" the discharge order.

Procedural context:

Appellee Murphy claimed that the IRS had violated the discharge injunction when it attempted to collect tax debts without first obtaining a determination from the bankruptcy court that the taxes were not discharged. IRS contended that Murphy filed a fraudulent return(s) or willfully attempted to evade or defeat the tax.

Facts:

On October 13, 2005, Murphy filed a Chapter 7 petition in the United States Bankruptcy Court for the District of Maine. On Schedule E of his bankruptcy petition, Murphy listed his income tax obligations to the IRS for the years of 1993-1998, 2000, 2001, and 2003, as well as a 2003 tax obligation to the Maine Revenue Services. After several collection attempts, including levies, Murphy filed an adversary proceeding for a declaration that the taxes had been discharged. There were indications that the IRS attorney was suffering from what appeared to be Alzheimer's disease and didn't represent the IRS properly. Nevertheless, the bankruptcy court found for Murphy and was affirmed by the District Court. Over dissent, the First Circuit affirmed, finding inter alia that sovereign immunity did not protect the IRS since it was waived in the statute, 26 USC § 7433(e). Murphy apparently was awarded $175.000 in damages.

Judge(s):

Stahl and Souter in the majority, and Lynch dissenting.

Own Houses in Different States, Claim a Homestead Exemption & Plan to Leave?

"The bankruptcy court in Felgner identified 10 factors from Murphy that are relevant in determining domicil...

Representations to Your Representation: Pre-Argument Preview of Lamar, Archer & Cofrin LLP v. Appling

"[...]expect more adversary proceedings about what a debtor “obtained” from a creditor and the amount of in...

Return to Home

Insolvency news at your fingertips.

IRS Can't Use Mistaken But Good Faith Belief That Debt Hadn't Been Discharged

Previous Article

Next Article

IRS Can't Use Mistaken But Good Faith Belief That Debt Hadn't Been Discharged

Previous Article

Next Article

Most Recent Articles

Article on ABI's creation of the Diversity Working Group

Although a liquidating trustee’s actions are restricted by a confirmed plan, Arrowsmith functioned as chief restructuring officer while the future confirmed plan was in the works.

Hearing on Oversight of Bankruptcy Law and Legislative Proposals.

Keep track of legislation focused on debt and insolvency.

U.S. Senators Tammy Baldwin (D-Wis.) and John Cornyn (R-Texas) on March 7 introduced the bipartisan Honoring American Veterans in Extreme Need (HAVEN) Act to protect the economic security and well.

Evidence only showed Plaintiffs may have had a breach of contract action [...]

"the court limited the allowance of the substantial-contribution claim to those fees and expenses directly related to procuring contingency-fee counsel and the costs related to copying records"

BAP for 9th Cir. vacated and remanded bankruptcy court (CD Cal.) order denying creditor's motion to dismiss chapter 13 case.

Once a landlord files for bankruptcy protection, what options will the trustee have in dealing with their remaining tenants?

The Court of Appeals vacated the District Court's sanction order, and remanded to impose a new sanction.

"If the trustee rejects an unexpired lease, then the lessee may retain its appurtenant possessory rights in the property for the balance of the lease term."

"[SPV OSUS Ltd. v. UBS AG] is notable for its expression of the Second Circuit’s rather extraordinary view of “related to” bankruptcy jurisdiction."

"The bankruptcy court in Felgner identified 10 factors from Murphy that are relevant in determining domicile: [...]"

"[...]expect more adversary proceedings about what a debtor “obtained” from a creditor and the amount of information the creditor has about the debtor’s financial condition"

In conjunction with a § 363 sale, do not make any assumptions that certain contracts have been impliedly assumed, even if the buyer’s course of conduct might indicate that.

Parties can build in protections that reduce the risk of rejection in bankruptcy, including placing the trademarks in a separate bankruptcy protected or remote entity and/or obtaining a lien [...]

Venezuela insisted that the Crystallex judgment would never be paid so it engineered a “reverse fraudulent transfer” to take assets out of the U.S. and back to Venezuela to avoid creditor claims.

A Feb. 27, 2018, decision by the U.S. Supreme Court resolved a split in the circuit courts by clarifying that a bankruptcy trustee[...] may claw back preferences and constructive fraudulent transfers.