TAX ARTICLE PREDICTS BANKRUPTCY REFORM WILL IMPAIR IRS COLLECTION OF DELINQUENT TAXES

August 18, 2003

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In a recent article appearing in The Journal of Tax Practice & Procedure, attorney Morgan King says The Bankruptcy Abuse Prevention and Consumer Protection Act will, if enacted, drastically alter the manner in which Chapter 13 currently treats delinquent tax debts and would impair both a taxpayer’s opportunity to come back into compliance through the program, and very probably reduce the tax revenue generated to the government. Ironically, the Treasury is apparently supporting the proposed changes. But those who practice daily in the “trenches” of Chapter 13—that is, the debtors’ lawyers—know that the government is aiming to shoot itself in the foot.

The reform legislation would eliminate the super-discharge for delinquent income taxes in Chapter 13. By making income taxes more difficult to discharge, it will be impossible for many delinquent taxpayers to formulate a feasible Chapter 13 plan. Chapter 13, which under current law is frequently a budget life-line to taxpayers, will be out of reach of many debtors. As a result, many will remain “underground” and continue to evade tax collection, because they will have no viable alternative.