2.2 Generally

• Jurisdiction: United States

2.20 SETOFF IN CHAPTER 7

See also ¶ 3.7, and extensive remarks at ¶ 4.3(c)

IRS right of setoff is established by 26 U.S.C. § 6402(d) (the Fed. tax code), and 11 U.S.C. § 553.

Under former law the taxing entity was required to first obtain relief from stay: BAPCPA amended § 362 to do away with that requirement.

Held, the IRS was not entitled to exercise its right to setoff against tax refund in which Chapter 7 debtor had claimed exemption. In re Alexander, 225 B.R. 145 (Bankr. W.D. Ky. 1998). Held, in Chapter 7 case IRS could not withhold tax refund as a setoff where the tax was dischargeable and re-fund was claim exempt. In re Jones, 230 B.R. 875 (M.D. Ala. 1999). See discussions at ¶¶ 3.9, 4.2(c) and 5.9(d).

Held, IRS has right of setoff against debtor's tax refund even if tax refund has been exempted. In re Luongo, 259 F.3d...