3.11.c.1 Prepetition Versus Postpetition Tax Claims

• Jurisdiction: United States

1. Generally

Typically, a Chapter 13 case contemplates that only "prepetition debts" will be included. Postpetition debts are expected to be paid directly by the debtor, outside of the plan, as they become due. Accordingly, prepetition taxes may be handled "through the plan," that is, the immediacy of payment to the taxing entity eases off and the taxes will either be discharged or paid in the Chapter 13. Postpetition taxes, in contrast, will ordinarily be due and payable on their ordinary due date, outside the plan.

A question that may come up: How do you handle the taxes for the year in which the Chapter 13 is filed?

In a case where the client has come in during the calendar year and owes taxes for that year, it may not be clear whether those taxes accrued up to the date of filing the Chapter 13, but not due until a date following the filing date (i.e. pending or prospective tax liabilities) are to be included in the plan as prepetition claims, or treated outside the plan as postpetition claims. Taxes becoming due postpetition, for income earned prepetition, might in some cases be better to be deemed postpetition obligations and left out of the plan if it helps make the plan payment more feasible; on the other hand, it might be preferable to include the tax in the plan in order to avoid having to come up with a big payment when due in the near future (e.g. April 15 of the following year).

The debtor would appear to have the right to include such due, or accrued but not yet due tax claims in the Chapter 13 under 11 U.S.C. § 502(i).²⁰⁷ However, the courts seem to be split on this issue. Some cases hold a tax becomes a claim that may be treated in the plan when it is accrued, not when it becomes due or reportable. In re Jones, 164 B.R. 543 (N.D. Tex. 1994); In re Workman, 108 B.R. 826 (Bankr. M.D. Ga. 1989). Assessment of tax is not a pre-requisite to liability; payroll taxes for two prepetition tax periods were prepetition claims in Chapter 13. In re Miller, 90 B.R. 317, 324 (Bankr. E.D. Tenn. 1988); In re Pullman Construction Industries, Inc. 190 B.R. 618, 623 (Bankr. N.D. Ill. 1996) ("... a tax debt is incurred when a penalty is applicable regardless of the date the tax return is required to be filed"; appears to apply to self-employed individuals' quarterly estimates); In re Redmond, 36 B.R. 932, 934 (D. Kan. 1984) ["For purposes of determining when the taxes were incurred, it is the date the taxes accrued rather than the date of assessment which...