Tax Court can interpret bankruptcy discharge order.

• Author: Madden, David

In Washington, 120 TC No. 8 (2003), the Tax Court unanimously ruled that it has jurisdiction under Sec. 6330(d)(1) to decide whether a bankruptcy court has discharged taxpayers from their unpaid Federal tax liability. It does not have jurisdiction to decide this issue in a Sec. 6213 deficiency proceeding. Secs. 6330 and 6320 were enacted by Congress in 1998 to provide due-process protections for IRS lien and levy actions.

Procedure

Sec. 6213(a) gives the Tax Court jurisdiction over petitions to redetermine income, estate and gift tax deficiencies issued under Secs. 6211(a) and 6212(a). Sec. 6321 imposes a lien on all of a taxpayer's property and rights to property if the Service has demanded payment and the taxpayer did not pay the taxes due. Under Sec. 6322, the lien arises when the IRS makes the assessment. For the lien to be valid against other parties, the Service must file a notice of lien, as specified in Sec. 6323.

According to Sec. 6320(a), the Service has to provide the taxpayer with written notice of the lien filing within five business days of the filing. The notice must also include the taxpayer's right to request, within 30 days, a hearing conducted by the Office of Appeals (Appeals). Sec. 6320(c) specifies that the hearing be conducted and judicial review be allowed, applying the procedures in Sec. 6330(c), (d) and (e).

Sec. 6330(a) and (b) provide for notice and right to a hearing before levy. Under Sec. 6330(c)(2)(A), the taxpayer may raise any relevant collection issues at the Appeals hearing, including the propriety of the IRS's intended collection action, spousal defenses and possible alternatives (including asset substitution, an installment agreement or an offer in compromise). However, under Sec. 6330(c)(2)(B), the taxpayer may only challenge the underlying tax liability if he or she did not receive a deficiency notice or otherwise have an opportunity to dispute the liability. Thus, the hearing's intent is not to provide the taxpayer with a second chance to dispute the liability. Under Sec. 6330(d)(1), the taxpayer has 30 days to appeal the determination to the Tax Court or a district court, as appropriate. Sec. 6330 does not otherwise specify any details about the Tax Court's scope or standard of review.

Bankruptcy Code Section 523(a) specifies exceptions to discharge in bankruptcy. Under Section 523(a)(1)(B)(ii), a debtor is not discharged from a tax liability when the return was either not filed, or filed late...