Section 16.20 Eighth Priority Tax Claims

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

4. (§16.20) Eighth Priority Tax Claims

By far the largest class of priority tax claims in bankruptcy are those afforded eighth priority status. Seven categories of taxes receive eighth priority, and each of these categories includes federal, state, and local taxes. See, e.g., 124 Cong. Rec. H11089 (daily ed. Sept. 28, 1978) (statement of Rep. Edwards), reprinted in 1978 U.S.C.C.A.N. 6436, 6495.

First, income and gross receipts taxes are granted eighth priority status in bankruptcy, but only if the governmental unit asserting the tax claim can meet two stringent requirements:

1. The taxes are for a taxable year that ends on or before the date that the bankruptcy petition is filed.

2. The tax return, with respect to such taxes, is due (including extensions) either after the bankruptcy petition is filed or within three years before the filing of the petition.

11 U.S.C. § 507(a)(8)(A)(i). The filing of a bankruptcy petition, however, tolls this three-year limitations period. See, e.g., In re Darden, 202 B.R. 715, 717 (Bankr. E.D. Va. 1996). In re Reine,
301 B.R. 556, 557–58 (Bankr. W.D. Mo. 2003), made clear that the three-year lookback period begins to run on the date that the tax return is last due, even if the debtor files the tax return at an earlier date.

This difficult provision is often best understood with an example. Assume that D is an individual and files for chapter 7 bankruptcy protection on March 10, 2004. Because D is a calendar-year taxpayer, D’s taxable year ends on December 31 of each year. D’s tax returns are due on April 15 of each year for the prior year’s taxes, and D has sought no extensions for filing tax returns later than April 15. If D owes the federal government $5,000 in unpaid income taxes for the years 1999 through 2003 (ignoring interest and penalties, which are discussed later in this chapter), and D expects to owe the government an additional $5,000 in 2004, for what years can the government assert an eighth priority tax claim in
D’s bankruptcy proceeding?

Beginning with taxes for 1999, the taxable year ends on December 31, 1999, which is before the March 10, 2004, filing of
D’s bankruptcy petition. Thus, 1999 taxes meet the first requirement for eighth priority status. The taxes are due, however, on April 15, 2000, which is more than three years before the filing of the bankruptcy petition—the petition was filed on March 10, 2004,
and three years before March 10, 2004 is March 10, 2001. Thus,
1999 taxes fail the second requirement for priority status, and therefore will be treated as general unsecured claims in
D’s bankruptcy. Taxes for the year 2000 again meet the first requirement for priority status—that the taxable year...