IRS’S Claim Sufficient for Allowance

CourtThe following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

In re Rowell, 421 B.R. 524 (Bankr. D. Minn. 12/15/09) (Kishel, J.).

Case Summary:

IRS’S Claim Sufficient for Allowance

The chapter 13 debtor, Rowell, filed bankruptcy in large part due to a federal tax debt. On her Schedule D, she identified a claim for income taxes in the amount of $18,507. The IRS filed a proof of claim for a total of $18,827.21, which included a secured claim, an unsecured priority claim, and a general unsecured claim. The IRS later amended its claim slightly. The IRS objected to the confirmation of Rowell’s chapter 13 plan and then her amended plan. Rowell objected to the IRS’s claim. The court ruled on both parties’ objections in its order.

On the proof of claim issues, Rowell first argued that the proof of claim was too deficient under FRBP 3001(f) to be allowed as a secured claim because 1) the identification of property was too generic; and 2) it failed to state the value of the claimed security. The court rejected her argument. The court ruled that the IRS was entitled to have its proof of claim treated as prima facie evidence of the validity and amount of the claim under FRBP 3001(f). The court noted that FRBP 3001(a) provides: “A proof of claim shall conform substantially to the appropriate Official Form.” Citing In re Dove-Nation, 318 B.R. 147, 151 (B.A.P. 8th Cir. 2004), the court held that substantial compliance was sufficient because the deficiency was technical, not material. In addition, because the IRS’s secured rights were statutory, it did not need to list the specific assets in which it was claiming a security interest. See 26 U.S.C. § 6321. The court found that the IRS was entitled to rely on Rowell’s statement of value of her own personal property. Second, Rowell argued that the value of the tax lien must be zero, because the IRS rejected her counsel’s offer to tender all of her personal property to the IRS in satisfaction of its secured claim. The court rejected this argument as a vacuous ploy or bluff. The fact that the IRS did not take her counsel up on the offer was not a basis for denying secured status to the claim. Third, Rowell that the value of the IRS’s claim should be decreased. The court accepted her rebuttal evidence, and decreased the amount of the IRS’s secured claim.

On the confirmation issues, the court noted that Rowell’s large tax debt was likely due to intentional under-withholding of taxes from her wages and that she needed to readjust her plan payments to allow her to stay current on her taxes. The IRS wanted her plan to include “tax compliance language,” which would include a statement that she would be required to file post-petition tax returns. The court held that in light of Rowell’s pattern of under-withholding and failing to pay her taxes, the language was an acceptable “‘integrity control’ measure toward ensuring the Debtor’s good faith.” The court denied confirmation.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.

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