SCOTUS Reports

Tag: Bankruptcy Discharge

  • Prince v. Commissioner, 133 T.C. 270 (2009): Validity of Jeopardy Levy and Tax Lien Post-Bankruptcy

    Jimmy Asiegbu Prince v. Commissioner of Internal Revenue, 133 T. C. 270 (U. S. Tax Court 2009)

    In Prince v. Commissioner, the U. S. Tax Court upheld the IRS’s use of a jeopardy levy to collect unpaid taxes from funds seized by the Los Angeles Police Department before Prince’s bankruptcy. The court ruled that Prince could not challenge claims on behalf of third parties and that the levy was valid despite his bankruptcy discharge, as the funds were part of his pre-bankruptcy estate and subject to a pre-existing tax lien. This decision clarifies the IRS’s ability to enforce tax liens on pre-bankruptcy assets, even after personal liability is discharged.

    Parties

    Jimmy Asiegbu Prince, the petitioner, represented himself (pro se). The respondent, Commissioner of Internal Revenue, was represented by Vivian Bodey and Debra Bowe.

    Facts

    In February 2002, the IRS determined that Jimmy Asiegbu Prince had federal income tax deficiencies for the tax years 1997, 1998, and 1999. Prince challenged this determination in the U. S. Tax Court, which ruled against him in September 2003 (Prince v. Commissioner, T. C. Memo 2003-247). On March 6, 2003, while the tax case was pending, the Los Angeles Police Department (LAPD) seized $263,899. 93 from Prince, suspecting fraudulent credit card transactions. On January 28, 2004, the IRS assessed the deficiencies and additions to tax as per the court’s decision. On April 7, 2005, the IRS filed a notice of federal tax lien with the Los Angeles County Recorder for the tax years 1997, 1998, 1999, and 2002. On June 2, 2005, Prince filed for bankruptcy under Chapter 7 of the Bankruptcy Code, but did not include the seized funds in his bankruptcy schedules, despite $212,237. 89 of these funds remaining with the LAPD. Prince’s debts were discharged in bankruptcy on January 27, 2006. In December 2007, informed that the seized money would be returned to Prince, the IRS served a jeopardy levy on the Los Angeles County District Attorney’s Office to collect Prince’s unpaid tax liabilities.

    Procedural History

    The IRS issued a notice of determination in May 2008, upholding the jeopardy levy. Prince timely petitioned the U. S. Tax Court for review. The IRS moved for summary judgment on April 17, 2009, which was heard on June 25, 2009. The court granted the IRS’s motion for summary judgment on November 2, 2009, upholding the jeopardy levy and denying Prince’s petition.

    Issue(s)

    Whether the IRS’s jeopardy levy was proper under the circumstances where the levied funds were part of Prince’s pre-bankruptcy estate and subject to a pre-existing federal tax lien?

    Whether Prince could raise third-party claims in this lien or levy case?

    Rule(s) of Law

    The Internal Revenue Code allows the IRS to levy upon a taxpayer’s property if it finds that the collection of tax is in jeopardy (26 U. S. C. § 6331(a)). A discharge in bankruptcy under 11 U. S. C. § 727 relieves a debtor of personal liability but does not extinguish a valid federal tax lien filed before the bankruptcy petition (26 U. S. C. § 6323). The Tax Court reviews determinations regarding the underlying tax liability de novo if properly at issue, but reviews other administrative determinations for abuse of discretion (26 U. S. C. § 6330). The doctrine of standing requires a plaintiff to assert his own legal rights and interests (Anthony v. Commissioner, 66 T. C. 367 (1976)).

    Holding

    The Tax Court held that the IRS’s jeopardy levy was proper because the funds levied were part of Prince’s pre-bankruptcy estate and subject to a valid federal tax lien filed before his bankruptcy petition. The court further held that Prince could not raise third-party claims in this lien or levy case due to lack of standing.

    Reasoning

    The court reasoned that Prince’s bankruptcy discharge relieved him of personal liability for his tax debts, but did not protect the seized funds from the IRS’s collection efforts since those funds were part of his pre-bankruptcy estate and subject to a pre-existing federal tax lien. The court relied on previous holdings that a valid tax lien survives bankruptcy and continues to attach to pre-bankruptcy property (Bussell v. Commissioner, 130 T. C. 222 (2008); Iannone v. Commissioner, 122 T. C. 287 (2004)). The court also applied the doctrine of standing, concluding that Prince did not have standing to seek the return of money or property that did not belong to him or to represent the rights of third parties in this proceeding. The court found no abuse of discretion in the IRS’s determination that a jeopardy levy was appropriate, given the risk of the funds being dissipated and the limitations on the IRS’s ability to collect post-bankruptcy. The court dismissed Prince’s other arguments, including claims of bias by the IRS Appeals officer and lack of timely notice of the jeopardy levy, as meritless or not properly raised before the Appeals Office.

    Disposition

    The Tax Court granted the IRS’s motion for summary judgment, upheld the jeopardy levy, and denied Prince’s petition.

    Significance/Impact

    Prince v. Commissioner clarifies that a federal tax lien remains enforceable against a debtor’s pre-bankruptcy assets, even after a personal discharge in bankruptcy. This decision underscores the importance of including all assets in bankruptcy schedules and reinforces the IRS’s authority to use jeopardy levies to protect its interests in collecting tax liabilities from pre-bankruptcy assets. The ruling also serves as a reminder of the limitations on a taxpayer’s ability to challenge IRS collection actions on behalf of third parties in Tax Court proceedings.

  • Severo v. Commissioner, 129 T.C. 160 (2007): Bankruptcy Discharge and Statute of Limitations in Tax Collection

    Severo v. Commissioner, 129 T. C. 160 (2007)

    In Severo v. Commissioner, the U. S. Tax Court ruled that the taxpayers’ 1990 federal income taxes were not discharged in their 1998 bankruptcy and that the IRS’s collection period had not expired. The case clarified that under bankruptcy law, certain tax debts are not discharged and that the statute of limitations for collection is suspended during bankruptcy proceedings, impacting the IRS’s ability to collect taxes post-bankruptcy.

    Parties

    Michael V. Severo and Georgina C. Severo (Petitioners) filed a petition against the Commissioner of Internal Revenue (Respondent) in the United States Tax Court. The case was designated as No. 6346-06L.

    Facts

    Michael and Georgina Severo filed their 1990 joint federal income tax return late on October 18, 1991, reporting a tax liability of $63,499. They paid only a portion of this amount. On September 28, 1994, the Severos filed for bankruptcy under Chapter 11, which was later converted to Chapter 7. A discharge order was issued on March 17, 1998. The IRS levied against the Severos’ $196 California income tax refund in 2004 and, in 2005, notified them of a federal tax lien filing (NFTL) and an intent to make a second levy. The Severos requested an Appeals Office collection hearing, challenging the validity of the NFTL and the second levy based on the 1998 bankruptcy discharge and the expiration of the collection period of limitations.

    Procedural History

    The Severos’ 1990 tax liability was assessed by the IRS on November 18, 1991. They filed for bankruptcy on September 28, 1994, and received a discharge order on March 17, 1998. In 2004, the IRS levied against their California income tax refund, and in 2005, the IRS filed an NFTL and notified the Severos of a second levy. The Severos requested an Appeals Office hearing in 2005, which resulted in adverse decisions on both the NFTL and the second levy. The Tax Court reviewed the case on cross-motions for summary judgment filed by both parties.

    Issue(s)

    Whether the Severos’ outstanding 1990 federal income taxes were discharged by the March 17, 1998, bankruptcy discharge order?

    Whether the collection period of limitations for the Severos’ 1990 federal income taxes had expired by the time they requested an Appeals Office collection hearing in 2005?

    Rule(s) of Law

    Under 11 U. S. C. § 523(a)(1)(A), certain tax liabilities are not discharged in bankruptcy if they are priority claims under 11 U. S. C. § 507(a)(7). Specifically, taxes for which a return was due within three years before the filing of the bankruptcy petition are not discharged.

    Under 26 U. S. C. § 6503(h)(2), the collection period of limitations is suspended during a bankruptcy proceeding and for six months thereafter.

    Holding

    The Tax Court held that the Severos’ 1990 federal income taxes were not discharged by the bankruptcy discharge order issued on March 17, 1998, as they were priority claims under 11 U. S. C. § 507(a)(7)(A)(i). The court further held that the collection period of limitations for the Severos’ 1990 taxes had not expired at the time they requested an Appeals Office hearing in 2005, as it was suspended under 26 U. S. C. § 6503(h)(2) during their bankruptcy.

    Reasoning

    The court reasoned that since the Severos’ 1990 tax return was due within the three-year lookback period before their bankruptcy filing, their 1990 taxes qualified as a priority claim under 11 U. S. C. § 507(a)(7)(A)(i) and were thus excepted from discharge under 11 U. S. C. § 523(a)(1)(A). The court rejected the Severos’ argument that their late filing should preclude this exception, citing that the statutory provisions are disjunctive and apply to increasingly broader exceptions based on taxpayer behavior.

    Regarding the statute of limitations, the court determined that 26 U. S. C. § 6503(h)(2) specifically addresses the suspension of the collection period during bankruptcy proceedings, superseding the more general provision of § 6503(b). The court followed the precedent set by Richmond v. United States, 172 F. 3d 1099 (9th Cir. 1999), which held that the collection period is suspended until six months after the discharge order is issued. This ruling ensured that the IRS had sufficient time left to collect the Severos’ 1990 taxes when they filed their request for an Appeals Office hearing in 2005.

    The court dismissed issues related to the second levy notice, citing lack of jurisdiction under Kennedy v. Commissioner, 116 T. C. 255 (2001).

    Disposition

    The Tax Court granted the Commissioner’s motion for summary judgment on the NFTL issue, denied the Severos’ motion for summary judgment, and dismissed sua sponte all issues related to the second levy notice for lack of jurisdiction.

    Significance/Impact

    Severo v. Commissioner clarifies the application of bankruptcy discharge exceptions to federal tax liabilities, emphasizing that certain tax debts remain enforceable post-bankruptcy. The decision also provides guidance on the suspension of the statute of limitations during bankruptcy, affirming the IRS’s right to collect taxes even after a significant period following a bankruptcy discharge. This ruling has implications for taxpayers and practitioners in understanding the interplay between bankruptcy and tax law, particularly regarding the dischargeability of tax debts and the timing of IRS collection efforts.

  • Iannone v. Comm’r, 122 T.C. 287 (2004): Federal Tax Liens and Levy Post-Bankruptcy Discharge

    Iannone v. Commissioner, 122 T. C. 287 (U. S. Tax Ct. 2004)

    The U. S. Tax Court ruled that federal tax liens on a taxpayer’s property, including a 401(k) account, survive bankruptcy discharge, allowing the IRS to proceed with collection by levy. This decision clarifies that while a bankruptcy discharge may eliminate personal liability for taxes, it does not extinguish existing federal tax liens, emphasizing the in rem nature of such liens over personal exemptions under state law.

    Parties

    Gregory Iannone, the petitioner, filed a petition for judicial review against the Commissioner of Internal Revenue, the respondent, following a notice of determination concerning collection action for unpaid tax liabilities for the years 1987, 1989, and 1991.

    Facts

    Gregory Iannone filed a Chapter 7 bankruptcy petition on June 16, 1997, and received a discharge on September 29, 1997. Prior to bankruptcy, the IRS had issued notices for unpaid federal income taxes for the years 1987, 1989, and 1991. The IRS sent Iannone a notice of intent to levy and a notice of his right to a hearing on January 12, 2002. Iannone requested a collection due process hearing, which took place on July 9, 2002. During the hearing, it was agreed that the taxes might be dischargeable, but the IRS maintained that a federal tax lien attached to Iannone’s 401(k) account, which was exempt property listed in his bankruptcy petition.

    Procedural History

    Following the hearing, the IRS issued a notice of determination on October 8, 2002, upholding the levy action on Iannone’s exempt property. Iannone filed a timely petition for judicial review in the U. S. Tax Court. The court granted the IRS’s motion to dismiss for lack of jurisdiction regarding the 1987 tax year, leaving the 1989 and 1991 tax years at issue. The case proceeded to trial, where the court considered whether the IRS could proceed with collection by levy post-bankruptcy discharge.

    Issue(s)

    Whether the IRS may proceed with collection by levy on property subject to a federal tax lien after the taxpayer’s personal liability for the underlying taxes has been discharged in bankruptcy?

    Rule(s) of Law

    Under 26 U. S. C. § 6321, the government obtains a lien against all property and rights to property of any person liable for taxes upon demand for payment and nonpayment. 26 U. S. C. § 6322 states that such liens arise automatically upon assessment and continue until the liability is satisfied or the statute of limitations expires. 11 U. S. C. § 522(c)(2)(B) provides that exempt property remains subject to properly filed tax liens even after discharge of the underlying tax liability. 26 U. S. C. § 6331(a) authorizes the IRS to collect taxes by levy on all property and rights to property, except those exempt under 26 U. S. C. § 6334.

    Holding

    The U. S. Tax Court held that the IRS may proceed with collection by levy on Iannone’s property, including his 401(k) account, because the federal tax lien attached to the property prior to bankruptcy and was not extinguished by the bankruptcy discharge.

    Reasoning

    The court reasoned that the IRS’s federal tax lien, which arose prior to Iannone’s bankruptcy filing, remained enforceable against his property post-discharge. The court emphasized the distinction between in personam liability, which is discharged in bankruptcy, and in rem liability, which continues against the property. The court rejected Iannone’s argument that his 401(k) account was exempt from levy under New Jersey law, citing 26 U. S. C. § 6334(c) and 26 C. F. R. § 301. 6334-1(c), which state that no property is exempt from levy except as specifically provided by federal law. The court also noted that the Appeals officer had assumed the tax liabilities were discharged for the purpose of the collection proceeding, focusing instead on the enforceability of the lien. The court found no abuse of discretion in this approach and affirmed the IRS’s determination to proceed with levy.

    Disposition

    The U. S. Tax Court entered a decision for the respondent, affirming the IRS’s right to proceed with collection by levy on Iannone’s property.

    Significance/Impact

    This case reinforces the principle that federal tax liens survive bankruptcy discharge and remain enforceable against the debtor’s property. It underscores the in rem nature of tax liens and their priority over state law exemptions in post-bankruptcy collection actions. The decision has significant implications for taxpayers and practitioners in understanding the limits of bankruptcy discharge in relation to federal tax liens and the IRS’s collection powers. Subsequent courts have cited this case to affirm the continuity of federal tax liens post-discharge, affecting how debtors and creditors approach tax-related bankruptcy issues.

  • Swanson v. Commissioner, 121 T.C. 111 (2003): Dischargeability of Tax Liabilities in Bankruptcy

    Swanson v. Commissioner, 121 T. C. 111 (U. S. Tax Ct. 2003)

    In Swanson v. Commissioner, the U. S. Tax Court ruled that tax liabilities not supported by filed returns are not dischargeable in bankruptcy. Neal Swanson, who failed to file tax returns, argued his debts were discharged in bankruptcy. The court held that the IRS’s substitutes for returns (SFRs) did not count as filed returns, thus his tax debts were not discharged, upholding the IRS’s right to proceed with collection.

    Parties

    Neal Swanson, Petitioner, pro se, at all stages of litigation.
    Commissioner of Internal Revenue, Respondent, represented by Ann S. O’Blenes, throughout the proceedings.

    Facts

    Neal Swanson did not file Federal income tax returns for the years 1993, 1994, and 1995. Consequently, the Commissioner of Internal Revenue (Commissioner) prepared substitutes for returns (SFRs) for these years and issued a notice of deficiency to Swanson. Swanson challenged the deficiencies in the U. S. Tax Court, but his case was dismissed for failure to state a claim upon which relief could be granted, and a decision was entered for the Commissioner. The Commissioner then assessed the tax liabilities for the years in question. Subsequently, Swanson filed for bankruptcy under Chapter 7 of the U. S. Bankruptcy Code. The bankruptcy court issued a discharge order releasing Swanson from all dischargeable debts, but did not specifically address whether his unpaid tax liabilities were discharged. The Commissioner later issued a notice of intent to levy, prompting Swanson to request a hearing under Section 6330 of the Internal Revenue Code. At the hearing, Swanson claimed his tax liabilities were discharged in bankruptcy, but the IRS Appeals officer issued a notice of determination sustaining the levy action.

    Procedural History

    Swanson received a notice of deficiency for the years 1993, 1994, and 1995, to which he filed a petition in the U. S. Tax Court. The court dismissed the case on February 3, 1998, for failure to state a claim upon which relief could be granted and entered a decision in favor of the Commissioner. Following the dismissal, the Commissioner assessed the tax liabilities. Swanson filed for bankruptcy under Chapter 7 on August 5, 1998, and received a discharge order on December 7, 1998. On January 23, 2000, the Commissioner issued a notice of intent to levy, and Swanson requested a hearing under Section 6330. On May 3, 2001, the IRS Appeals officer issued a notice of determination sustaining the levy, which Swanson contested by filing a petition with the U. S. Tax Court on May 11, 2001. The court directed Swanson to file a proper amended petition, which he did on June 12, 2001.

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction to determine if Swanson’s unpaid tax liabilities were discharged in his Chapter 7 bankruptcy proceeding?
    Whether Swanson’s unpaid tax liabilities were discharged under 11 U. S. C. § 523(a)(1)(B) because he did not file required returns for the tax years 1993, 1994, and 1995?

    Rule(s) of Law

    11 U. S. C. § 523(a)(1)(B) states that a debt for a tax or customs duty is not discharged if a required return, if required, was not filed. The court referenced the Beard v. Commissioner test to determine what constitutes a “return” under this section, which includes that the document must purport to be a return, be executed under penalty of perjury, contain sufficient data to calculate tax, and represent an honest and reasonable attempt to satisfy the tax law.

    Holding

    The U. S. Tax Court held that it had jurisdiction to determine the dischargeability of Swanson’s unpaid tax liabilities in this levy proceeding. Further, the court held that Swanson’s tax liabilities were not discharged under 11 U. S. C. § 523(a)(1)(B) because he did not file required returns for the tax years 1993, 1994, and 1995, and the SFRs prepared by the Commissioner did not constitute “returns” within the meaning of the Bankruptcy Code.

    Reasoning

    The court reasoned that it had jurisdiction in this levy proceeding to determine the dischargeability of Swanson’s tax liabilities, following the precedent set in Washington v. Commissioner. The court then analyzed whether Swanson’s liabilities were discharged under 11 U. S. C. § 523(a)(1)(B). The court determined that the SFRs prepared by the Commissioner did not meet the requirements of a “return” as set forth in Beard v. Commissioner, particularly because they were not signed by Swanson and did not represent an honest and reasonable attempt to comply with tax law. The court concluded that because no returns were filed, Swanson’s tax liabilities were excepted from discharge under the Bankruptcy Code. The court also addressed Swanson’s additional arguments, finding that the Commissioner was not enjoined from collecting the liabilities and that no default judgment had occurred because the Commissioner was not required to file a complaint in the bankruptcy court for debts excepted from discharge under Section 523(a)(1)(B).

    Disposition

    The U. S. Tax Court upheld the determination of the IRS Appeals officer to proceed with collection by levy, and decision was entered for the Commissioner.

    Significance/Impact

    The Swanson case reinforces the principle that tax liabilities for which no returns were filed are not dischargeable in bankruptcy. It clarifies the application of 11 U. S. C. § 523(a)(1)(B) and the role of SFRs in bankruptcy discharge proceedings. The case also establishes that the U. S. Tax Court has jurisdiction to decide dischargeability issues in levy proceedings, which can impact the strategies of taxpayers and the IRS in similar disputes. Subsequent cases have cited Swanson for its interpretation of what constitutes a “return” for bankruptcy discharge purposes, affecting how taxpayers and the IRS approach tax debt in bankruptcy proceedings.

  • Washington v. Comm’r, 120 T.C. 114 (2003): Bankruptcy Discharge and Tax Liability

    Washington v. Commissioner, 120 T. C. 114 (U. S. Tax Ct. 2003)

    In Washington v. Commissioner, the U. S. Tax Court held that it has jurisdiction to determine whether a bankruptcy discharge relieved taxpayers of their tax liabilities. The court ruled that Howard and Everlina Washington’s federal income tax liabilities for 1994 and 1995 were not discharged in bankruptcy because their late-filed returns fell within a two-year period before their bankruptcy petition. Additionally, the court upheld the IRS’s application of the taxpayers’ 1997 overpayment against their 1990 tax liability, not 1998, as permissible under the law. This decision clarifies the scope of bankruptcy discharge concerning tax debts and the IRS’s authority in applying overpayments to tax liabilities.

    Parties

    Howard and Everlina Washington, Petitioners, filed pro se at the trial level before the U. S. Tax Court. The Commissioner of Internal Revenue, Respondent, was represented by Marie E. Small.

    Facts

    Howard and Everlina Washington, residing in New York, filed their 1994 and 1995 federal income tax returns late on December 12, 1996, reporting unpaid taxes of $6,680 and $8,874, respectively. They did not pay these amounts at the time of filing. In April 1998, they filed their 1997 return, claiming a refund of $1,741, which the IRS applied against their unpaid 1990 tax liability instead of their 1998 liability. On May 18, 1998, the Washingtons filed for Chapter 7 bankruptcy, listing the IRS as a creditor for tax years 1991 through 1996. The bankruptcy court issued a discharge order on September 25, 1998. The IRS later filed a notice of federal tax lien on January 26, 2001, concerning the Washingtons’ unpaid tax liabilities for 1994, 1995, and 1998. The Washingtons contested the lien, arguing their 1994 and 1995 liabilities were discharged in bankruptcy and that the 1997 overpayment was improperly applied.

    Procedural History

    The IRS issued a notice of determination on August 9, 2001, sustaining the lien filing, which the Washingtons appealed to the U. S. Tax Court. The Tax Court held a trial and considered whether it had jurisdiction over the bankruptcy discharge issue and the propriety of the IRS’s actions regarding the tax liabilities and overpayment application. The court’s decision was reviewed by the full court, resulting in a unanimous decision.

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction to determine if a bankruptcy discharge relieves taxpayers from unpaid federal income tax liabilities?

    Whether the U. S. Bankruptcy Court for the Southern District of New York discharged the Washingtons from their respective unpaid federal income tax liabilities for their taxable years 1994 and 1995?

    Whether the IRS’s application of the Washingtons’ 1997 overpayment as a credit against their unpaid 1990 tax liability instead of their 1998 liability was proper under 26 U. S. C. § 6402(a)?

    Rule(s) of Law

    The U. S. Tax Court has jurisdiction to review a determination by the Appeals Office to proceed by lien with respect to an unpaid tax liability under 26 U. S. C. § 6330(d)(1). A bankruptcy discharge does not relieve an individual debtor from a debt for tax with respect to which a return was filed late and within the two-year period immediately preceding the filing of the bankruptcy petition under 11 U. S. C. § 523(a)(1)(B)(ii). The IRS may credit an overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment under 26 U. S. C. § 6402(a).

    Holding

    The U. S. Tax Court has jurisdiction to determine whether a bankruptcy discharge relieves taxpayers from unpaid federal income tax liabilities. The U. S. Bankruptcy Court did not discharge the Washingtons from their unpaid federal income tax liabilities for 1994 and 1995 because their returns were filed late and within two years before their bankruptcy petition. The IRS’s application of the Washingtons’ 1997 overpayment against their unpaid 1990 tax liability was proper under 26 U. S. C. § 6402(a).

    Reasoning

    The Tax Court reasoned that it has jurisdiction over the underlying tax liability under 26 U. S. C. § 6330(d)(1), which extends to reviewing determinations related to collection actions, including the effect of a bankruptcy discharge on those liabilities. The court found that the Washingtons’ 1994 and 1995 tax liabilities were not dischargeable under 11 U. S. C. § 523(a)(1)(B)(ii) because their returns were filed late and within the two-year period before their bankruptcy filing. The court rejected the Washingtons’ argument that the two-year period was misconstrued, emphasizing that the statute clearly applies to late-filed returns within two years of the bankruptcy petition. Regarding the 1997 overpayment, the court upheld the IRS’s action under 26 U. S. C. § 6402(a), which allows the IRS to apply overpayments to any outstanding tax liability. The court also considered the concurring opinions, which provided additional insights into jurisdiction and the standard of review but did not alter the majority’s holding.

    Disposition

    The U. S. Tax Court entered judgment for the Commissioner of Internal Revenue, sustaining the IRS’s determination to proceed with the collection action by lien with respect to the Washingtons’ tax liabilities for 1994, 1995, and 1998.

    Significance/Impact

    This case clarifies the Tax Court’s jurisdiction over bankruptcy discharge issues related to tax liabilities and the IRS’s authority to apply overpayments to tax debts. It establishes that late-filed tax returns within two years of a bankruptcy petition are not dischargeable under 11 U. S. C. § 523(a)(1)(B)(ii). This decision has implications for taxpayers and the IRS in managing tax liabilities in the context of bankruptcy proceedings and reinforces the IRS’s discretion in applying overpayments to outstanding tax liabilities.