Are tax penalties always dischargeable?
Posted: Tue Feb 07, 2012 9:31 am
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Hello Alik:
The text is difficult to parse, but some tax penalties are not
dischargeable.
Look at 523(a)(7). The overarching rule: governmental penalties are not
dischargeable. Unless, that is, they are tax penalties of two peculiar
kinds: (A) relating to a tax not mentioned in 523(a)(1) (this section lays
out the dischargeability of taxes; if the tax isn't dischargeable, then the
penalty is not either); (B) relating to an event or transaction occurring
more than three years prepetition (I cannot recall off the top of my head
the relationship between "event or transaction" and income tax returns; for
purposes of this discussion, I will ignore this clause).
So that answers the question in your headline: penalties are not
dischargeable when the underlying tax is not dischargeable.
The first question in the body asks why some of the penalties for 2009 are
listed as priority, and some as general unsecured. The simple answer is
"d***ed if I know." Priority taxes are not coextensive with
nondischargeable taxes. Section 507(a)(8) makes certain taxes, but not
penalties, priority debt. (Yes, I see 507(a)(8)(G). That makes penalties a
priority debt, but only when the penalty relates to "pecuniary loss." It's
how the IRS can call an individual's payroll tax debt incurred as a
responsible person a "trust fund recovery penalty," and still have that debt
be a priority debt. I don't see anything below that suggests that the FTB
penalties are for "pecuniary loss;" they're just penalties to coerce
compliance, not a way to make sure the actual tax gets collected).
My conclusion is that it looks like the FTB made a little whoopsie, and got
confused between secured and priority tax debt.
Second question: why the costs? Costs would include things like fees for
filing notices of state tax lien and serving levy notices, each of which
probably incurs some fee above and beyond the tax. Here, you need to find a
friendly FTB worker who can help you determine what these costs actually
are. You could object to the claim, and that would flush out the FTB's
theories very well; a phone call first might do better. I'd start with the
name and number of the person who filed the proof of claim, if that is
available.
John D. Faucher
Hurlbett & Faucher, LLP
5743 Corsa Ave., Suite 208
Westlake Village, CA 91362
(818) 889-8080
Fax: (805) 367-4154
http://www.hurlbettfaucher.com/
3324 State Street, Suite O
Santa Barbara, CA 93105
(805) 963-9111
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not the intended recipient, please immediately reply to John Faucher (at
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indicating that you received this message and then delete the message
without delay. Thank you for your cooperation.
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advice contained in this communication, including any attachments, for the
purpose of avoiding federal tax related penalties or promoting, marketing or
recommending to another party any particular transaction or matter.
On 2/6/12 9:35 PM, "Alik Segal" wrote:
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> Does anyone have any ideas? Any help is appreciated.
>
> On Wed, Feb 1, 2012 at 10:10 PM, Alik Segal wrote:
>> I thought that tax penalties are always dischargeable. But I received a
>> proof of claim from the California Franchise Tax Board (FTB) with the table
>> below. There is a text version and an image version.
>>
>> My questions are:
>>
>> 1. Why are there penalties of $106.65 in the priority row (Claim B) for 2009.
>> There are separate penalties of $372.35 in the general row (Claim C).
>>
>> 2. In addition, what kind of costs could be assessed by the FTB in row 2009
>> general ($40) and 2007 general ($187)?
>>
>>
>>
>> Type Tax Penalty Interest Costs Total
>> 2009 priority 605.85 106.65 142.85 855.35
>> 2009 general 372.35 6.27 40.00 418.62
>> 2007 general 233.63 74.02 98.34 187.00 592.99
>> 839.48 553.02 247.46 227.00 1,866.96
>>
>>
>>
>> --
>> Alik Segal
>> Alik.Segal@gmail.com
>> 310-362-6157
>> California Central District
>>
>>
>>
>>
>>
>> --
>> Alik Segal
>> Alik.Segal@gmail.com
>> 310-362-6157
>> California Central District
>>
>>
>>
>>
>
>
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Hello Alik: The text is difficult to parse, but some tax penalties are not dischargeable. Look at 523(a)(7). The overarching rule: governmental penalties are not dischargeable. Unless, that is, they are tax penalties of two peculiar kinds: (A) relating to a tax not mentioned in 523(a)(1) (this section lays out the dischargeability of taxes; if the tax isn't dischargeable, then the penalty is not either); (B) relating to an event or transaction occurring more than three years prepetition (I cannot recall off the top of my head the relationship between "event or transaction" and income tax returns; for purposes of this discussion, I will ignore this clause). So that answers the question in your headline: penalties are not dischargeable when the underlying tax is not dischargeable. The first question in the body asks why some of the penalties for 2009 are listed as priority, and some as general unsecured. The simple answer is "d***ed if I know." Priority taxes are not coextensive with nondischargeable taxes. Section 507(a)(8) makes certain taxes, but not penalties, priority debt. (Yes, I see 507(a)(8)(G). That makes penalties a priority debt, but only when the penalty relates to "pecuniary loss." It's how the IRS can call an individual's payroll tax debt incurred as a responsible person a "trust fund recovery penalty," and still have that debt be a priority debt. I don't see anything below that suggests that the FTB penalties are for "pecuniary loss;" they're just penalties to coerce compliance, not a way to make sure the actual tax gets collected). My conclusion is that it looks like the FTB made a little whoopsie, and got confused between secured and priority tax debt.Second question: why the costs? Costs would include things like fees for filing notices of state tax lien and serving levy notices, each of which probably incurs some fee above and beyond the tax. Here, you need to find a friendly FTB worker who can help you determine what these costs actually are. You could object to the claim, and that would flush out the FTB's theories very well; a phone call first might do better. I'd start with the name and number of the person who filed the proof of claim, if that is available. John D. FaucherHurlbett & Faucher, LLP5743 Corsa Ave., Suite 208Westlake Village, CA 91362(818) 889-8080Fax: (805) 367-4154http://www.hurlbettfaucher.com/Santa Barbara, CA 93105(805) 963-9111This electronic mail message and any attached files are confidential, contain information intended for the exclusive use of the individual or entity to whom it is addressed, and may be legally privileged. If you are not the intended recipient, please immediately reply to John Faucher (at 818/889-8080 or john@hf-bklaw.com) indicating that you received this message and then delete the message without delay. Thank you for your cooperation. Disclosure Under U.S. IRS Circular 230: The recipient may not use any tax advice contained in this communication, including any attachments, for the purpose of avoiding federal tax related penalties or promoting, marketing or recommending to another party any particular transaction or matter.
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