Although there are only a limited number of cases which have addressed the right of a creditor holding a nondischargeable debt to receive a distribution under a plan or from a bankruptcy estate, each of these cases support the conclusion of this Court. See, In re Edwards, 74 B.R. 661, 665 (Bankr.N.D.Ohio 1987); In re Handy, 41 B.R. 172, 173 n. 1 (Bankr.E.D.Va. 1984); In re Ryan, 32 B.R. 794, 797 (Bankr.D.Md. 1983). The Supreme Court case of Friend v. Talcott, 228 U.S. 27, 33 S.Ct. 505, 57 L.Ed. 718 (1913), which addressed the analogous provisions of the Bankruptcy Act, is of particular significance.
The Court does not wish to make any prospective rulings on issues that may be litigated in the future. However, several cases have held that the holder of a nondischargeable debt does participate in payments made under the Plan. Friend v. Talcott, 228 U.S. 27, 33 S.Ct. 505, 57 L.Ed. 718 (1913); In re Howell, 84 B.R. 834, 17 B.C.D. 459, 461 (Bankr.M.D.Fla. 1988); In re Edwards, 74 B.R. 661, 665 (Bankr.N.D.Ohio 1987); In re Handy, 41 B.R. 172, 173 n. 1 (Bankr.E.D.Va. 1984); In re Ryan, 32 B.R. 794, 797 (Bankr.D.Md. 1983). In addition, cases have held that the holder of a nondischargeable debt is not restricted from collecting the balance owed outside the Plan. Friend v. Talcott, supra; In re Howell, supra.
S. Rep. No. 95-1106 22 (1978), reprinted in D COLLIER at App. Pt. 4-2168; Edwards v. IRS (In re Edwards), 74 B.R. 661, 665 (Bankr. N.D. Ohio 1987). This last rule is implemented by § 507 (a) (8) (A) (iii), which affords priority status to prebankruptcy income taxes that become assessable after the bankruptcy case filing unless they are both stale and nondischargeable because of some fault ascribed to the debtor.
In balancing the interests of the general creditors, the debtor and the tax collector, the treatment of tax claims was designed to give "governmental units a priority claim on assets of the debtor's estate for certain taxes which have not grown so `stale' as to constitute an unjustifiable burden on general unsecured creditors (who may have extended new credit to the debtor since the tax liability arose)."In re Edwards, 74 B.R. 661, 665 (Bankr. N.D.Ohio 1987) ( quoting Committee on Finance, S.Rep. No. 1106, 95th Cong., 2d Sess. 5 (1978)). V. CONCLUSION
In the instant case, however, the State argues that it is not necessary to proceed to an analysis under § 523(a)(1)(B)(ii) (late filing) because the taxes at issue are less than three years old and are entitled to priority under § 507; thus they are excepted from discharge under § 523(a)(1)(A). The Debtors also rely on Edwards v. IRS, 74 B.R. 661 (Bankr.N.D.Ohio 1987), in which the IRS conducted an audit of the debtor's timely 1982 tax returns approximately three years later, and the debtor executed a consent to extend the time to assess the 1982 taxes until the end of 1986. The debtor filed for bankruptcy in July of 1986.
While that is true, the parties have not cited the court to any binding authority on this issue, and the court's own research has not disclosed any. It is worth noting that the cases the Division of Tax relies on are also outside this jurisdiction and are both more than twenty-five years old. One of the cases the Division of Tax relies on is In re Edwards, 74 B.R. 661 (Bankr.N.D. Ohio 1987). That case was decided under § 523(a)(1)(A) and both its facts and reasoning have no bearing on this issue.The Division of Tax relies on Wood for the proposition that “11 U.S.C. § 523(a)(1)(B)(ii) is the product of Congress' balancing of competing interests between a fresh start for debtors and the importance of paying taxes to State and Federal government.” That statement is not wholly accurate.
The failure to redesignate this cross reference in the 1984 amendments was merely an oversight, and the proper reference in section 523(a)(1) should be to section 507(a)(7). Easton v. United States (In re Easton), 59 B.R. 714, 716 n. 1 (Bankr.C.D.Ill. 1986).Edwards v. I.R.S. (In re Edwards), 74 B.R. 661, 662-63 (Bankr.N.D.Ohio 1987). (A) a tax on or measured by income or gross receipts —
Therefore, these taxes have no priority in payment from the estate but would survive as continuing debts after the case.Savaria v. United States (In re Savaria), 317 B.R. 395, n. 1 (B.A.P. 9th Cir. 2004) (quoting S. Rep. No. 95-110622 (1978), reprinted in D Collier on Bankruptcy App. Pt. 4-2168; Edwards v. IRS (In re Edwards), 74 B.R. 661, 665 (Bankr. N.D. Ohio 1987)). However, such a debt will be discharged under chapter 13, the bankruptcy chapter offering a "super discharge" that eliminates most of the exceptions to discharge detailed in 11 U.S.C. § 523.See 11 U.S.C. § 1328(a) (2000) (exceptions to the section 1328(a) discharge do not include tax debts enumerated under section 523(a)(1)(A), (B) or (C)).
(Not giving priority to a debt means that the creditor can still collect part or all of the debt from the estate, but the creditor must do so as a general creditor, sharing pro rate with other general creditors.). In re Edwards, 74 B.R. 661, 665 n. 19 (Bankr.N.D.Ohio 1987) (quoting S.REP. No. 1106, 95th Cong., 2d Sess. 22 (1978) (emphasis added by Edwards); Daniel v. United States (In re Daniel), 170 B.R. 466, 470 (Bankr.S.D.Ga. 1994). In Chapter 7, the Section 523(a)(1)(C) tax debt for a fraudulent return is nondischargeable, and therefore, a tax authority can pursue a debtor after the bankruptcy case.
Therefore, parts (i)-(iii) of § 507(a)(7)(A) are alternative grounds for priority treatment of claims falling within subparagraph (A) of § 507(a)(7). Debtor contends, however, that the cases of In re Doss, 42 B.R. 749 (Bankr.E.D.Ark.1984) and In re Edwards, 74 B.R. 661 (Bankr.N.D.Ohio 1987) mandate a different result. In Doss, at issue was the dischargeability and priority of unassessed tax liabilities for which debtor had made an untimely filing [after the date on which the return was last due] more than two years prior to debtor's bankruptcy filing.