I. INTRODUCTION

1. CAN A BANKRUPTCY RESULT IN DISCHARGE OF LARGE TAX DEBTS AND AT THE SAME TIME PRESERVE CURRENT ASSETS?
   
   
   1. Many lawyers and CPAs have been under the misguided perception that tax liabilities cannot be discharged in bankruptcy under any circumstances.
   2. The IRS provides scant mention of the use of bankruptcy to eliminate tax liabilities. Publication 908, "Bankruptcy", devotes one small paragraph to the topic stating: "As a general rule, there is no discharge for an individual debtor at the termination of a bankruptcy case for prepetition taxes (as defined earlier) or for taxes for which no return, a late return (filed after a date two years before the filing of the bankruptcy petition), or a fraudulent return was filed. Claims against an individual for other taxes predating the bankruptcy petition by more than three years may be discharged."
   3. The IRS estimates that over $100 billion is owed each year in income tax debts-the so-called "tax gap"-by persons filing tax returns and that at least 10 million taxpayers who are required to file tax returns each year do not file.
   4. The law permitting the discharge of income tax debts was enacted in 1966, over thirty years ago. Prior to 1966, income taxes could not be discharged in bankruptcy in the U.S. However, most of the industrialized countries in the world permitted such discharge as a compassionate law, including England, France, Germany, Australia and Belgium. The Congress recognized the problem: "Frequently, the nondischargeability of taxes prevents an honest but unfortunate debtor from making a fresh start unburdened by what may be an overwhelming liability for accumulated taxes. The large proportion of individual and commercial income now consumed by various taxes makes the problem especially acute." Senate Report 1158.
      
      
2. ALTERNATIVES TO BANKRUPTCY
   
   
   1. Pay the full taxes, penalties and interest now.
   2. Submit an offer in compromise. Be aware that the offer in compromise process can take an agonizingly long period of time for approval. In addition, under the IRS's "allowable living expenses" rules, the amount of expenses allowable for taxpayers has been severely constrained, especially for taxpayers who own homes in higher income states such as California. For example, under the IRS standards, a taxpayer's housing expenses (including mortgage, real estate taxes, property insurance, home owners association dues, repairs, and utilities-including phone, gas, electric, garbage, cable, recycling, and water) cannot exceed $1,625.00 in Santa Clara County. Such an amount would not even cover the costs of a standard mortgage of $150,000 (the average home price in Santa Clara County is over $300,000). Tax practitioners who deal regularly with the California Franchise Tax Board recognize that approval of an offer in compromise is usually futile (although the numbers of acceptances are slowly improving, even if successful the taxpayer is normally required to sign a collateral agreement pledging a percentage of his or her future income over a threshold amount). See attached IRS allowable living expense standards.
   3. Set up an installment agreement and pay the full taxes, penalties and interest over time. Under the IRS's and FTB's "allowable living expenses" rules, the monthly payments may be exorbitant. Moreover, penalties and interest continue to accrue.
   4. With respect to the IRS, there is a 10-year statute of limitations for collection. In some cases the best course of action may be to wait out the 10 years. (Note: 30 year statute of limitations for state tax agencies).
      
      
3. A CHAPTER 7 HYPOTHETICAL
   
   
   1. Hypothetical: Your client was involved in a tax shelter from 1984 to 1989. After litigating the case in U.S. Tax Court for years, a final assessment is issued to your client for $500,000.00 in taxes, interest and penalties for the six tax years on February 15, 1998. A report of the federal assessment is issued to the FTB which in turn issues your client an assessment of $150,000 on March 1, 1998. After being advised that he is not qualified for an offer in compromise (his income is $150,000 per year), your client has set up an installment payment plan with the IRS of $4,000 per month and with the FTB of $2,000 per month. Your client informs you that he cannot possibly afford to pay $6,000 per month based on his current living expenses. Your client's primary asset is the equity in his home of $75,000. The IRS has filed a tax lien in the county in which the residence is located.
   2. Solution: Your client should immediately file a Chapter 7 bankruptcy petition and list the full tax debt of $650,000. After the bankruptcy is completed, your client can negotiate with the IRS for payment of the $75,000 of equity "captured" by the tax lien, assuming that he wants to keep his house. Alternatively, he can walk away from his house and equity, in effect discharging $575,000 of the $650,000 tax debt.
   3. Warning: Legislative changes pending at the time of the writing of this outline would limit the ability of a client with income over $50,000 to file a Chapter 7 bankruptcy petition in certain circumstances.
      
      
4. GENERAL COMPARISON OF CHAPTERS 7 AND 13
   
   
   1. Chapter 7: In a Chapter 7-also called a "liquidating bankruptcy"-all of the debtor's assets and liabilities are marshaled. Any assets in excess of the statutory exemption thresholds are liquidated and paid to creditors in the order specified by the Bankruptcy Code. To the extent that non-exempt assets are insufficient to pay all creditors-which is the most common situation-most or all of the unpaid debts are forgiven, i.e., they are discharged, and the debtor is given a "fresh start." There are no debt limits for a Chapter 7 bankruptcy.
   2. Chapter 13: Chapter 13-also called a "wage earner plan" is a proceeding that allows a debtor to keep all of his property and submit a plan to repay some debts out of future earnings over a three to five year period. A Chapter 13 requires (i) qualification under the debt limits of $269,250 unsecured and $807,750 secured, (ii) a bankruptcy proceeding that continues for 3 to 5 years; and (iii) payment of some of the dischargeable income tax debt through the plan (usually only 2% to 5% and 0% in some jurisdictions).
      
      
5. STATUTORY STRUCTURE
   
   
   1. "The Court shall grant a discharge..." 11 U.S.C. 727(a)
      1. Except as otherwise provided in 11 U.S.C.523.
         1. Section 523(a)(1)(A) provides that taxes described in Section Section 507(a)(8) are not dischargeable. (Priority Taxes).
         2. Section 523(a)(1)(B) describes additional non-dischargeable taxes.

II. DISCHARGING TAXES IN CHAPTER 7

1. TYPES OF DISCHARGEABLE TAXES
   
   
   1. Income Taxes. Both Federal and State income taxes are dischargeable.
   2. Trust Fund Taxes are nondischargeable. 11 U.S.C. 507(a)(8)(C).
      1. Examples:
         1. Income tax withholding. See In re Vecchio, 20 F.3d 555 (2d Cir. 1994).
         2. Employee's share of FICA but not Employer's share. In re Erickson, 172 B.R. 900 (B.Minn. 1994).
         3. 100% Penalty. U.S. v. Pepperman, 976 F.2d 123, 126 (3d Cir. 1992)
         4. Collected Excise Taxes such as gasoline taxes.
   3. Sales Taxes.
      1. Is a sales tax an excise tax dischargeable under 11 U.S.C. 507(a)(8)(E) if over three years old, or a nondischargeable trust fund tax? Taxes that are imposed upon the customer or buyer, and collected by the seller are trust fund taxes. Taxes imposed on the seller for the privilege of doing business are excise taxes.
      2. If the tax is on gross receipts then it is dischargeable under the same rules as income taxes. In re Raiman, 172 B.R. 933 (9th Cir. BAP).
         
         
2. BASIC DISCHARGEABILITY RULES IN CHAPTER 7. There are 5+ rules. All of the criteria must be met.
   
   
   1. Tax is for a year for which a tax return is last due (including extensions) more than 3 years before the filing date of the petition. Bankruptcy Code Section 507(a)(8)(A)(I).
      1. Refers to due date, not date of actual filing.
      2. Example: 1990 tax return. Taxpayer files extension to 8/15/91. Bankruptcy petition filed 7/16/94. Tax non-dischargeable.
   2. The tax was assessed more than 240 days prior to the filing of the bankruptcy petition. Bankruptcy Code Section 507(a)(8)(A)(ii).
      1. 240 days is extended by any period during which an offer in compromise is pending plus 30 days. Id.
         1. An offer in compromise made prior to the assessment of taxes by the IRS does not toll the running of the 240-day period. In re Aberl, 78 F.3d 241, 1996 U.S. App. LEXIS 3907, 1996 FED App. 0077P (6th Cir.).
         2. An offer is pending from the date the statutory waiver is signed by the IRS until an authorized IRS official accepts, rejects or acknowledges withdrawal of the offer in writing. If appealed an offer will continue to be treated as pending until the IRS Appeals Office accepts or rejects the offer in writing. Form 656, para. m. (Rev. 1/97).
         3. But see In re Klein, 189 B.R. 505 (D.C.D. CA 1995) (Filing of appeal did not continue the pendency of the offer). However, the Offer in Compromise form in question apparently did not contain the current language.
      2. IRS Assessment. The date the IRS Officer signs the summary record of assessment showing the amount of tax assessed. IRC Sec. 6203; Treas. Reg. Sec. 301.6203-1. See "plain English" transcript exhibit.
   3. State of California Assessment. The assessment date is the date on which the taxes become final. In re King, 961 F.2d 1423 (1992).
      1. FTB Notice of Proposed Assessment + 60 days. See In re Bracey, 77 F.3d 294 (9th Cir. 1996).
      2. FTB Notice of Action + 30 days.
      3. Sales Tax - After Notice of Determination is issued, and there is a failure to petition, the tax becomes final in 30 days. Rev. & Tax Code Sec. 6561. In petitioned cases the Board's order becomes final 30 days after the Notice of Redetermination is served on the taxpayer. Rev. & Tax Code Sec. 6564.
   4. The tax was not assessable at the time of the filing of the bankruptcy petition. Bankruptcy Code Sec. 507(a)(8)(A)(iii).
   5. A tax return was filed more than 2 years prior to the filing of the bankruptcy petition. Bankruptcy Code Sec. 523(a)(1)(B).
      1. The tax return must have been filed by the taxpayer. IRC Sec. 6020(b) substitute returns are not returns. Bergstrom v. United States, 949 F.2d 341 (10th Cir. 1991).
      2. An amended return is not a tax return for purposes of the 2 year rule. Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934). But see "Tips, Traps, Tricks and the Malpractice Bugaboo," infra, regarding In re Fernandez case. Caveat: Zellerbach is not a bankruptcy case and future cases may adopt Fernandez line of reasoning.
   6. The tax was not due to a fraudulent tax return, nor did the taxpayer attempt to evade or defeat any tax. Bankruptcy Code Sec. 523(a)(1)(C).
      1. The burden is on the IRS to prove fraud by a preponderance of the evidence. See Grogan v. Garberm, 111 S.Ct. 654 (1991).
      2. Are affirmative acts other than a mere failure to pay necessary to prove a willful attempt to evade or defeat taxes?
         1. In re Toti, 24 F.3d 806 (6th Cir. 1994). The court held that even though the debtor claimed that he did not file the returns and pay the tax because he did not have sufficient funds, the taxpayer's failure to pay was a willful attempt to evade or defeat his taxes.
         2. In re Haas, 48 F.3d 1153 (11th Cir. 1995). The taxpayer filed timely returns but did not pay the tax because he claimed that he did not have enough funds to pay all of his obligations, and instead paid creditors other than the IRS. The IRS argued that because his non-payment of tax was intentional and voluntary, the taxpayer had evaded the tax. Held, taxpayer's conduct was not sufficient to bar discharge.
         3. Recent Cases. In re Fegley, 1997 U.S. App. LEXIS 16787 (3rd Cir. 1997) (mere failure to file return or pay tax is willful tax avoidance under Section 523). In re Huber, 1997 Bankr. LEXIS 798 (Bkrtcy.M.D.Fla. 1997) (mere failure to pay tax, without more, is not willful evasion).
   7. The tax is unsecured. Plus requirement. In re Isom, 901 F.2d 744 (9th Cir. 1990).
      1. Lien arises automatically if the taxpayer fails to pay the tax after "notice and demand." IRC Sec. 6321, et. seq. However, for bankruptcy purposes the tax is not secured unless the Notice of Federal Tax Lien has been recorded. See In re Miller, 98 B.R. 110 (N.D.Ga. 1989). Furthermore, the tax is secured only to the extent of the value of the property. 11 U.S.C. 506(a).
         1. Notice of Federal Tax Lien must be filed with County Recorder's Office for the county in which the property is located to be valid as to real property. See IRC Sec. 6323(f).
      2. Initial duration of an IRS tax lien is 10 years. See IRC Sec. 6502; Bowers v. New York & Albany Lighterage Co., 273 U.S. 346 (1927).
      3. State tax lien is 10 years. Cal. Gov. Code Sec. 7172.
         1. May be extended up to a total of 30 years. Cal. Const. Art. 13, Sec. 30.
      4. Lien attaches to all property and rights to property. IRC Sec. 6321.
         1. Bankruptcy and state law exemptions do not apply. Bankruptcy Code Sec. 523(a)(1)(C). In re Crow, 107 B.R. 188 (E.D.Mo. 1989).
         2. For Federal purposes, State law determines where a tax lien notice has to be filed. IRC Sec. 6323(f). In California, as to real property, the notice must be filed in the Office of the Recorder of the county where the property is located. C.C.P. Sec. 2101(b). As to personal property, the notice must be filed with the Secretary of State if the taxpayer is a corporation, limited liability company or partnership. C.C.P. Sec. 2101(c)(1). If the taxpayer is an individual, filing is with the County Recorder for the county in which the taxpayer resides at the time of filing the lien. C.C.P. Sec. 2101(c)(4).
      5. State tax liens.
         1. As to real property, the notice must be filed in the office of the recorder of the county where the property is located. Calif. Gov't Code Sec. 7171(a).
         2. As to personal property, the notice must be filed with the Secretary of State. Calif. Gov't Code Sec. 7171(b).
      6. Tax can be partially secured and partially unsecured. Each part is treated separately.
      7. IRA's and Pension Plans.
         1. The Ninth Circuit has held that a tax lien is enforceable against a debtor's pension plan post-petition if the debtor's interest in the plan was vested and he had an unqualified right to payments as of the petition date. In re Connor, 27 F.2d 365 (1994). Accord, In re Riahl, 93-1 USTC 50,290 (9th Cir. BAP 1993). Thus, the IRS should be able to enforce its lien post-petition against pension payments where the debtor had an unqualified interest in the pension plan, at least to the extent the pension payments are attributable to service performed pre-petition.
         2. An IRA is property subject to tax liens after bankruptcy, despite anti-alienation provisions. Treas. Reg. Sec. 1.401(a)-13(b)(2) (IRA not exempt from IRS levies or execution of federal tax judgments). In re Jacobs, 93-1 USTC 50,118 (W.D.Pa. 1992); In re Schreiber, 163 B.R. 327 (B.Ct. N.D. Ill. 1994). See United States v. Sawaf, 74 F.3d 119 (6th Cir. 1996). Contra: In re Tyler, 91-2 USTC 50,534 (B.Ct.Md. 1991). The lien against an IRA (and pension plan as well) should only attach to the value of the IRA as of the petition date, provided that the taxes are dischargeable. The lien should not be enforceable against any post-petition deposits to the IRA account.
         3. State taxes may not be enforced against assets in an ERISA-qualified plan. Retirement Fund Trust of the Plumbing v. Franchise Tax Board, 909 F.2d 1266 (9th Cir. 1990).
      8. Interest and Tax Liens. If the IRS is over-secured, post-petition interest will accrue on its secured claim, up to the value of the property. In re Ron Pair Enterprises, 489 U.S. 235 (1989).
   8. Interest follows the tax. Matter of Larson, 862 F.2d 112 (7th Cir. 1988). Thus, if the taxes are dischargeable, the interest is dischargeable.
   9. Penalties.
      1. Pecuniary loss penalties are nondischargeable. These are penalties intended to compensate the government for monetary losses and therefore fall under the general rules applicable to tax dischargeability (e.g. 100% penalty).
      2. Non-pecuniary loss penalties are dischargeable. These penalties are intended to be punitive, e.g. fraud penalty, negligence penalty, failure to file penalty, failure to pay penalty.
         1. Non-pecuniary loss penalties follow the tax, except for the 3-year rule.
      3. Pecuniary loss penalties are dischargeable even though the underlying tax is not if the penalty is based upon an event occurring more than 3 years prior to the filing of the bankruptcy petition. Bankruptcy Code Sec. 523(a)(7); McKay v. United States, 957 F.2d 689 (9th Cir. 1992).

III. DISCHARGING TAXES IN A CHAPTER 13 "SUPER DISCHARGE"

1. GREATER DISCHARGEABILITY OF TAX CLAIMS IN CHAPTER 13 THAN CHAPTER 7
   
   
   1. The super discharge of Chapter 13 was provided by Congress as an incentive for the debtor to commit to a repayment plan under Chapter 13 as an alternative to providing creditors nothing under a Chapter 7. Hardin v. Caldwell, 1990 U.S. App. LEXIS 3320 (6th Cir. 1990).
   2. There are several situations where a tax that is not dischargeable in a Chapter 7 is dischargeable in a Chapter 13. Chapter 13 allows a broader range of dischargeable taxes because the tax-related exceptions to discharge described in Section 523 of the Bankruptcy Code, which apply to Chapters 7 and 11, do not apply to Chapter 13. 11 U.S.C. Section 1328(a); In re Fox, 130 B.R. 571 (W.D. Wa. 1991). In a Chapter 13, Section 1322(a)(2) of the Bankruptcy Code provides that the only requirements which must be met for discharge are those set forth in Section 507(a)(8) of the Bankruptcy Code dealing with priority taxes.
   3. No tax return filing requirement. In many cases, the debtor has not filed his tax returns at all or has filed them within two years of the bankruptcy filing date. Unlike Chapter 7, Chapter 13 does not require that the debtor must have filed his tax returns for the years in question at least more than two years prior to filing the bankruptcy petition. 11 U.S.C. Section 523(a)(1)(B)(ii).
   4. Late proof of claim. In a Chapter 13 if the taxing entity fails to file a proof of claim on a priority tax (e.g., trust fund recovery penalty taxes or payroll taxes or income taxes due within three years of the bankruptcy filing date) within the time allowed by the Bankruptcy Code, such claim is discharged if (i) the plan provides for full payment of the priority tax claim and (ii) the claim is unsecured. 11 U.S.C. Section 1322(a)(2). The Bankruptcy Reform Act of 1994 extended the time a tax entity has to file a proof of claim to 180 days after the bankruptcy filing date. 11 U.S.C. Section 502(b).
   5. Fraudulent Returns or Willful Evasion. Where a taxpayer filed a fraudulent tax return or engaged in activity that is deemed willful evasion of a tax obligation, such tax is not dischargeable in a Chapter 7. 11 U.S.C. Sec. 523(a)(1)(c). Chapter 13 does not apply these standards. However, the debtor's dishonest prepetition conduct in regard to his tax obligations may be taken into consideration on the issue of a bad faith (i.e., non-cofirmable) plan. A plan was found to be in bad faith where the debtor, among other things, willfully failed to report any tax liabilities and engaged in tax protester activities. In re Morimoto, 171 B.R. 85 (9th Cir. BAP 1994); In re Greatwood, 194 B.R. 637 (9th Cir. BAP 1996; In re Hopkins, 201 B.R. 993 (D.Nev. 1996). Mere failure to file tax returns is ordinarily not sufficient to find bad faith. In re Lilley, 91 F.3d 491 (3rd Cir. 1996).
   6. Punitive Tax Penalties. Unlike Chapter 7, the majority rule is that punitive tax penalties assessed by a tax entity within three years of the bankruptcy filing date are dischargeable nonpriority claims in a Chapter 13 Bankruptcy. Such penalties are therefore treated as general, unsecured, dischargeable debts in the Chapter 13 plan. The majority of courts have held that a tax penalty is punitive if it "is not in compensation for actual pecuniary loss." In re Healis, 49 B.R. 939 (Pa. 1985); In re Henderberg, 108 B.R. 407 (N.Y. 1989); In re Mitchell, 39 B.R. 696 (Ore. 1984). "Punitive" tax penalties include, among others, late filing, non-filing, negligent filing and underpayment penalties.
   7. The "Bad Boy Loophole" (Assessable but not Assessed Taxes). Under the "Bad Boy Loophole," if a return has not been filed and the tax entity has not yet assessed the tax by use of a substitute return or otherwise, the taxpayer can avoid the 240-day rule altogether. Unlike in the Chapter 7 context where assessable taxes are priority taxes under Section 507(a)(8)(A)(iii), this is not the case in Chapter 13. In re Zeig, 194 B.R. 469 (Bkrtcy.D.Neb. 1996), aff'd 206 B.R. 974 (D.Neb. 1997).
   8. Tolling of Post-Petition Penalties. The majority rule is that new penalties may not be added in a Chapter 13 after the bankruptcy filing date. In re Quick, 152 B.R. 909 (W.D.Vir. 1993).
   9. Tolling of Post-Petition Interest. General unsecured and priority unsecured tax claims do not continue to accrue interest after the bankruptcy filing date unless the taxing entitiy would receive 100% payment from a straight Chapter 7 bankruptcy. In re Smith, 196 B.R. 565 (Bkrtcy.M.D.Fla. 1996). Fully secured claims are entitled to accrue interest after the petition is filed and during the Chapter 13 plan. As a matter of practice, in many Chapter 13 plans fully secured claims do not earn interest because interest is not provided for in the plan and the tax entity does not object.
      
      
2. LIEN-STRIPPING ALLOWED IN CHAPTER 13
   
   
   1. The majority rule is that lien stripping is allowed in a Chapter 13 case (however, see item B.2. below) but not in a Chapter 7 case. Dewsnup v. Timm, 112 S.Ct. 773 (1992); In re Frost, 19 B.R. 804 (Kansas 1982); In re Ever, 164 B.R. 132 (Bkrtcy. C.D. Calif. 1994). Lien stripping under Section 506(a) allows the debtor to bifurcate a tax claim into two separate claims: (i) a secured claim corresponding to the debtor's equity in real and personal property subject to the lien and (ii) an unsecured claim for the balance.
   2. The Supreme Court has held that Section 1322(b)(2) prohibits the removal or "strip off" of the unsecured portion of an undersecured claim from a Chapter 13 debtor's personal residence. Nobelman v. American Savings Bank, 508 U.S. 324 (1993). Query: Does Nobelman apply to tax cases where there is no consensual bargain between the creditor and the debtor? A recent 9th Circuit BAP decision has held that Section 1322(b)(2) does not prohibit the removal or strip off of a wholly undersecured lien on a Chapter 13 debtor's personal residence.

IV. TIPS, TRAPS, TRICKS AND THE MALPRACTICE BUGABOO

1. OBTAIN IRS TAX TRANSCRIPTS.
   
   
   1. Practitioners should obtain a transcript of account from the IRS. The transcript will show, by type of tax and period, when a return was filed and the dates and amounts of assessments. The practitioner may also need to obtain copies of any offer in compromise and Forms 872 (extension of the statute of limitations on assessment) for the debtor. This may require submitting a Freedom of Information Act request if the debtor does not have the information. Caveat: If the IRS gives erroneous information that you rely on in filing the petition, the IRS is not estopped from collecting the tax. In re Howell, 120 B.R. 137 (9th Cir. BAP 1990); contra, In re Hollenbeck, 166 B.R. 291 (Bk S.D. Tex. 1993).
   2. Plain language transcripts may not show SFRs.
   3. Do not rely on the client for critical information like dates of filing, extensions, dates of audits and assessments, and potential tolling events!
   4. If a rush filing must be made and hard copy transcripts cannot be ordered and analyzed in the short time period, call the Tax Practitioner Hotline to get the relevant data over the phone.
   5. In rush cases consider having client sign acknowledgment form releasing the attorney from liability in the event that the case is filed too early.
      
      
2. ELECTION OF 2-YEAR REPLACEMENT PERIOD FOR ROLLOVER OF HOME SALE MAY DELAY DISCHARGE OF TAXES.
   
   
   1. Hypothetical: Suppose your client filed his 1993 tax return and showed the sale of his residence on June 1, 1993 but deferred the gain by checking the box indicating that it was his intention to replace the residence within two years.
   2. Query: If your client does not in fact replace the residence within the two years and files an amended return so stating at the end of the two-year period, under Section 507(a)(8)(A)(i) of the Bankruptcy Code, are the taxes dischargeable three years after the original due date (i.e., April 16, 1997) or three years after the return due date for the amended tax return (i.e., June 2, 1998)?
   3. IRS's position. The IRS is currently taking the position, based on a recent Nevada bankruptcy case, In re Fernandez, 188 B.R. 34 (Bkrtcy.D.Nev. 1995), that the due date of the amended return starts a new three year period for tax dischargeability purposes because under IRS regulations the taxpayer has an affirmative duty to file an amended return if he does not replace his principal residence under IRC Section 1034 within the 2-year replacement period. This decision runs contrary to the decision in Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934) which held that an amended federal tax return is not a new return but is merely an amendment of the original return. Zellerbach, however, is distinguishable.
      
      
3. CERTAIN EVENTS MAY TOLL RUNNING OF 240-DAY, TWO YEAR AND THREE YEAR PERIODS FOR TAX DISCHARGE.
   
   
   1. The filing of a prior bankruptcy may toll the running of the 240-day, two year and three year rules for the period during which the debtor is in bankruptcy plus 6 months. In re West, 5 F.3d 423 (9th Cir. 1993), cert. denied, 511 U.S. 1081 (1994); In re Waugh, 109 F.3d 489 (8th Cir. 1996).
   2. A number of cases hold to the contrary, however. In re Quenzer, 19 F.3d 163 (5th Cir. 1993) (holding that under the plain language of section 108(c) the statute does not suspend the priority period of section 507(a)(8)). In re Nolan, 1997 Bankr. LEXIS 160 (Bkrtcy.M.D.Tenn. 1997) (holding that the 3-year period was not tolled during a prior bankruptcy because the notion of equitable tolling applies only in cases of debtor misconduct).
   3. Does a request for the issuance of a Taxpayer Assistance Order (Form 911) suspend the running of the time periods? See IRC Sec. 7811(d). There are no cases on point on this issue.
   4. Beginning with 1991 income tax returns California grants an automatic 6-month extension for the filing of income tax returns. The extension is contingent on the filing of a return by October 15th. Compare old FTB Form 3502 (1990) with new FTB Form 3519 (1991). Therefore, for purposes of the three-year rule, the state extension is not the same due date as an IRS extension to file. See In re Sullivan, 1996 Cal. Tax LEXIS 77 (April 11, 1996) (SBE decision).