Schools, Fools and Tax Collector Tools

01/01/2003

Introduction

Dealing with taxes in a bankruptcy case requires both the court and the debtor’s attorney to consider the prevailing, yet conflicting, public policy objectives.  First, because the collection of taxes is essential for the orderly operation of the government and the preservation of governmental services, Congress has provided taxing authorities with broad collection powers (i.e., liens, priorities, and civil and criminal penalties).  Bankruptcy, on the other hand, seeks to provide a debtor with a fresh start and an opportunity for financial rehabilitation.  This bankruptcy policy cannot be completely accomplished if the debtor is not provided some degree of relief from tax liability.  Furthermore, many times relief from tax liabilities can lead to the successful rehabilitation of a debtor, which ultimately results in the realization of greater tax revenue than would have been generated if the debtor was forced to face insurmountable past tax liabilities.

In order to comply with certain U.S. Treasury regulations, we are informing you that any U.S. federal tax advice that may be contained in this document is not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding any tax penalties that may be imposed by the Internal Revenue Service or any other U.S. federal taxing authority or agency or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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