Local Rule 6070-1: TAX RETURNS & TAX REFUNDS

Rule 6070. TAX RETURNS & TAX REFUNDS [Former Rule 42]

6070-1. A. In General. The failure of a debtor in an asset case under any chapter of Title 11 of the United States Code to file any required tax return promptly after filing the petition or after conversion may constitute "cause" for dismissal or conversion of the case upon a request by a party in interest and after hearing on notice.

B. As to "Estimated" Tax Claims. Concurrent with the debtor's duty to file tax returns is the duty to assure that improper distributions are not made upon "estimated" tax claims resulting from the Debtor's failure to file returns.

Overpayment of taxes by allowance of unduly-high "estimated" tax claims may occur to the prejudice of other unsecured creditors, whose percentage distribution may be reduced for the benefit of the excessive "priority" tax claim.

Underpayment of taxes by allowance of unduly-low "estimated" tax claims leaves the Debtor liable for the deficiency after he or she emerges from bankruptcy. And it may have resulted in a windfall for other creditors.

When the tax claim is an "estimated" claim only because no return was filed, the burden must be placed on the Debtor to take steps to avoid prejudice to other creditors (and the Debtor may wish to take steps to protect himself or herself as well.)

At the least, the Debtor shall within 30 days of service of a copy of an "estimated" tax claim that is "estimated" because of non-filing of returns, object to such claim under Rule 3007 Fed.R.Bankr.P. even if the Debtor does not disagree with the amount. A copy of the proposed return or other evidence of the amount of the liability shall accompany the objection. If the Debtor is not served with a copy of the "estimated claim", then the objection must be filed within 30 days after the closing of the 180 day opportunity for the filing of tax claims under § 502.

At the hearing on the objection the Debtor shall appear and shall be prepared to tender the tax return thereat or to provide evidence to the Court as to a proper "estimate" of the tax claim, whether higher, lower, or the same as that filed by the taxing entity.

The Court will thus "estimate" the claim for the purpose of allowance but will not at that hearing determine the Debtor's tax liability under § 505 or the applicable tax laws. The duty to file a return and the risk of additional liability remains at all times on the Debtor, and any discharge shall not discharge the unpaid balance of any actual tax liability, interest or penalties. Determination of tax liability under § 505 requires an Adversary Proceeding.

If the objection required by this rule is not made, the case may on motion on notice to the Debtor and counsel be converted or dismissed, as to the Court appears proper.

The taxing entities may assert other remedies, such as objections to confirmation of a plan. If a plan is confirmed "pending" the estimation of the tax claims as above, then confirmation shall be without prejudice to any objections properly arising out of the hearing on the claim, such as (but not limited to) objections based on feasibility, projected disposable income, or lack of good faith.