Memorandum of Decision Re: Tax Assessment Date
1. The debtor filed his 1980 federal income tax return by its due date of April 15, 1981.
2. A few months thereafter, he learned that one of his credits was not allowable.
3. In February or March, 1982, he filed an amended return reflecting an additional amount due to the Internal Revenue Service of $6,525.00 after elimination of the credit. The debtor did not enclose payment with the return.
4. On November 30, 1983, the debtor signed and returned to the IRS a form 872-A, which extended the time within which the IRS was obligated to assess any additional 1980 income taxes. The agreement recited that it terminated upon the happening of certain events, including final assessment of the tax owed. The agreement specifically excluded from the definition of such assessments tax reported on amended returns.
5. A cover letter sent to the debtor with the form 872-A reasonably led the debtor to believe that if he signed the form and was later found to owe more taxes that he would not be charged interest on those taxes.
6. The debtor filed a Chapter 7 bankruptcy petition on October 22, 1985, duly scheduling the proper tax debt. He was discharged on February 28, 1986.
7. On August 25, 1986, the IRS assessed additional taxes owed for 1980, over and above those reported in the original return, in the amount of $6,534.46. Thus, the amount of tax reported on the amended return was less than $10 lower than the amount eventually assessed.
The position of the IRS is simple. It argues that pursuant to section 507(a)(7)(A)(iii) of the Bankruptcy Code its claim for the additional taxes is entitled to priority status because they were not assessed before the bankruptcy and, by virtue of the time extension contained in the form 872-A, were assessable after bankruptcy. Section 523(a)(1)(A) makes taxes entitled to priority nondischargeable. The debtor's position is somewhat less clear. Basically, he argues that because he filed an amended return showing the substantially correct tax owing that section 507(a)(7)(A)(iii) does not apply, the claim for the tax is not entitled to priority, and the tax has therefore been discharged. The basic issue here is whether the debtor, by voluntarily amending his tax return, in essence assessed himself and therefore started the 240-day statute of limitations of section 507(a)(7)(A)(ii) running, or whether, because he signed the form 872-A, the taxes were assessable after bankruptcy notwithstanding the amended return. The law and the facts compel the latter result. In in re Whitehead (Bkrtcy.D.Ore.1986) 61 B.R. 397, the debtors filed an amended state tax return reflecting an additional tax liability and then filed a Chapter 7 petition 243 days thereafter. They then filed an adversary proceeding seeking to have the tax declared discharged on the grounds that when a correct amended return is filed no further assessment is allowed. The court rejected the debtors' argument and found that the tax had not been discharged. This Court agrees that the mere filing of an amended return does not constitute an assessment. Factually, the agreement the debtor made in this case to extend the assessment period undercuts his argument that the taxes had already been assessed when he filed his bankruptcy petition. The agreement clearly provides that assessment of a tax reported on an amended return does not shorten the time the debtor granted the IRS to finally assess the tax. Moreover, while there is evidence that the debtor filed his amended return there is no evidence whatsoever that the additional taxes reported in it were ever assessed until after the bankruptcy was filed. Thus, the Court finds that the taxes were not assessed before the bankruptcy and were lawfully assessed after the bankruptcy. This finding compels a decision in favor of the IRS. The Court agrees with the debtor in one regard. The cover letter sent to him with the form 872-A states that he should sign it if he was interested in "saving the further accrued interest on any deficiencies which may be determined." It would be inequitable to hold the tax nondischargeable because the debtor signed the 872-A without holding the IRS to the entirely reasonable (although probably unintended) interpretation that signing the 872-A would stop further accrual of interest. The bulk of the debtor's legal argument arises out of a fundamental misunderstanding of bankruptcy law. The debtor argues that the tax is discharged because the IRS did not bring an action pursuant to section 523(c) of the Code to determine dischargeability within the time limits of Bankruptcy Rule 4007(d). However, section 523(c) applies only to the sort of debts specified in sections 523(a)(2), (4), and (6). This dispute involves a debt specified in section 523(a)(1). A complaint to determine the dischargeability of this type of debt may be commenced by either party at any time pursuant to Bankruptcy Rules 4007(a) and (b). For the foregoing reasons, the subject tax will be found nondischargeable as to the amount of the tax, interest through November 30, 1983, and all penalties. The IRS will be estopped from collecting interest after November 30, 1983. This memorandum constitutes findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052. Counsel for the IRS shall submit an appropriate form of judgment.
Dated: June 20, 1988 _________________________ Alan Jaroslovsky U.S. Bankruptcy