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The following is important so I am sending this from comments in a tax group of which I am a member. House Judiciary Committee Approves Bankruptcy Reform Bill The House Judiciary Committee met February 14 to mark up H.R. 333, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2001, and approved the bill by a 19-8 vote. At press time, none of the 72 amendments offered by committee members related to the tax provisions in the bill and none had passed, although Committee Chair F. James Sensenbrenner Jr., R-Wis., was expected to offer one technical amendment. H.R. 333 would strengthen bankruptcy law so that debtors could not completely escape paying creditors and tax agencies. The bill includes tax provisions that would specify the federal rate of interest that will be imposed on tax claims owed to government entities, provide greater protection for holders of ad valorem tax liens on real or personal property of the estate, require taxpayers to file all tax returns with the bankruptcy court to confirm Chapter 13 plans, and require that tax liabilities cannot be discharged in Chapter 13 plans. The bill would also protect retirement savings accounts and certain thrift savings plan loans held during bankruptcy to the extent that those funds are in a fund or account that is exempt from taxation. Up to $5000 in education savings accounts would be held separate from the estate and would be nondischargeable provided the money was placed at least 365 days before the filing of the bankruptcy case. The bill mirrors the conference report to H.R. 2415, which passed the House by voice vote last October and passed the Senate with a vote of 70 to 28 in December before being vetoed by President Clinton. Rep. George W. Gekas, R-Pa., sponsored the bill, which is identical to one introduced in the Senate (S. 220) by Finance Committee Chair Charles E. Grassley, R-Iowa. For the past three years, lawmakers have been refining bankruptcy reform legislation after the national commission on bankruptcy reported back to Congress its recommendations for substantial tightening of the law. "Because of the tremendous work done on this bill in the previous Congress, only a small portion of time will be needed for hearings to effect a positive result for this much-needed and widely supported bill," said Gekas in a January 31 statement announcing the bill. Sensenbrenner said he decided to begin the legislative agenda with the bankruptcy reform bill because both parties support reform. However, Republicans and Democrats, who generally agree that bankruptcy needs reform, argued bitterly during the markup on everything from the time allotted to each member and members' understanding of the bill, to the chair's heavy-handed gavel. Democrats offered more than 70 amendments that included provisions to strengthen child support payments over other claims, exempt below-poverty-level wage earners from excessive paperwork, and make nondischargeable judgments awarded to reproductive clinics or clients because of intimidation or harassment. Republicans defeated every amendment by unanimous vote, saying the amendments were unnecessary. Rep. Melvin L. Watt, D-N.C., offered 14 amendments, saying he supported the bill under the premise that bankruptcy law needs reform, but that the bill is counterproductive. "Every one of [these amendments] is to make this bill one that I have the capacity to vote for," Watt said. He said the bill would discourage people from going into Chapter 13 rather than Chapter 7. Rep. John Conyers Jr., D-Mich., the panel's ranking member, said the bill would subject all debtors to burdensome disclosure requirements and allow no flexibility in the IRS expense standards. He offered an amendment geared toward small businesses that would give bankruptcy judges more discretion on deadlines in Chapter 11 cases. 2. Tax Liability Excepted From Discharge A federal bankruptcy court, granting the government's motion for summary judgment, has held that an individual's income tax liability for 1991 is excepted from discharge. Samuel Shrenker failed to file an income tax return for 1991. In 1993, the IRS prepared a substitute return for him and issued a deficiency notice for the taxes plus penalties. In 1996 Shrenker submitted a return for 1991 reporting some income and tax liability, but didn't include $32,600 of wage income or an IRA distribution of $41,409. In 1998, Shrenker executed a From 2297 (Waiver of Statutory Notification of Claim Disallowance) and Form 3363 (Acceptance of Proposed Disallowance of Claim for Refund or Credit.) In 1999 Shrenker filed a Chapter 7 petition and shortly afterwards began this proceeding seeking a determination that the tax liability is dischargeable under Bankruptcy Code section 727(b) as not under one of the exceptions for discharge listed in section 523(a)(1).
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