§ 42.4 — Tax Return Duties—In General

Revised: July 3, 2007

[1]

Along the road to BAPCPA,1 Congress fixated on the idea that tax returns were fundamental to the administration of consumer bankruptcy cases. Without much logic or discipline there are new tax return responsibilities spread throughout the Bankruptcy Code by BAPCPA and a few added by the rules drafters for good measure. So many tax return duties were added that significant redundancies and conflicting duties are now imposed on debtors in Chapter 13 cases. There are new traps for debtors, much expense is inevitable and the benefits of all this tax return mania are doubtful.

[2]

Six amended sections of the Code2 and one new interim rule3 conspire to create a labyrinth of new tax return duties, timetables and consequences. Chapter 13 debtors must provide tax returns to the trustee and to any timely requesting creditor seven days before the first date set for the meeting of creditors.4 One day before the first scheduled date of the meeting of creditors, there is a new filing requirement with respect to four years of tax returns.5 On request of a creditor, the court, the trustee or any party in interest, the Chapter 13 debtor must file and/or provide some or all of the tax returns required for three or four years before the petition and for tax years during the Chapter 13 case.6 There are significant if not contradictory consequences for the failure of a Chapter 13 debtor to file or provide tax returns under the new BAPCPA requirements.7 All these new tax return filing and disclosure mandates raise confidentiality issues for Chapter 13 debtors.8

[3]

There is a sense that someone in Washington went overboard with respect to the importance of tax returns in consumer bankruptcy cases. It is one thing to empower a trustee to access tax returns when the facts of a bankruptcy case indicate the need for that information. Experienced trustees will tell you that those cases are easily identified. It is another thing altogether to require every Chapter 13 debtor (in fact, every individual debtor under any chapter) to file and provide years of tax returns without regard to need or usefulness.

[4]

Pre-BAPCPA law and the Rules of Bankruptcy Procedure already gave Chapter 13 trustees and creditors simple and effective examination and discovery procedures that included a Chapter 13 debtor’s tax returns.9 By local rules or orders in individual cases, some courts required Chapter 13 debtors to file or provide limited tax information in Chapter 13 cases. Under BAPCPA, Chapter 13 trustees are inundated with thousands of tax returns in cases in which there is no indication of any need to actually review the returns.

[5]

There are massive storage issues that exacerbate confidentiality concerns.10 BAPCPA requires many returns to be filed with the bankruptcy court.11 These presumably will be scanned .pdf files in ECF districts that will create transmission and storage problems. Maintaining proper confidentiality with respect to electronic tax files will have to be addressed by the bankruptcy courts.

[6]

The new tax return duties in BAPCPA fall roughly into four categories. There are new duties to file tax returns with taxing authorities.12 There are new duties to file tax returns with the bankruptcy court upon the request of the court, the U.S. trustee or any party in interest.13 There are new duties to provide tax returns to the Chapter 13 trustee.14 And, upon a timely request, there are new duties to provide tax returns to creditors.15


 

1  See § 361.1 [ A Short History, Including “Legislative History,” of BAPCPA ] § 2.2  Brief History, Including “Legislative History,” of BAPCPA.

 

2  See 11 U.S.C. §§ 521(e), 521(f), 521(g), 521(j), 1307(e), 1308.

 

3  See Interim Bankr. R. 4002(b)(3)–(5).

 

4  See 11 U.S.C. § 521(e) and Interim Bankr. R. 4002(b)(3), discussed in § 390.1 [ Tax Return Duties Seven Days before First Scheduled Meeting of Creditors ] § 42.5  Tax Return Duties Seven Days before First Scheduled Meeting of Creditors.

 

5  See 11 U.S.C. § 1308, discussed in § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

6  See 11 U.S.C. §§ 521(e)(2)(A)(ii) and 521(f), and Interim Bankr. R. 4002(b)(4), discussed in § 392.1 [ Tax Return Duties—On Request ] § 42.7  Tax Return Duties—On Request.

 

7  See 11 U.S.C. §§ 521(j) and 1307(e), discussed in § 393.1 [ Consequences of Failure to File or Provide Tax Returns ] § 42.8  Consequences of Failure to File or Provide Tax Returns.

 

8  See 11 U.S.C. § 521(g) and Interim Bankr. R. 4002(b)(5), discussed in § 394.1 [ Tax Return Confidentiality Issues ] § 42.9  Tax Return Confidentiality Issues.

 

9  See, e.g., Fed. R. Bankr. P. 2004, 7034.

 

10  See § 394.1 [ Tax Return Confidentiality Issues ] § 42.9  Tax Return Confidentiality Issues.

 

11  See 11 U.S.C. § 521(f), discussed in § 392.1 [ Tax Return Duties—On Request ] § 42.7  Tax Return Duties—On Request.

 

12  See 11 U.S.C. § 1308, discussed in § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

13  See 11 U.S.C. § 521(f), discussed in § 392.1 [ Tax Return Duties—On Request ] § 42.7  Tax Return Duties—On Request.

 

14  See 11 U.S.C. § 521(e), discussed in § 390.1 [ Tax Return Duties Seven Days before First Scheduled Meeting of Creditors ] § 42.5  Tax Return Duties Seven Days before First Scheduled Meeting of Creditors.

 

15  See 11 U.S.C. § 521(e)(2)(A)(ii), discussed in § 392.1 [ Tax Return Duties—On Request ] § 42.7  Tax Return Duties—On Request.