Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
A bankrupt couple claiming that their 2015 tax refund is exempt under New York law must turn it over to the Chapter 7 trustee, the U.S. Bankruptcy Court for the Eastern District of New York held Jan. 31 ( In re Crutch , 2017 BL 28966, Bankr. E.D.N.Y., No. 15-44523-cec, 1/31/17 ).
Debtors Doris and Benjamin Crutch’s source of income is from a private pension plan and Social Security benefits. That income wasn‘t considered part of their bankruptcy estate under New York law.
But parts of their income withheld as tax lose that exempt status, meaning the Crutch’s tax refund is property of the estate, Judge Carla E. Craig wrote in a case of first impression.
The funds at issue here aren’t “payments from a pension plan or Social Security benefits once they have been collected as a tax, credited against tax liability, and returned to the Debtors as a tax refund,” the court said.
Pension payments and Social Security benefits should be treated as “wages” for tax withholding purposes, the court said, applying the Tenth Circuit’s reasoning in Manchester v. Annis (In re Annis), 232 F.3d 749 (10th Cir. 2000). Periodic payments from a pension plan are “wages” subject to withholding, and Social Security benefits are considered equivalent to payment of “wages,” the court said.
The court rejected the debtors’ argument that the refund was exempt because the tax was derived from exempt income.
Rosen, Kantrow & Killon, PLLC, represented the Chapter 7 trustee; Law Office of Harriette N. Boxer represented the debtors.
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)