Florida Court Upholds Discharge Of Tax Liability in Bankruptcy Proceeding

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A taxpayer who was unable to pay his tax liability and had to declare bankruptcy was entitled to have his tax liability discharged, because he did not willfully attempt to evade the tax, the U.S. District Court for the Middle District of Florida held Dec. 3 (United States v. Lindros (In re Lindros), M.D. Fla., No. 8:11-cv-02804-SDM, 12/3/12).

Judge Steven Merryday held that the bankruptcy court did not err in concluding that the Internal Revenue Service “failed to meet the burden of proving by a preponderance of the evidence that Lindros's failing to pay his 2000 taxes was an act of willful evasion rather than the result of bad fortune, mismanagement, or the like.”

Mark Lindros was a Chapter 7 debtor, and the bankruptcy court ruled that Lindros could discharge his 2000 tax liability, because he did not willfully attempt to evade or defeat the tax.

Merryday said there was ample evidence that Lindros initially failed to pay his 2000 taxes because of the mistaken belief that he could offset the tax liability with capital losses. Lindros did not willfully attempt to avoid the tax, because by the time he realized he could not offset the taxes with capital losses, he had lost the ability to pay the taxes by losing all of his money in the 2000 stock market crash, Merryday said.

The bankruptcy judge correctly determined that once Lindros realized he could not pay the tax, he attempted to work out a payment plan with IRS, Merryday said.

Lindros also filed for bankruptcy protection because he was unable to pay, Merryday said, and the bankruptcy judge correctly held that filing for bankruptcy filing does not constitute willful evasion.

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