Jung v. Internal Revenue Serv. (In re Jung) (Bankr. W.D. Wis., 2019)
Jung v. Internal Revenue Serv. (In re Jung) (Bankr. W.D. Wis., 2019) holds Bankruptcy court has jurisdiction to adjudicate both dischargeability as well as liability of prepetition taxes owed to IRS:
After filing chapter 7 the debtors filed an adversary action in bankruptcy court requesting a ruling of discharge for income taxes and penalties.
“The IRS moved to dismiss this adversary on the ground of lack of subject-matter jurisdiction under Federal Rules of Civil Procedure 12(b)(1) and 12(h)(3). The IRS asserts the adversary should be dismissed because the decision will not affect creditors given that the case is a no asset chapter 7. The IRS argues that even if the Court has jurisdiction, the Court should abstain from exercising it “in the interests of judicial economy and because a more appropriate forum exists to adjudicate this matter.”
“Jung responds the Court has jurisdiction because (1) the determination of tax liability arises under Section 505(a) of the Code, and (2) a dischargeability determination is a core proceeding.”
After a fair amount of discussion about 11 U.S.C. ¶ 505 and 523, and 28 U.S.C. § 1334, and 28 U.S.C. § 157(b)(2)(i), addressing what is a “core proceeding” and the basis for jurisdiction, the court held:
“The IRS assessed tax and penalties against Jung. He filed bankruptcy and asks the Court to determine whether the tax and penalties are dischargeable. Determination of the amount of tax or penalties and the decision on dischargeability are intertwined. In the end, determinations about whether a debt is dischargeable are substantive rights provided by 11 U.S.C. § 523.
“In sum, this Court has jurisdiction. Dischargeability is a core proceeding. It is a substantive right that does not exist outside bankruptcy. Having assessed tax and penalties, the IRS acknowledges there is a debt. If necessary, this Court can determine the amount of tax or penalties as part of the decision on dischargeability.”
Having retained jurisdiction, the court’s next step would be adjudicating the case.