The IRS was entitled to lift a bankruptcy stay in order to levy on a taxpayer’s pension because the government’s interests were threatened by the debtor’s spending.
The bankruptcy court didn’t abuse its discretion in finding that “to the extent [the taxpayers] are not using this excess income to make payments to the IRS’s claim, they receive a benefit at the IRS’s expense, as the unpaid claim continues to grow the longer the automatic stay is in effect,” the U.S. District Court for the Eastern District of Wisconsin said in a December 30 opinion.
Gary and Joan Pansier owed more than $250,000 in unpaid income taxes when they filed for bankruptcy. The bankruptcy court granted an IRS motion in February 2019 to lift the automatic stay and allow the government to proceed with collection against Gary’s pension income. The court later amended that decision to limit collection to only some of the tax years at issue because it was unclear if the statute of limitations had expired on the earlier years.
The taxpayers appealed to the district court, which said that under the Bankruptcy Code, the stay can be lifted “for cause, including the lack of adequate protection in an interest in property.”
The Pansiers argued the IRS had failed to meet its burden of proof because it hadn’t proven that their stream of income would cease to exist, but the district court disagreed.
“Appellee asserted in its motion to lift the stay that Appellants were consuming and eroding their approximately $2,300 in discretionary income to pay their personal expenses rather than make payments toward their significant liabilities to the IRS,” the district court said. “In assessing Appellee’s motion to lift the automatic stay, the Bankruptcy Court recognized that, while Appellants had at least $2,309.33 in discretionary income, Appellants neither offered to provide adequate protection to Appellee nor used their discretionary income to make payments to the IRS during the stay.”
No Improper IRS Protection
The bankruptcy court had also considered the fact that the IRS was unlikely to collect all it was owed because the taxpayers were 70 and 82 years old at the time the bankruptcy petition was filed. The Pansiers argued that this was an improper basis to lift the stay.
“The Bankruptcy Court did not seek to improperly protect the IRS for the lifespan of the debtors, however,” the district court said. “Instead, the court noted Appellants’ own concession that, given the accrual of penalties and interest on the amount the IRS claims Appellants owe, it is highly unlikely that the tax liabilities would be paid off in either Appellants’ lifetimes, even if the stay is lifted, and merely considered this factor in assessing whether Appellee’s lien interest is adequately protected during the stay.”
The Pansiers also argued that the bankruptcy court erred in finding that the claim filed by the IRS was prima facie evidence of the validity and amount of the claim. But the district court found that “the Bankruptcy Court was not required to adjudicate the validity of the IRS’s claim in deciding the motion to lift the stay.”
The taxpayers represented themselves in Pansier v. United States, No. 1:19-cv-00537 (E.D. Wis. 2019).