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otherwise indicated, all section references are to the Internal
Revenue Code in effect for the years in issue.
Background
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioners resided in Raymore, Missouri, at the time they filed
their petition. Assessments were made against petitioners for
Federal income tax for 1981, 1982, and 1983; the assessments were
related to petitioners’ investments in the early 1980's in tax
shelter activities.
Petitioners filed for bankruptcy on July 29, 1994. The
Internal Revenue Service (IRS) filed a proof of claim in the
bankruptcy case for 1981, 1982, and 1983 Federal income taxes.
Petitioners objected to the IRS proof of claim related to the
1983 tax liability in the bankruptcy case but later withdrew that
objection.
On December 22, 1994, the Bankruptcy Court granted
petitioners a discharge. Petitioners’ tax liability for 1981 and
1982 was not discharged in the bankruptcy. Petitioners’ tax
liability for 1983 was discharged in the bankruptcy, but the
discharge does not prevent the collection of the 1983 liability
from property that was exempt from the bankruptcy estate.
Petitioners were aware that the IRS retained the right to levy on
their exempt assets. Petitioners’ withdrawal of their objection
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