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Finally, under docket No. 23547-06L,5 petitioners challenge
respondent’s application of the bankruptcy proceeds to the
employment tax liabilities of Mr. Salazar instead of the joint
tax liabilities of both petitioners. Because the distribution
occurred after the bankruptcy proceeding was closed, and Mr.
Salazar raised it during the hearing, we may review this issue.
At the time of the bankruptcy trustee’s final report,
respondent possessed: (1) A secured claim of $19,915.40 for
petitioners’ 1997 and 1998 tax liabilities; (2) an unsecured
priority claim of $43,673.45 for petitioners’ 1999 income tax
liabilities and Mr. Salazar’s 1998, 1999, 2000, and 2001
employment tax liabilities; and (3) an unsecured general claim of
$8,850.74. However, only payment on respondent’s $43,673.45
priority claim was allowed by the bankruptcy trustee.
Respondent applied the $17,834.51 that was ultimately
disbursed by the bankruptcy trustee on August 22, 2005, to the
employment tax liabilities of Mr. Salazar that made up part of
respondent’s priority claim. At first respondent applied the
disbursement to the employment tax periods ending December 31,
1998, March 31, 1999, and June 30, 1999, in amounts that exceeded
respondent’s priority claims for those periods. Eventually,
respondent corrected this application of the proceeds to also
5The trustee had not filed his final report nor had any
disbursements been made at the time of petitioners’ collection
review hearing with respect to their joint liabilities.
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