Case Summary (for decision pertaining to IDOR):
Debtor initiated an adversary proceeding against both the IRS and the Illinois Department of Revenue (IDOR), Counts II, III, and IV of which pertain only to the IDOR. Debtor and the IDOR filed cross-motions for summary judgment. The core of the motions was the Debtor's Illinois state income taxes and tax returns for 2016, 2017, and 2018. Count II relates to statutory liens resulting from unpaid income taxes from 2016 and 2017. IDOR filed liens for both years of unpaid taxes in Sangamon County, Illinois. Both parties agree, however, that the Debtor does not have any personal property in the state of Illinois, nor has the Debtor ever owned real property in Sangamon County, Illinois. The Court held that, based on the record as well as the Debtor's current schedules, IDOR had not shown that it has any lien on any property of the estate. There was thus no genuine issue on the question of whether IDOR had a valid lien in any of Debtor's disclosed property. But this determination is confined to the property the Debtor has disclosed as property of the estate. Count III related to Debtor's 2018 Illinois individual income tax liability. Debtor timely filed his original 2018 Illinois Individual Income Tax Return, in which he incorrectly reported his Wisconsin sourced wage income as taxable income. But then the Debtor filed an amended return indicating his tax liability was zero, which IDOR accepted. Indeed, in its answer, IDOR has conceded that it accepted the Debtor's amended return and that Debtor has no tax liability for 2018. The Court reasoned that there was no controversy and thus no dispute that the Court needed to determine. Summary judgment on Count III was therefore denied as moot and for lack of justiciability. Finally, in Count IV, Debtor asked the Court to determine and declare on summary judgment that the 2017 unpaid Illinois income tax claim was not an eighth priority tax claim, did not fall within any section 523 exception to discharge, and was a general unsecured claim that had been discharged. In short, the issue turned on whether a federal change notification is a "return" under applicable provisions of the Illinois Income Tax Act. The Court found that the federal change notification was a return, and therefore, the debt was nondischargeable under section 507(a)(8).
Statute/Rule References:
11 U.S.C. § 506 -- Determination of secured status
11 U.S.C. § 507(a)(8) -- Priority of claims - taxes
11 U.S.C. 523(a)(1) -- Nondischargeability – taxes
Key Terms:
Lien Avoidance
Priority Tax Debt