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The Bankruptcy StrategistFeaturesBankruptcyLitigationTax

Stipulation That Resolves Entire Amount Must Reflect Intent of Parties

By Francis J. Lawall and Kenneth A. Listwak
July 01, 2022

It arguably goes without saying that when entering into a stipulation or any settlement in a bankruptcy proceeding that purports to resolve the entire amount and treatment of a claim, the terms of such agreement must fully and clearly reflect the intent of the parties. This is particularly true in connection with nondischargeable priority tax claims, as demonstrated in a recent U.S. Court of Appeals for the Ninth Circuit decision. See, Minor v. United States (In re Minor), No. 21-55360 (9th Cir. Apr. 18, 2022). In Minor, the Ninth Circuit affirmed the lower courts' rulings that a stipulation between the IRS and a bankruptcy trustee, which allowed the IRS's priority tax claim, did not prevent the IRS from collecting nondischargeable tax debt above the agreed amount in that stipulation.

In Minor, the IRS held a priority claim for the debtor's 2009 tax debt, which the parties agreed was nondischargeable. Typically, a taxing authority is able to pursue additional nondischargeable tax debt, even if the IRS included such debt in a proof of claim in the bankruptcy proceeding. However, here, the IRS and the trustee entered into a stipulation, approved by the bankruptcy court, which allowed the IRS's 2009 priority tax claim in the amount of $997,869.07. When the IRS attempted to pursue the debtor for further amounts owed by the debtor from his 2009 taxes, he argued, relying on the doctrines of issue and claim preclusion, that the IRS was foreclosed from collecting any 2009 tax debt above the amount agreed to in the stipulation. After the bankruptcy court granted judgment on the pleadings in favor of the IRS, which the district court affirmed, the debtor appealed to the Ninth Circuit.

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