Local Rule Requires Automatic Submission of Tax Returns During Plan

Posted by NCBRC - May 14, 2020

The Arizona District Court found that the District of Arizona’s Local Plan Form for chapter 13 bankruptcies under which all debtors must automatically submit their tax returns during the life of their plans does not conflict with the Code. Reichard v. Brown (In re Reichard), No. 19-2010 (D. Ariz. March 12, 2020) (unpublished).

In 2017, Fed. R. Bankr. P. 3015 was amended to provide that a chapter 13 debtor must use federal Official Form 113, unless there is a local form governing chapter 13 plans. Part 2.3 of the Official Form 113 offers three alternatives for dealing with a debtor’s tax returns during the course of his plan, the second of which requires the debtor to provide all tax returns filed during the plan to the trustee within 14 days of filing with the taxing authority. In response, the District of Arizona amended its own Local Plan Form to mirror that second alternative.

In this case, the trustee objected to the debtors’ proposed plan because it did not provide for automatically turning over their tax returns. The bankruptcy court sustained the objection and ordered the debtors to include the provision in their plan. They appealed to the district court.

The central issue on appeal was whether the requirement in the local rule that debtors automatically file their tax returns during the course of their chapter 13 plan conflicts with the Code. The debtors pointed to section 521(f), which provides that “upon the request of the court,” the trustee, or any party in interest, debtors in bankruptcy shall submit post-petition tax returns at the same time they file the returns with the taxing authority. They argued that, under section 521(f), the trustee must make a separate request for each tax return.

The district court disagreed. The court reasoned that nothing in section 521(f) precludes districts from creating local rules with a tax filing requirement and, in fact, the court noted that similar rules are widespread among Ninth Circuit districts. In affirming, the court found that the local rule facilitates the trustee’s obligations under sections 704(a)(4) and 1329(a)(1), to investigate a debtor’s finances and seek modification of a chapter 13 plan if the debtor’s ability to pay increases post-confirmation. Furthermore, as a practical matter, the court found that compliance with section 521(f), requiring trustees to seek tax returns each year for each debtor is cumbersome and costly.

The court rejected the debtor’s argument that the Local Plan Form conflicts with the Code because section 521(f) sets out the only method for obtaining a debtor’s post-confirmation tax returns. The court noted that tax documents have been found to be discoverable in adversary proceedings and for purposes of a Rule 2004 examination without invocation of section 521(f). It concluded that, while section 521(f) is one method of obtaining a debtor’s tax returns, it is not the only available method and that “the Local Plan Form permissibly creates a reasonable and efficient way for the Trustee to receive Debtors’ post-petition tax returns and does so in a way that complies with FRBP 3015 and other applicable law.” It affirmed.

Reichard D Ariz March 2020

The Ninth Circuit affirmed the decision of the bankruptcy court, No. 20-15661 (9th Cir. Nov. 20, 2020). Reichard 9th Cir Nov 2020


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