11 U.S.C. 522(c)(2)(B)

The United States Tax Court in Mongogna v. Comm’r of Internal Revenue, Docket No. 18651-23L, filed August 18, 2025, sustained a levy decision from a Collection Due Process hearing after it determined that a Settlement Officer had not abused her discretion. This case presents a good explanation of the effect of a bankruptcy discharge on a pre-petition tax lien filing. Taxpayers are a married couple that owed income taxes for many years. They filed a chapter 7 bankruptcy after the filing of a Notice of Federal Tax lien affecting several tax periods.  They owed total taxes of $288,476 at the time of filing their bankruptcy. A discharge was ultimately issued. Post-bankruptcy, the IRS sent the taxpayers a notice of intent to levy with a right for an Appeal, which the taxpayers took advantage of. The taxpayers were advised that in order to proceed with the Appeals hearing, they would have to provide financials and disclose if they had any exempt or abandoned property from the bankruptcy. Their lawyer argued that it was not their duty to provide this information to the IRS. He further argued that because much of the debt was discharged, it was not necessary to provide financials as they wanted a streamlined payment agreement. That is available when a taxpayer owes less than $50,000. The Appeals officer disagreed and indicated that it was necessary to address the exempt and abandoned property so that the IRS insolvency unit could determine what was discharged and whether or not the pre-petition lien filing attached to the exempt and abandoned assets. The Court agreed with the Appeals Officer that failure to disclose this information prohibited a collection alternative, such as an installment agreement, from being established. It is worth repeating the rule relating to the effect of the lien in this matter. A chapter 7 bankruptcy may discharge a person from personal liability for the federal taxes owed in some cases, however, it does not extinguish a pre-bankruptcy petition federal tax lien. See 11 U.S.C. 522(c)(2)(B). Therefore, collections can be enforced against taxpayers exempt or abandoned property, post-bankruptcy.