Discharging Income Tax Liabilities in Bankruptcy: A Challenge to the New Theory of Strict Construction for Scriveners' Errors
Gregory L. Germain
Syracuse University - College of Law
August 22, 2006
The Supreme Court has been closely split on whether judges may consider legislative history in determining if a statute contains scriveners' errors. With the recent appointment of Justices Alito and Roberts, the Supreme Court's balance has likely shifted toward the strict constructionists' view. If strict constructionism becomes the law of the land, courts will be powerless to correct drafting errors that do not, on the face of the statute alone, give rise to absurd results.
In 2005, Congress passed and the president signed the most significant changes to the Bankruptcy Code in more than twenty five years, including some technical changes to the provisions protecting governmental income tax claims.
Before the 2005 amendments, it was clear that all income tax claims incurred in the three or four calendar years before bankruptcy were entitled to special priority in distribution from the bankruptcy estate, and could not be discharged. In addition, older income tax claims were also entitled to priority and excepted from discharge if either (1) they happened to be assessed within 240 days before bankruptcy, or (2) they were not assessed before bankruptcy but could be assessed under applicable non-bankruptcy law after bankruptcy.
The 2005 Act changed the structure of these rules. In general, if the debtors' tax returns were timely filed, the change would turn the government's priority and non-dischargeable tax claims for the two, three and sometimes four calendar years before bankruptcy into non-priority claims that could be discharged. The change would significantly impair the government's ability to collect recent income taxes, and would encourage bankruptcy filings by debtors who have significant income tax liabilities.
The legislative history of the 2005 Act shows that the structural changes were simply a drafting error. Congress did not intend to change the structure of the statute. However, the statute on its face does not create an absurd result. The line between priority/non-dischargeable and non-priority/dischargeable taxes has always been discretionary. Congress could rationally have intended to move the line in either direction. Therefore, under the scriveners' error standard proposed by the strict constructionists, which forbids judges from consulting legislative history to determine if a drafting error was made, the statute should be enforced as drafted. This is the wrong result if the judiciary's primary goal is to carry out the intent of Congress. Even if the world view underlying the strict constructionists' theory is correct - that the statutory language should stand on its own because judges will improperly pick and choose from ambiguous legislative history to carry out their own views rather than the legislature's will - there is no need to prohibit the consideration of unambiguous legislative history. The article shows the need for strict constructionists to temper their rule when the legislative history is not ambiguous if the primacy of legislative intent is to be respected.
Number of Pages in PDF File: 41
Keywords: Income Tax, Bankruptcy, Priority, Discharge, Scriveners' Error, Scrivener's Error, Statutory Interpretation, Strict Construction
JEL Classification: K29, K34
Date posted: August 22, 2006