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Does Res Judicata Apply to Stipulated Tax Court Decisions?
When Can a Court Use Its Discretion to Decline Foreclosure of Property Subject to a Federal Tax Lien?

Application of Homestead Provisions To Keep Your Home in Bankruptcy and Survival of Federal Tax Liens

tax attorney orange county, tax attorney newport beach
tax attorney orange county, tax attorney newport beach

Application of Homestead Provisions To Keep Your Home in Bankruptcy and Survival of Federal Tax Liens

California’s Homestead exemption is found in Chapter 4 of Division two of the California Code of Civil Procedure, pertaining to Enforcement of Money Judgments, in sections 704.710 – 704.850. These sections protect up to $175,000 of a residence in certain circumstances, including if one of the spouses is over 65, and as little as $75,000 if the resident is a single person living alone. The Homestead exemption filed pursuant to CCP § 704.730 is also applicable in Federal bankruptcy by virtue of § 522(b)(3)(A). FN1.

A Homestead exemption applies, generally, to a principal dwelling of the judgment debtor or the spouse when the lien attached and which is continuously resided in through the court’s Homestead determination. It is initially claimed by filing a complete notarized Homestead declaration in the county recorder’s office where the property sits. A step-by-step guide can be found here.

Claiming the Homestead Exemption in Bankruptcy Court May Only Be Keeping Your Home’s Equity for Payment of the Federal Tax Lien

Although the Homestead exemption often is a godsend for homeowners in financial troubles, if you have a Federal IRS Tax Lien against you, it may only be securing the IRS’s interest for later collection of any equity in the home. Bankruptcy discharge only extinguishes in personam modes (against the individual) of enforcing a claim, leaving in rem (against the property) modes in tact. FN2. Tax liens survive bankruptcy, allowing the government to collect against the property of the debtor even when the underlying tax debt is discharged in bankruptcy. FN3. Moreover, where a debtor exempts property from the bankruptcy estate pursuant to 11 U.S.C. 522 and obtains a discharge while retaining that property, the exempted property remains subject to properly filed tax liens. FN4. The Homestead exempted property owned by the taxpayer, retained through the Bankruptcy proceeding, remains subject to the tax liens of the United States

FN1. https://taxattorneyoc.com/wp-content/uploads/2019/01/In-Re-Pass-BAP-9th-Circuit-Opinion-2016-California-Homestead-Exemption-Bankruptcy.pdf

FN2. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S. Ct. 2150, 2154 (1991).

FN3. In Re Isom v. United States of America, 901 F.2d 744, 746 (9th Cir. 1990).

FN4. In Re Demarah v. U.S., 62 F.3d 1258 1248, 1252 (9th Cir. 1995) (citing Isom and 11 U.S.C. 522(c)(2)(B)).

Daniel W. Layton, the author of this post, is a former IRS trial attorney and former Federal prosecutor who was tasked with handling criminal tax prosecutions and civil litigation including tax refund suits, lien enforcement and foreclosures. As a tax attorney in private practice in Newport Beach, he uses his knowledge of IRS procedures and rules to keep the IRS in check and protect his clients’ rights. He may be contacted at (949) 801-9829.