In Re Jha
461 B.R. 611
Bankr. N.D. Cal.2011Background
- Pre-petition, Debtor filed Form W-4 requesting single status with 5 allowances; IRS Lock-in Letter directed withholding based on single status with 0 allowances for 2008.
- Lock-in Letter issued April 17, 2008; provided 30-day window to contest withholding and instructed employer to withhold per IRS determination if no response.
- Debtor filed Chapter 13 petition June 23, 2008; Debtor’s schedules show IRS taxes owed and family circumstances.
- IRS issued nine Notices of Intent to Levy post-petition (July 16, 2008) relating to 1999–2007 taxes; Debtor alleges stress and wage interference.
- Debtor’s counsel communicated with IRS; IRS later stated it would not pursue levies or liens; Lock-in Letter remained in effect through December 2008.
- Debtor sought damages for post-petition Notices of Levy and for the IRS’s failure to lift the Lock-in Letter; court bifurcated damages and ruled on withholdings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Lock-in Letter and stay violation | Jha: lock-in impermissibly controls estate property and violates §362(a)(3). | IRS: lock-in funds not property of estate; falls under police powers; pre-petition letter not stay violation. | Lock-in Letter did not violate the stay; no stay violation found. |
| Property status of withholdings | Withheld wages are estate property; lock-in increased withholding for post-petition taxes. | Withheld funds are held in trust for IRS; no estate property interest; Begier controls. | Withheld wages remained in trust for IRS; funds do not become estate property for stay purposes. |
| Post-petition Notices of Intent to Levy | Nine post-petition notices violated the automatic stay and caused damages. | Notices complied with collection program; not argued here. | Nine post-petition Notices to Levy were willful stay violations. |
| Damages and exhaustion of administrative remedies | Debtor may recover actual damages without exhausting administrative remedies for stay violations. | Administrative remedies must be exhausted under 26 U.S.C. § 7433; damages limited by statute and costs. | Actual damages awarded for medication; no lost wages; administrative exhaustion not required for actual damages under § 7433(e)(2)(A); costs argued separately. |
Key Cases Cited
- Begier v. United States, 496 U.S. 53 (1990) (tax withholdings held in trust for IRS; trust arises at wage payment)
- In re Gould, 603 F.3d 1100 (9th Cir. 2010) (tax overpayments vs refunds; withholding trust concepts)
- In re Stinson, 295 B.R. 109 (9th Cir. BAP 2003) (damages for stay violation; actual damages must be proximate and causal)
- In re Roman, 283 B.R. 1 (9th Cir. BAP 2002) (damages for automatic stay violation; nexus to incurrence of actual damages)
- In re Dawson, 390 F.3d 1139 (9th Cir. 2004) (causation and damages; stay violation damages require proximate causation)
- In re Henry, 328 B.R. 664 (Bankr.E.D.N.Y. 2005) (elements for proving stay violation damages; standard applied)