Tax Case Hotwire
The Tax Case Hotwire was created so that taxpayer could learn from the successes and failures of tax cases.
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Part-Owner of Internet Provider for U.S. Troops at Kandahar Airfield Pleads Guilty to Tax Evasion
Defendant Concealed More Than $2 million of Income
A U.S. businessman pleaded guilty today to evading his federal income taxes.
According to court documents and statements made in court, since 2007, Robert N. Dooner has lived outside the United States, intermittently in the United Arab Emirates (UAE) and Ibiza, Spain.
Starting in approximately 2007, Dooner worked as a business associate of Individual-1, an American living abroad. Together with others, including Individual-1, Dooner formed a joint venture incorporated in the UAE to provide internet services to U.S. military personnel at Kandahar Airfield in Afghanistan. Individual-1 helped fund the joint venture with proceeds from Company-1 – a business providing commodities to the U.S. Department of Defense in Kyrgyzstan, Afghanistan and the Middle East.
For 2015 through 2019, Dooner evaded taxes owed to the IRS by underreporting to his tax preparer the profits he earned from his ownership interest in the joint venture, as well as other compensation he received through his work for Individual-1.
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Honduran Nationals Sentenced In Multi-Million Dollar Wire And Tax Fraud Scheme
Friday, November 3, 2023
Jacksonville, Florida – Chief United States District Court Judge Timothy J. Corrigan has sentenced Omar Wilkin Santos-Calix and Oscar Rene Santos-Santos, both Honduran nationals and both illegally present in United States, to 24 months in federal prison for conspiracy to commit wire fraud and conspiracy to commit tax fraud.
The court also ordered Santos-Calix to pay restitution to the IRS in the amount of $3,245,161 and entered a money judgment against Santos-Calix in the amount of $897,870, representing the proceeds of the wire fraud. The court ordered Santos-Santos to pay restitution to the IRS in the amount of $1,773,429 and entered a money judgement against Santos-Santos in the amount of $490,634, representing the proceeds of the wire fraud.
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CDP: TAXPAYERS HAD ABILITY TO
LIQUIDATE SOME ASSETS TO MAKE PAYMENT BUT REFUSED
Guy Bar-Am & Aimee Bar-Am v. Comm'r of Internal Revenue, 24179-22L (T.C. Nov 03, 2023)
According to IRM pt. 5.14.1.4(5) (September 22, 2021), if a taxpayer can fully or partially satisfy balance due accounts by using cash, withdrawing cash from bank accounts or other accounts, borrowing on equity in real or personal property, or selling real or personal property, the SO is directed to request that full or partial payment be made on balance due accounts by conversion of assets (through borrowing or selling) or by cash or other liquid assets (such as securities or money market accounts).
This IRM subpart also identifies factors that preclude requiring liquidation of the assets, such as the taxpayer's advanced age, ill health, or other special circumstances; the necessity of the assets for the production of income or the health and welfare of the taxpayer's family; or the taxpayer's qualification for a guaranteed, streamlined, or Express installment agreement.
This Court has consistently held that an SO does not abuse her discretion when she rejects an installment agreement because a taxpayer refuses to liquidate assets to satisfy his tax liabilities.
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CDP RULING UPHELD DUE TO TAXPAYER'S FAILURE TO PROVIDE REQUESTED INFORMATION
Pregibon v. Comm'r of Internal Revenue, 435-23L (T.C. Nov 03, 2023)
The record in this case includes a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for the years in issue. Such transcripts of account may be used to satisfy the verification requirements of section 6330(c)(1).
The transcripts of account and other documents in the record show that the SO properly verified that the requirements of any applicable law or administrative procedure have been met.
Petitioners have not alleged any irregularity that would cast doubt on the validity of the assessments or the information contained in the Forms 4340.
In addition, petitioners abandoned their request for a collection alternative by failing to submit the requested information.
We have consistently held that an SO does not abuse his discretion when he sustains a collection action after a taxpayer fails to propose a collection alternative or provide the necessary financial information to support one. See, e.g., Hartmann v. Commissioner, 638 F.3d 248, 250-251 (3d Cir. 2011); see also Rule 331(b)(4).
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ISSUE WAS WHEN WAS THE DEBT DISCHARGED?
Laura v. Experian Info. Sols., 20-cv-01573 (N.D. Ill. Mar 27, 2023)
Following the precedent with which it is presented, the Court concludes that the debt had not been discharged at the time Experian reported it because Laura never amended her bankruptcy schedules to include Midwest as a creditor.
As a result, Experian could not have listed inaccurate information on her credit file and did not cause Laura to suffer an injury under the FCRA. Therefore, Laura does not have standing to bring this suit and the Court dismisses this action for lack of jurisdiction.
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THE PARTS OF 11 U.S.C. § 507(a)(8)
INDIVIDUALLY APPLY SEPARATELY
Kun v. Internal Revenue Serv., 23-cv-01660-RS, 23-CV-01747-RS (N.D. Cal. Jul 25, 2023)
" ... because this section uses the disjunctive word “or” to separate its three subsections, Kun I explained that “only one [category] need be satisfied for the tax obligation to be nondischargeable.”
"For instance, if a tax obligation satisfies the so-called “three-year rule,” embodied in § 507(a)(8)(A)(i), it is nondischargeable.
"§ 507(a)(8)(A) subsections are “three independent bases, such that if the taxes fall within any one of the three categories, the taxes are priority claims and excepted from discharge”). Section 507(a)(8)(A) does not, as Appellant contends, “require an assessment for the tax to be exempt from discharge.”
"The Bankruptcy Court applied the three-year rule to conclude that Appellant's 2014 tax obligations were not discharged by the 2015 Chapter 7 proceeding.
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CLAIM OF INEFFECTIVE COUNSEL AT CDP HEARING WAS NOT SUPPORTED.
ANY ISSUE NOT RAISED AT THE CDP HEARING IS DEEMED CONCEDED BY THE PARTY, BUT TAXPAYER MAY REQUEST A RENEWED HEARING ONCE COMPLIANCE IS ACHIEVED
" ... the IRS requires taxpayers to be current with filing and payment requirements to qualify for an installment agreement."
Debs Riverview, LLC v. Comm'r of Internal Revenue, 21864-22L (T.C. Sep 20, 2023)
IRS levy was commenced due to taxpayer's delinquent returns and failure to pay. Upon discovering the IRS was going after him, the taxpayer applied for a CDP appeal.
"An Appeals Officer is also required to consider any relevant issues raised by the taxpayer during a CDP hearing. I.R.C. § 6330(c)(2)(A), (c)(3)(B). A taxpayer in a CDP hearing has the right to request a collection alternative, such as an OIC or an installment agreement. See I.R.C. § 6330(c)(2)(A)(iii).
"When deciding whether to accept or reject an OIC, "the IRS does not consider [OICs] from taxpayers who have not filed required returns or have not made certain required deposits of tax." Treas. Reg. § 301.6330-1
For a variety of reasons, the taxpayer's professional who represented the taxpayer at the CDP hearing did not satisfy the IRS officer's requests for certain documents or information. For example, the representative " .... did not raise the issue of economic hardship at the CDP hearing.
A "taxpayer does not properly raise an issue . . . during the [CDP] hearing if it 'fails to present to [IRS] Appeals any evidence with respect to that issue after being given a reasonable opportunity to present such evidence.'...
The Tax Court disregarded the taxpayer's claim of ineffective counsel, but held in dicta that the taxpayer could request another hearing once he had complied with paying current taxes and providing requested documentation to the CDP officer.
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TAXPAYER NOT FORGIVEN FOR HIS CPA's FAILURE TO FILE RETURNS
Wayne Lee v. USA, No. 22-10793 (11th Cir. 2023)
The court explained that if Plaintiff’s CPA had failed to file paper tax returns, there would be no question that Boyle would have precluded a reasonable cause defense and a refund.
However, the court explained that no circuit court has yet applied Boyle to e-filed tax returns. The court decided that Boyle’s bright line rule applies to e-filed returns. Thus, the court concluded that Plaintiff’s reliance on his CPA does not constitute “reasonable cause” under Section 6651(a)(1).
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STATUTE OF LIMITATIONS TO COLLECT TAX
WAS SUSPENDED DURING TAXPAYER'S SERIAL BANKRUPTCY FILINGS
Robertson v. United States, 1:22-cv-02007-JRR (D. Md. Sep 18, 2023)
With respect to Plaintiff's argument that the collection was unauthorized because the time to collect on the 2007 tax debt had expired, this argument fails because the IRS's collection efforts were stayed multiple times due to Plaintiff's bankruptcy proceedings.
- The running of the period of limitations provided in section 6501 or 6502 [26 USCS § 6501 or 6502] on the making of assessments or collection shall, in a case under title 11 of the United States Code, be suspended for the period during which the Secretary is prohibited by reason of such case from making the assessment or from collecting and-
(1) for assessment, 60 days thereafter, and
(2) for collection, 6 months thereafter.
26 U.S.C. § 6503(h).
The undisputed facts before the court are that collection of Plaintiff's 2007 tax debt was stayed for 743 days and the time to collect on Plaintiff's 2007 tax debt did not expire until January 23, 2023. Therefore, the IRS's interception of Plaintiff's 2020 state tax refund on January 7, 2022, was timely and not an unauthorized collection.
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EQUITABLE TOLLING APPLIES TO 240-DAY ASSESSMENT PERIOD
FOR TAX DISCHARGE PURPOSES
Blakely v. USA 219 B.R. 722 (Bankr. S.D. Miss. 1998)
In Richards the Tenth Circuit held that assessment period under the Bankruptcy Code provision granting seventh priority for unpaid income taxes assessed within 240 days prepetition could be suspended during pendency of debtor\'s prior Chapter 13 proceeding.
The court stated that this result "fulfills and preserves Congress\'s intent to afford the government certain time periods to pursue collection efforts, and at the same time prevents the debtor from avoiding priority by prolonging the initial bankruptcy proceeding."
Further, it would seem to follow that the 240-day period should not run if the government is prevented from attempting to collect by the automatic stay. United States v. Richards (In re Richards), 994 F.2d 763 (10th Cir.1993).
See also In re Miller, 199 B.R. 631 (Bankr.S.D.Tex.1996); In re Clark, 184 B.R. 728 (Bankr.N.D.Tex.1995) (Both courts agree that a bankruptcy court should use its equity power to toll the time periods of 507 for the time that debtors are in prior bankruptcies and tack on a period of six months after the date the stay was lifted, for each prior bankruptcy filing, pursuant to 26 U.S.C. §§ 6503(b) and (h)).
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PLAINTIFF MUST ESTABLISH JURISDICTION OF U.S. TAX COURT
Crawford v. Comm'r of Internal Revenue, 7855-23 (T.C. Jul 11, 2023)
Like all federal courts, the Tax Court is a court of limited jurisdiction. We may exercise jurisdiction only to the extent expressly provided by statute. Naftel v. Commissioner, 85 T.C. 527, 529 (1985).
In addition, jurisdiction must be proven affirmatively, and a taxpayer invoking our jurisdiction bears the burden of proving that we have jurisdiction over the taxpayer's case. See Fehrs v. Commissioner, 65 T.C. 346, 348 (1975); Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177, 180 (1960).
In a deficiency case, this Court's jurisdiction depends on the issuance of a valid notice of deficiency and a timely filed petition. Rule 13(a), (c), Tax Court Rules of Practice and Procedure; Hallmark Research Collective v. Commissioner, No. 21284-21, 159 T.C. (Nov. 29, 2022); Monge v. Commissioner, 93 T.C. 22, 27 (1989); Normac, Inc. v. Commissioner, 90 T.C. 142, 147 (1988).
Similarly, in a case seeking review of certain IRS collection activity, the Court's jurisdiction depends on the issuance of a valid notice of determination (after petitioner has properly requested and received a collection due process hearing) under Internal Revenue Code (I.R.C.) section 6320 or 6330 and the filing by the taxpayer of a petition concerning that IRS determination. Smith v. Commissioner, 124 T.C. 36, 38 (2005); I.R.C. sec. 6320(c) and 6330(d)(1); Rule 330(b), Tax Court Rules of Practice and Procedure.
On July 3, 2023, petitioner filed an Objection to Motion to Dismiss for Lack of Jurisdiction. In that objection, petitioner concedes that no notice sufficient to confer jurisdiction on this Court as to petitioner's 2013 income tax liabilities has been issued to petitioner.
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CASE ADDRESSES PROCEDURAL ISSUES IN CONNECTION WITH
IRS COLLECTION DUE PROCESS APPEALS
See King, lawyers Guide to Collection Due Process Appeals With the Internal Revenue Service, https://link.edgepilot.com/s/05745346/eW0bO62-0U_d45fnERcQKA?u=https://www.morganking.com/test-page
Adolphson v. COMM'R INTERNAL REVENUE SERVICE 842 F.3d 478 (7th Cir. 2016)
This case discusses the jurisdiction of the United States Tax Court to adjudicate or resolve tax collection activities.
The taxpayer failed to file tax returns for a number of years, and was subsequently subject to IRS tax assessments and levy.
Taxpayers typically have the right to at least temporarily stop a tax levy, and attempt to negotiate "less intrusive collection schemes" to settle the matter. 26 U.S.C. § 6330. This is referred to as a Collection Due Process Appeal ("CDP"). The taxpayer's right to file a CDP appeal is triggered by the IRS issuance of a notice of intent to levy.
Adolphson contends that because the IRS prevented him from obtaining a notice of CDP determination by failing to properly notify him of its intent to levy, and hence prevent him from requesting the CDP appeal, the tax court should have declared the levies invalid.
To support his argument, Adolphson relies on a line of cases where the tax court accepted this argument and invalidated levies despite the fact that absent a notice of determination, the tax court lacks the statutory authority to hear a taxpayer's claim. The taxpayer was supported in his appeal based in part on the I.R.S. position set for in a Chief Counsel Advice:
"if [a] taxpayer alleges that he never received a CDP notice and the Service cannot prove that it mailed the notice by certified or registered mail, the [tax] court will dismiss the case for lack of jurisdiction on the basis that the CDP notice was invalid." IRS Chief Counsel Advice 200842042, 2008 WL 4610126.
Also referenced in this opinion is a case addressing similar issues, supporting the taxpayer's argument, and cited in the opinion, is the case Buffano v. Comm'r of Internal Revenue, T.C. Memo. 2016-121, (T.C. Jun 21, 2016)
"While we agree with Adolphson that his case is indistinguishable from this line of tax court precedent, we affirm the judgment dismissing Adolphson's petition because we find that those decisions are unsound and reflect an improper extension of the tax court's jurisdiction.
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Thomas v. City of Phila. (In re Thomas), 626 B.R. 804 (Bankr. E.D. Pa. 2021)
It well established law that a lien that is not addressed and treated in some fashion during the course of a bankruptcy case — either by being provided for in a reorganization plan, avoided pursuant to a Code avoidance power, or whose underlying debt is disallowed in whole or in part — passes through the bankruptcy case unaffected. See, e.g., In re Cusato, 485 B.R. 824, 828 (Bankr. E.D. Pa. 2013) (citing authorities, including Lellock v. Prudential Ins. Co. of America, 811 F.2d 186, 189 (3d Cir.1987) ). This is because "a bankruptcy discharge extinguishes only in personam claims against the debtor(s), but generally has no effect on an in rem claim against the debtor's property.
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DEBTOR'S ATTEMPT TO DISMISS CHAPTER 13 CASE UPHELD
Nichols v. Marana Stockyard & Livestock Market, Inc., (9th Cir. 2021)
The Nichols filed a Chapter 13 bankruptcy petition and later were indicted on federal charges for their alleged participation in a scheme to defraud Marana Stockyard.
To avoid disclosure of information that might compromise their position in the criminal proceedings, the Nicholses declined to complete steps required by the Bankruptcy Code to advance their case.
They refused to hold a meeting with creditors, to file outstanding tax returns, or to propose an appropriate repayment plan. Marana, which had filed a claim in the Nicholses’ bankruptcy case, moved (11 U.S.C. 1307(c)) for the case to be converted to a Chapter 7 liquidation.
The Nicholses unsuccessfully requested a stay of the bankruptcy case during the pendency of the criminal proceedings. The bankruptcy court determined that conversion to a Chapter 7 liquidation was justified by the Nicholses’ “unwarranted” delays and would have been proper, in the alternative, under section 1307(e), because the Nicholses failed to file tax returns for several years.
The Nicholses did not comply with the bankruptcy court’s requirements but moved to dismiss voluntarily their bankruptcy case under section 1307(b). The Ninth Circuit’s Bankruptcy Appellate Panel affirmed the denial of the dismissal motion and conversion of the case. The Ninth Circuit reversed. A bankruptcy court may not invoke equitable considerations to contravene section 1307(b)’s express language giving Chapter 13 debtors an absolute right to dismiss their case.
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TAX LIEN NOT AVOIDABLE WHERE DEBTOR ATTEMPTED TO EVADE
Candy v. Internal Revenue Serv. (In re Candy), 625 B.R. 701 (Bankr. W.D. Tenn. 2021)
Section 523(a)(1)(C), relied upon by the Defendant, provides that an individual debtor may not discharge a debt for a tax "with respect to which the debtor ... willfully attempted in any manner to evade or defeat such tax." 11 U.S.C. § 523(a)(1)(C).
The section 523(a)(1)(C) exception serves to limit the discharge of tax debts to the honest but unfortunate debtor.
Candy v. Internal Revenue Serv. (In re Candy), 625 B.R. 701 (Bankr. W.D. Tenn. 2021)
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TAXPAYER MAY CONTEST TAX ASSESSMENT IN A CDP HEARING - BUT IRS TAX STILL NONDISCHARGEABLE BECAUSE IT DID NOT FILE A CLAIM.
Taxpayers may challenge the existence or amount of their underlying tax liability in a CDP case but only if they did not receive a statutory notice of deficiency or otherwise have a prior opportunity to dispute their liability. See sec. 6330(c)(2)(B). Petitioners had a prior opportunity to dispute their 2003 liability and took ample advantage of it: They received a statutory notice of deficiency, litigated the case in this Court, and then took an unsuccessful appeal.
neither petitioners' 2003 tax deficiency nor the interest thereon was discharged in bankruptcy.3 Petitioners agree that an unassessed income tax liability generally is nondischargeable. See 11 U.S.C. sec. 523(a)(1)(A). But they argue that (1) the Plan included a broad injunction releasing them from all tax obligations and (2) the IRS should be prevented from collecting their 2003 tax debt because it did not file in the bankruptcy case a proof of claim for that debt.
As the bankruptcy court explained in its decision, neither contention is correct. The provisions of 11 U.S.C. sec. 1141(d)(2) (2006) prohibit a bankruptcy court from discharging a debt that is nondischargeable under 11 U.S.C. sec. 523. See Bankruptcy Decision at 22-28. And the fact that the IRS did not amend its proof of claim to include the 2003 liability is irrelevant: A priority tax claim, such as the IRS' claim for the 2003 liability, is nondischargeable "whether or not a claim for such tax was filed...
Barnes v. Comm'r (T.C. 2021)
AM I COMPLICIT?
The new client comes in and informs me that he has transferred his bank account balance to his girlfriend's bank account, to keep it out of the hands of the IRS. He looked quite proud of his actions.
As an attorney, what is my duty?
Should I inform the IRS of his tax evasion? Or, kick him out of my office? Or, explain to him his exposure to possible criminals actions, or at least that the IRS might make his life hell, should they find out about it?
See In re Bagdis, Docket No. DRB 16-069 (N.J. Dec 01, 2016) where the attorney conspired with the taxpayer to avoid paying taxes; Colapinto v. Stoll, E075364 (Cal. App. Apr 08, 2022) where, likewise, the attorney was complicit.
"Peter takes umbrage at the trial court's finding that if Gerald had unclean hands, Peter was up to his elbows. The court also stated that Peter's emails show he was complicit in the very efforts to avoid paying taxes to EDD, unlawfully gave legal advice to plaintiff, and that Adele's emails showed she was well aware of their activities. It is a well-worn maxim that "No one can take advantage of his own wrong." (Civ. Code, § 3517.) The fact that plaintiff demonstrated questionable business practices and motives for engaging the services of defendant, a disbarred attorney, do not excuse the fraudulent actions of even a disbarred attorney.
What about the "attorney-client privilege" that protects comunications between the client and his attorney?
Said the court in United States v. Weed, 99 F.Supp.3d 201 (D. Mass. 2015):
"Despite the importance of the attorney-client privilege, it is not inviolate. The crime-fraud exception to the privilege “ensures that the attorney-client privilege will not extend to communications made for the purpose of getting advice for the commission of a fraud or crime. Thus, the attorney-client privilege is forfeited inter alia where the client sought the services of the lawyer to enable or aid the client to commit what the client knew or reasonably should have known to be a crime or fraud.”
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In re Worrell, 6:20-bk-01616-TPG (Bankr. M.D. Fla. Aug 07, 2023)
The IRS contends that because the Debtor late-filed her 2012 through 2015 tax returns on April 28, 2020, she filed them after the date they were due and after two years before the petition date. The Debtor did not contest these assertions.
The Court concludes that the IRS's claim is nondischargeable under § 1328(a) and § 523(a)(1)(B)(ii). See In re Harrell, 318 B.R. 692, 696 (Bankr. E.D. Ark. 2005) (holding that taxes for which returns were filed untimely and after the Chapter 13 petition was filed were not dischargeable because § 523(a)(1)(B)(ii) "contemplates a period that begins two years prior to the petition date, extends indefinitely into the future, and thus encompasses the postpetition period."); In re Savaria, 317 B.R. 395, 400 (B.A.P. 9th Cir. 2004), disagreed with on other grounds in Joye v. Franchise Tax Bd. (In re Joye), 578 F.3d 1070, 1078 (9th Cir. 2009) (holding that it "seems apparent that the phrase 'after x years before' when used in the Bankruptcy Code is meant to encompass postpetition events.");
Pansier v. United States, No. 10-C-1011, 2011 WL 1598970, at *2 (E.D. Wis. Apr. 27, 2011) (holding that the period begins two years before the bankruptcy case filing and extends after filing the petition, as "[w]ithout such a rule individuals could game the system by intentionally waiting to file overdue tax returns until such time as their bankruptcy case was moving forward toward discharge."), aff'd sub nom. In re Pansier, 451 Fed.Appx. 593 (7th Cir. 2011).
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What about the Declaratory Judgment Act? McKenzie holds that a determination of dischargeability is not a declaratory judgment for the purposes of §2201. That resolves the matter; nothing in the enactment of the Bankruptcy Code or amendments to §2201 calls that characterization of dischargeability determinations into question.
Indeed, the legislative history behind the enactment of §505 of the Bankruptcy Code leaves no doubt that Congress meant to preserve the ability of a debtor to seek a determination as to the dischargeability of his tax debts:
Under the House amendment, as under present law, an individual debtor can also file a complaint to determine dischargeability. Consequently, where the tax authority does not file a claim or a request that the bankruptcy court determine dischargeability of a specific tax liability, the debtor could file such a request on his own behalf, so that the bankruptcy court would then determine both the validity of the claim against assets in the estate and also the personal liability of the debtor for any nondischargeable tax.