Before the Court is the Complaint to Determine Dischargeability of a Debt filed by Debtor (the “Debtor”) against the United States of America, Department of the Treasury, Internal Revenue Service (the “IRS”) seeking a determination that a certain obligation related to a first-time homebuyer credit is a dischargeable general unsecured debt because it does not meet any of the exceptions to discharge set forth in 11 U.S.C. §523.
The Debtor purchased a home in in 2008 and claimed a first-time homebuyer credit on her 2008 federal income tax return using Form 5405 for that purpose. She received a one-time tax credit in the amount of $7,500 (the “Tax Credit”).
The mechanics of the Tax Credit are governed by Section 36(a) of the Internal Revenue Code which provides a refundable tax credit to a first-time homebuyer who purchased a principal residence on or after April 9, 2008, and before May 1, 2010. 26 U.S.C. §36(a) and (h). The credit is “recaptured” through the imposition on the taxpayer of a tax increase equal to 6 2/3 % of the amount of the credit for each year in the recapture period, or the 15 taxable years beginning with the second taxable year following the year in which the purchase of the residence was made. 26 U.S.C. §36(f)(1) and (7). Applying these provisions to this case, the Debtor was to pay an additional $500 for 15 taxable years beginning in 2010 and continuing through 2024.
The Debtor filed a voluntary petition under Chapter 13 on March 20, 2017. The IRS filed a proof of claim listing an unsecured priority claim in the amount of $393 for an outstanding tax liability owed for tax year 2016. On Debtor’s Amended Schedule E/F, she listed a general unsecured claim for the IRS in the amount of $4,000. The IRS did not file a proof of claim listing a general unsecured claim for any amount of the first-time homebuyer credit.
The Debtor contends that the repayment of the Tax Credit is a debt that was incurred in either 2008 (the purchase date) or 2010 (the year repayment began). She claims that she has repaid $3,500 of the Tax Credit and that $4,000 remained unpaid at the time she filed her bankruptcy petition. Finally, she asserts that the debt owed to the IRS is neither a priority debt nor a non-dischargeable debt, and therefore, is dischargeable.
The IRS characterizes the Debtor’s obligation as a tax, i.e., she is statutorily required to recapture, report, and pay $500 in tax on her federal income tax returns for tax years 2017 through 2024. Therefore, the IRS argues, no tax debt or claim exists that can be discharged; the obligation is based only upon the Debtor’s potential future tax liabilities associated with recapturing the Tax Credit.
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