United States v. Carroll, No. 10-1400 (6th Cir. 2012)
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In 2008, the Eastern District of Michigan ranked 79th of 90 judicial districts in successful completion of Chapter 13 bankruptcy cases. To improve the situation, the judges began entering orders in Chapter 13 plans that required the IRS to send tax refunds directly to the Chapter 13 trustees, not to the individuals as the Internal Revenue Code contemplates. 26 U.S.C. 6402(a). Chapter 13 plans repay creditors over three to five years, requiring the IRS to track debtors’ returns during several tax cycles. The burden became unmanageable when there were 4,966 affected returns in April 2009. The IRS obtained a declaratory judgment preventing the trustees from enforcing existing refund redirection provisions and a writ of mandamus prohibiting the bankruptcy court from including these provisions in future Chapter 13 plans. The Sixth Circuit remanded with instructions to dismiss, finding that the court lacked jurisdiction. The government sued the wrong parties, a group of bankruptcy trustees, but the harm it suffered flows from the bankruptcy court's orders. A judgment against the trustees will not eliminate the problem.
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