Tim’s Tax News on the Tenth – October 2022

A recent case shows the power of certain exemptions and the power of tracing. The case of In re Weber, 130 AFTR2d 2022-5161 (Bankr. M.D. Fla. 2022) examined what happens to social security receipts when a taxpayer uses the funds to pay their federal income taxes resulting in a refund. The bankruptcy court allowed Mr. Weber to protect the portion of his tax refund, which represented the return of his social security payments.

Mr. Weber filed a chapter 7 bankruptcy petition in early 2022, before receipt of his 2021 income tax refund. The chapter 7 trustee sought to claim the 2021 refund as an asset of the bankruptcy estate and use it for the benefit of the general unsecured creditors of the bankruptcy estate. In response to the Trustee’s motion, Mr. Weber argued that a substantial portion of the refund resulted from his decision to have money withheld from his monthly social security payments to pay federal income taxes. He overestimated what his federal income tax obligation for 2021 would be thus resulting in the refund. Therefore, Mr. Weber asserted that he had a portion of his social security payment used to pay an anticipated federal tax liability did not change the character of the funds to such a degree that they lost the protection afforded to social security payments.

The trustee argued that once Mr. Weber’s social security payment went to the IRS as withholding for payment of taxes those funds lost its character as a protected social security payment and transformed into simply a tax payment the refund of which the trustee could reach for the benefit of the estate.



The Court sided with Mr. Weber holding that the protection for Social Security payments is exceptionally expansive and only subject to modification by express statute. The Court determined that when a social security recipient uses a portion of that payment for tax withholding, the individual’s consent to the use of those funds extends only to the payment of tax liabilities and not to the payment of other claims.

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 29 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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