Monday, May 21, 2018

Dischargeability of taxes in bankruptcy

Here at Shenwick & Associates, many clients, lawyers and accountants have called us regarding the discharge of taxes in bankruptcy filings.  Many kinds of “old” state and federal income taxes are dischargeable in bankruptcy. In the case of income taxes, they are dischargeable in Chapter 7 if all the following criteria are met:

1. The tax is for a year for which a tax return is due more than 3 years prior to the filing of the bankruptcy petition;
2. A tax return was filed more than two years prior to the filing of the bankruptcy petition;
3. The tax was assessed more than 240 days prior to filing of the bankruptcy petition;
4. The tax was not due to a fraudulent tax return, nor did the taxpayer attempt to evade or defeat the tax;
5. The tax was not assessable at the time of the filing of the bankruptcy petition; and
6. The tax was unsecured.

Income taxes: (i) for tax years ending on or before the date of filing the bankruptcy petition, for which a return is due (including extensions) within 3 years of the filing of the bankruptcy petition; (ii) assessed within 240 days before the date of filing the petition; (iii) not assessed before the petition date, but were assessable as of the petition date, unless these taxes were still assessable solely because no return, a late return (within 2 years of the filing of the bankruptcy petition), or a fraudulent return was filed, withholding taxes for which a person is liable in any capacity, an employer's share of employment taxes on wages, salaries, or commissions (including vacation, severance, and sick leave pay) and excise taxes on transactions occurring before the date of filing the bankruptcy petition are all not dischargeable in bankruptcy.

As part of our bankruptcy intake process, we analyze a client’s state and federal tax transcripts to determine whether their tax debts (if any) are dischargeable or not.  It’s complicated by the fact that various actions by the IRS or the taxpayer can “toll” the periods of time listed above.  And a recent case from the Bankruptcy Court for the Southern District of Georgia, Elkins v. IRS (In re Elkins), demonstrates the pitfalls of not calculating these dates correctly.  Elkins requested an extension to file his 2001 federal income tax return. As a result, his 2001 federal tax return was due on October 15, 2002.   He filed for chapter 7 relief on October 14, 2005.  Both Elkins and the IRS filed motions for summary judgment regarding the dischargeability of his income taxes. 

Elkins argued that a year was limited to 365 days (2004 was a leap year).  He also included both the day his tax return was due and the day he filed his bankruptcy petition in his calculations.  The bankruptcy court disagreed, finding that a year meant a calendar year.  As a result, the bankruptcy court ruled that Elkins filed his petition one day prior to the three-year anniversary date of when his 2001 tax return was due. Therefore, the IRS's claim for Elkins’ 2001 tax liability was non-dischargeable under §§ 507(a)(8)(A)(i) and 523(a)(1)(A).

For your questions about taxes and bankruptcy, please contact Jim Shenwick.

Wednesday, May 16, 2018

New York Daily News: City sets aside sale of taxi medallions as their value plummets

The city has indefinitely pushed off selling more taxi medallions as the market for the once-valuable medallions continues to plunge.

Mayor de Blasio's executive budget assumes no cash will come in from taxi medallion sales for the next five years.

The taxi medallions — once worth as much as a million dollars each — have fallen off a financial cliff as yellow taxis took a beating from competitors like Uber and Lyft. This year medallions have been selling for less than $200,000.

The city last sold 350 medallions in the 2014 fiscal year, and is authorized to sell 1,650 more under state law.

Since then, years of city budgets have projected revenue from the taxi sales that never materialized. As of November, the spending plan assumed $731 million would come in over five years.

Hizzoner's latest budget dispenses with the notion medallions will be flying off the rack any time soon.

"This change allows the city to continue to monitor the medallion market, and does not foreclose any medallion auctions at a future date," Taxi & Limousine Commissioner Meera Joshi (photo below) said Thursday at a City Council budget hearing.

"The prices have come down considerably," she said, adding that it's also become impossible for would-be buyers to get loans. "All the transactions are going to be without financing and all cash, which is certainly going to depress the value of it."

Matthew Daus, a former TLC chairman, said it was a smart move by the city to recognize the reality on the street.

"They'd be crazy to do a sale at this point in time," he said, noting that putting additional yellow cabs on the street amid declining ridership would have hurt already-suffering drivers.

Medallion owners have complained that they invested their savings in what they thought was a sure bet, since the law says only yellow cabs can take passengers who hail them on the street.

But that didn't account for apps like Uber, which is legally treated like a car service arranged by phone.

"The drivers are being hurt and the city is being hurt by the way this whole situation has been managed," said Carolyn Protz, a member of the NYC Taxi Medallion Owner Driver Association.

The collapse of the yellow cab industry has led to four driver suicides in recent months, industry advocates say.

The city has seen an influx of for-hire drivers, mostly for e-hail apps — doubling the number from 90,000 to 180,000 since 2011.

Officials say they're again looking to rein in the growth of Uber, both to cut down congestion and give a break to yellow cab drivers. A push by de Blasio to cap the number of cars the company could deploy three years ago collapsed.

The city also wants to find a way to bolster drivers' incomes.

"The number of licensed drivers has outstripped ... demand," Joshi said. "The administration's goal is to establish a regulatory framework to protect drivers' incomes."

Copyright © 2018, New York Daily News

Tuesday, May 08, 2018

New York Times: What Will New York Do About Its Uber Problem?

New Yorkers who can afford to avoid their dysfunctional subway system are spoiled for choice these days. In addition to long-established taxis, livery cabs, black cars and limousines, they can summon rides through Uber, Lyft, Via, Juno and other app-based ride-hailing and ride-sharing services. While this new surfeit of options has been a boon to people trying to get around town, it has also helped lay waste to the livelihoods of taxi drivers and turn New York’s already busy streets into glorified parking lots — and leaders like Mayor Bill de Blasio and Gov. Andrew Cuomo, Albany and the City Council have yet to come up with an effective strategy to deal with these problems.

Cities have a long history of intervening to impose order on their streets. No large metropolis can accommodate everyone who would like to drive or be privately driven around — street space is a limited resource, especially in the densest neighborhoods and at the busiest times of the day. In the 1930s, during the Great Depression, New York created its taxi medallion system because drivers looking for work flooded the streets, far outstripping demand and driving down wages for drivers. 

With the rise of Uber, Lyft and the like, the city is again confronting a tragedy of the commons.
Many other thriving cities, including London and Paris, are also struggling to figure out how to respond to these new business models. A big part of the problem is that elected officials have not updated regulations written for a bygone era in which each type of car service tended to stay in its lane, so to speak — in New York, taxis primarily plied the streets of Manhattan and the city’s airports, liveries took care of residents of the other boroughs, and black cars chauffeured the denizens of Wall Street. While the city has issued just 13,587 taxi medallions — a small fraction of the more than 60,000 cars Uber commands — it gave freer rein to the liveries and black cars under the assumption that these specialized services would never become dominant.

Ride-hailing apps have shattered those boundaries by signing up drivers with livery or black-car licenses. These companies cast themselves as filling big gaps in the transportation system, and it’s true that they have been great for people in mass-transit-starved parts of the city. But their growth has also led to many veteran taxi and black-car drivers seeing a devastating decrease in take-home pay. 

That’s largely because they are completing fewer trips than before. As a result, the value of the taxi medallions that drivers must either buy from the city or rent from taxi companies has crashed in recent years, going from a high of about $1.3 million in 2014 to less than $200,000 today. Over the past five months, four drivers who were financially strained have killed themselves, and many others have lost their medallions to foreclosure.

At the same time, traffic has slowed to a crawl, to just 8.2 miles per hour south of 60th Street in Manhattan in 2015, down from 9.4 miles per hour in 2010, according to the city’s Department of Transportation.

It makes little sense for the city to regulate the old and new guard of for-hire cars differently when many New Yorkers use them interchangeably — as do some drivers, who have been known to switch between traditional cabs and app-based services. While it would be impractical for the city to get rid of its existing regulations in one fell swoop, it could phase in new regulations. A more thoughtful regime would ensure that all drivers make a living wage by establishing a minimum fare for riders, and a standardized share of that fare for drivers, regardless of what kind of car they drive. Or as Brad Lander, a City Council member from Brooklyn, has proposed, the city could require companies like Uber to pay drivers a minimum wage. Further, the city ought to standardize regulations like those requiring that a certain number of cars be accessible to people with disabilities.

The city and state also need to create a smart congestion pricing plan to reduce traffic while raising money for upgrades to the subway and bus system, which would encourage fewer people to get into cabs and Ubers. The Legislature recently added a surcharge on taxi trips below 96th Street in Manhattan: 75 cents for pooled trips, $2.50 for yellow taxis and $2.75 for black cars and Uber and Lyft rides. This charge is flawed. It does not vary by the time of day, and lawmakers failed to impose fees on private cars and trucks. A smart pricing scheme would discourage use of all vehicles when traffic is at its worst and encourage car travel and deliveries at off-peak times.

Over time, the city should consider whether it owes something to drivers who sunk their savings into taxi medallions. Many drivers went into debt to buy these permits because the city promised them a monopoly on picking up passengers, a promise it has not been able to keep. No doubt any compensation plan would be controversial, and working out the details would be tricky — the city, for example, should not compensate investors, like Michael Cohen, President Trump’s lawyer-cum-fixer, who should have known that they were taking big risks by buying up dozens of medallions. Governments in Quebec and Australia have compensated or are proposing compensating taxi drivers for the lost value of such licenses.

The city needs to make its transportation system fairer to paid drivers, responsive to the needs of commuters and more environmentally sustainable. If the mayor and other elected officials put their minds to that task, they might also help set a model that cities around the world could follow.

April 2018 Taxi & Limousine Commission sales

The April 2018 New York City Taxi & Limousine Commission (TLC) sales results have been released to the public. And as is our practice, provided below are James Shenwick’s comments about those sales results.

1. The volume of sales continues to decline. In April, there were only 23 taxi medallion sales (excluding stock transfers).

2. 12 of the 23 sales (over half) were foreclosure sales, which means that the medallion owner defaulted on the bank loan and the banks were foreclosing to obtain possession of the medallion. We disregard these transfers in our analysis of the data, because we believe that they are outliers and not indicative of the true value of the medallion, which is a sale between a buyer and a seller under no pressure to sell (fair market value).  Three additional transfers were family transactions for minimal or no consideration, which we have also excluded from our analysis.

3. The eight regular sales ranged from a low of $170,000 (one medallion), to three medallions at $175,000, to two medallions at $180,000, and two medallions at $185,000.

4. The low sales volume seems to indicate that at this stage of the market, not many parties are involved in selling or buying medallions, possibly due to the fear that medallion prices may further decrease.

5. The median of March’s sales was $177,500, a $2,500 (1.4 %) decrease from March’s median sales of $180,000.

Please continue to read our blog to see what happens to medallion pricing in the future. Any individuals or businesses with questions about taxi medallion valuations or workouts should contact Jim Shenwick at (212) 541-6224 or via email at

Monday, May 07, 2018

Bloomberg-Taxi Cab Owners and Regulators Created Uber

By Barry Ritholtz

On this day May 4, 2011, Uber NYC launched. It filled an enormous, artificial void that was created by the Taxi and Limousine Commission at the behest of the Yellow Cab medallion owners.

In New York, Uber has been thrust back into the news after several Yellow Cab driver suicides (read this or listen to this) and indebtedness and families of survivors are blaming the stress of competing with smartphone ride-hailing services. The New York City Council is looking to limit or perhaps even reverse the expansion of app-based rides.

This is a terrible idea.

This is because it was market forces -- plain, pure and simple -- that created the demand for ride services like Uber, Lyft and others. 1 Indeed, these companies might not have achieved the wild success they found in New York but for the combination of the TLC’s aggressive incompetence and the medallion owners’ unbridled greed. Since the 1970s, these two groups have made taxi service in New York abysmal while enriching themselves. They did this by keeping the number of taxi medallions at an artificially low number and ignoring demand, much to the eternal dismay of anyone trying to hail a cab.

A little history: The TLC was created in 1971 to “wrest control of taxi industry regulation away from the [New York City] Police Department,” according to Biju Mathew, 2  author of "Taxi!: Cabs and Capitalism in New York City." This change took curbside ride-hailing from bad to worse and the TLC began a rich epoch of corruption and failure, marked by indictments and convictions.

I blame the artificially low numbers of medallions for almost all of New York's taxi industry’s woes.

The credit for that -- and for creating a market opportunity for Uber -- belongs to the TLC and the medallion owners. Consider, the number of licensed cabs was about 16,900 in 1937, when the city's population was more than 1 million lower than it is today. Today, there are fewer medallions than 80 years ago. There have been only about 1,800 new medallions issued since 1996.

It is an artificially created monopoly, and monopolies tend to lead to terrible economic behaviors. Just consider one aspect of the appalling level of service on offer. In New York, many taxi drivers change shifts between 5 p.m. and 6 p.m., abandoning the city in the midst of rush hour, returning to the outer boroughs or even New Jersey for driver changes. Let a single drop of rain fall and it is almost impossible -- no, it is impossible -- to find a cab. The cars are often in bad shape, devoid of shock absorbers, and back seats that make me want a shower afterward. Yellow Cabs also have been known to illegally refuse to pick up the hails of African-Americans. Unlike London, where drivers have an almost tour guide-like knowledge of their city, New York cab drivers are often utterly ignorant of the city where they work.

All of these failings would be much less likely to take place in a competitive market. We know this is an artificial monopoly because of the price behavior of medallions after market competition began: prices for medallions peaked shortly after Uber came to town, but before it had much of an impact. Bloomberg Businessweek reported that medallion prices, which peaked at $1.3 million in 2013, were already sliding, falling below $900,000 in 2013. Just two years later 2015, prices had fallen another 40 percent.

And it got worse: By 2016, the lowest reported price was $250,000. Last year, medallions sold for as little as $241,000. They are still falling. Axios noted a recent transaction that went for just 8 percent of the peak value, or about $100,000. Other cities, such as Chicago, have seen similar declines in medallion prices.

This surely has meant some hardship for those who bought near the peak and have watched the value of their investment collapse.  Among those hurt is President Donald Trump’s attorney and fixer Michael Cohen, who owes $282,000s in back taxes on his medallions. But let's be real: this is what happens in markets -- there are winners and losers.

Unless government intervenes in the market, there's likely no reason why demand for Uber services will decline. Last year was the first time more people used Uber in New York than city cabs. In July 2017, Uber had 289,000 average daily rides versus 277,000 for medallion taxis. 

This story, in a nutshell, is a classic example of regulatory capture.  The TLC, by serving the interests of the industry it regulated rather than customers of the taxi industry, allowed an enormous gap between supply and demand to open. It was into this void that ride hailing apps like Uber and Lyft rushed, exploiting powerful market forces. No one should be surprised these services exploded in popularity; it is living testimony to the reality that trying to thwart market forces for decades eventually has huge repercussions. Even the courts understood this, with one Queens (New York) County judge telling medallion owners to “Compete with Uber or die.”

Of course there are other elements to this sad tale -- epic greed and corruption, rent extraction and economic ignorance. But the bottom line is that the parties concerned made a giant mess of this, and now they are left to harvest their rotting crop.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. This is not praise for Uber; it has plenty of its own issues, starting with a corporate culture that was so toxic that Travis Kalanick, founder, chief executive officer and majority shareholder was forced to step down.
  2. Matthew is a member of the organizing committee of the New York Taxi Workers Alliance.
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