A U.S. Tax Court Judge on April 13 ruled that the IRS did not abuse its discretion when it applied a portion of a debtor's 2003 income tax overpayment to 1997 tax liabilities which had actually been discharged by a Bankruptcy Judge and then sought to collect additional outstanding taxes for another year.

Despite a ruling by a Bankruptcy Judge in the Western District of Kentucky which discharged James W. Bryant's 1997 tax liabilities, the IRS applied Bryant's overpayment to those obligations rather than to his outstanding taxes for 2000, as he had requested.

As a result, the amount Bryant had wanted to apply to the 2000 tax liability was not, leaving a larger amount requiring repayment.

The Tax Court Judge held that the IRS was within its discretion to apply the overpayment as it saw fit, regardless of the discharge, and was free to pursue collection of the 2000 tax obligation.