We will owe IRS Interest and penalties AFTER our discharge

[CtheLight]

So I've been researching this for a while now as our lawyer had mentioned that since we late filed our taxes, the IRS will come after us after the CH13 is discharged and want interest and penalties that accrue during the life of the CH13.
I'm trying to figure out if this means all of our tax debt (100K), the secured portion of the tax debt (60K), or the priority portion (40K).
And how are they allowed to do this AFTER the plan??? Why wouldn't it be included in the plan?
This is so depressing. I thought I was going to be free and now I'm looking at coming out of a 5 year battle just to be thousands in debt again. Just shoot me

[AngelinaCat]

This happened to us. We were an Asset 7 case. Most of our debt was to the IRS, but also had a CC debt of around 40K and various medical bills. We also filed our tax forms late, so lost the ability to discharge at least one year of taxes. (We didn't learn we could have done that until well after we filed, and we found this forum.) Everything was prioritized to the IRS, and the others got nothing. One of the medical providers petitioned to have their debt prioritized above the IRS. They were laughed out of court.

We were making payments to the IRS before we filed, and once we were discharged, we were contacted again to resume the payment plan, which we did. (Payments were suspended during the BK). So go ahead and contact the IRS and set up a payment plan. They are very nice and will work with you to set up a plan you can afford. If you have to make changes, call and do it. They are only 'ugly' when you don't keep them informed.

I am not certain how much we owed at the time (bad financial decisions) 2004-2007, but we are almost at the end. We will get there, and so will you.

[dmc-2008]

CtheLight, are you sure? Did they claim anything in BK? Why wouldnt they make a claim?!? I am so sorry!

I dont have ant tax debt but I have student. They told me it was suspened during BK and that I dont have to pay it! That freaked me out do come hell or high water I keep paying and that has been really hard.

So if you couldnt disharge it, maybe by getting the orher debt out of the way, now you can tackle the IRS!

One way to look at it? I wish u all the best! :-( sucks though!

[BarkingCat]

Very sorry to hear this. It must feel so disheartening. I think it would be a good idea to find a tax pro and have them look at the situation. As you've just come out of bankruptcy, you might be a good candidate for an offer. At the very least, a look at your transcripts (and a look at the lien you mentioned in another post) will start to give some answers. Also, have you talked to your BK attorney about this?

[despritfreya]

There is not enough information here to comment:

1. What type of tax - Income, payroll, etc?

2. What tax years are involved?

3. When did you file Chapter 13 (month & year)?

4. When did you file the returns (month & year)?

5. How are the years in question listed on the IRS proof of claim - secured, priority unsecured, or unsecured?

6. Is your Plan confirmed? If "yes" how were the taxes treated by the confirmed Plan?

There are probably more questions but let's start with these.

Des.

[CtheLight]

Income/self employment taxes.
Years 2007, 2008, 2009, 2010
Filed in May 2011
Filed returns 2007 and 2008 in 2010 and 2009 and 2010 in 2011. This is why we couldn't discharge the debt.
60K was Secured (5% interest) and 40K was Priority no interest charged.
Plan was confirmed and we're on the last 4 months of 60 month plan.
100% of our taxes were included in the plan.

We've talked to a tax attorney and were told we'd not be able to do an OIC as we've been paying 4K a month to the chapter 13 and IRS will most likely say we don't qualify since we'll have 4K disposable income after the plan is discharged.

I'm just wondering why or how they are able to charge interest on the debt that is included in the chapter 13. In other words, we've been accruing interest and penalties for the last five years!! It's just so wrong!

Goes to show though... Get tax returns filed on time!

[Danglin]

Out of curiosity, what district are you in?

[despritfreya]

I do apologize for not responding sooner. Life is getting in the way of participating on a regular basis. But in answer to your question and comment of:

I'm just wondering why or how they are able to charge interest on the debt that is included in the chapter 13. In other words, we've been accruing interest and penalties for the last five years!! It's just so wrong!

Based upon your answers to my questions,

1 You filed 2007 and 2008 in 2010. They were filed late and less than 2 years before the bk was filed.

2. You filed 2009 and 2010 sometime in 2011. I will assume they were filed after you filed bk in May of 2011 and that you did not seek an extension for tax year 2010 therefore both returns were filed late.

3. I do not know which tax year was secured and, thus entitled to interest under the Plan, but such does not change the analysis.

4. You were a 100% plan but your Plan did not provide for payment of interest on unsecured tax claims that were otherwise non-dischargeable - which would be all of the aforementioned tax years less the one (or portion of one) treated as secured.

5. 11 USC 1328(a) states that claims meeting the requirements of 11 USC 523(a)(1)(B) and (a)(1)( C) are non dischargeable. (a)(1)(B) deals with returns not filed prior to the filing of bk and/or late filed returns that are filed less than 2 years before the filing of bk. Your returns fit into this category and, therefore, would be deemed non-dischargeable under 1328(a).

6. 11 USC 1322(a)(10) allows a debtor to propose a Plan that provides for payment of interest on claims that are not dischargeable under 1328(a). However the Plan can only do this if it provides for a 100% payback.

7. Your Plan could have paid interest on the non dischargeable tax claims because your were in a 100% plan. For whatever reason, it did not. As a result, the interest is now due.

Please understand that this has nothing to do with being fair or "just so wrong". It has to do with how the Bk Code reads and what Congress intended when it drafted the Code.

I hope this gives you a better understanding.

Des.

[CtheLight]

This is what I don't understand.
our 13 plan paid back all of the IRS debt. I thought...
The secured portion "claim amount" 13K and "scheduled amount 35k... We paid the 13k at 5% interest per the plan. After the 13K was paid, the disbursements went to the Priority taxes. I don't understand why, but that's what it shows.
Then the Priority was paid 67K to IRS and 75K was scheduled but shows 100% paid. No interest was paid.
I don't understand why the scheduled is higher than the paid amount and still shows 100% paid.
I've made my last payment to the trustee and we're waiting for the closing paperwork. After this, I'll call the IRS to see where we stand.

I'm curious which portion of the taxes we will still owe on.
Any input?
Thanks for your information!

[despritfreya]

You paid interest on the secured portion of the taxes as secured creditors are entitled to interest. Unless the Plan specifically provided for interest on the unsecured tax portion, you did not pay interest on that amount. Interest continues to accrue on the unsecured portion since the tax falls within the exception to the 1328 discharge.

100% simply means 100% of all ""allowed" claims as provided for in the Chapter 13 Plan, typically based upon the Proof of Claim filed by the creditors. If the Plan did not provide interest on the "allowed" unsecured tax claim then the interest was not paid and became due upon completion of the Plan and entry of the discharge.

What was "scheduled" as owing on your initial bankruptcy documents (Schedules D,E, and F) would rarely match the Proof of Claims filed by creditors. It is the Proof of Claim that "controls" subject to any tweaking provided for in the Order Confirming the Plan.

I recommend that you obtain a copy of the tax Proof of Claim. Compare the Proof of Claim to your schedules, the Plan and the Order Confirming the Plan. The taxes referenced as secured in the Order Confirming were paid with interest. I presume the balance of the "allowed" claim was not and it is interest running on the balance that you now owe.

Additionally, with a copy of the Proof of Claim, sit down with your bk attny to confirm all of this.

Des.

[CtheLight]

thank you for the information!
What would the interest rate be, do you know?

[despritfreya]

What would the interest rate be, do you know?

Right now it is the equivalent of just over 4% per annum.

Des.