2009 Taxes owed/ Chpt 13 to be confirmed end of April

[kinnari416]

HI All

Another question regarding 2009 taxes owed. My situation:

I filed for Chpt 13 in Sept 2009. I have been making payments to the trustee since November 2009 (current on pymts) and my plan is to be confirmed in NY on April 22, 2010.

In doing my 2009 taxes I found that I owed $7k in Federal and $2 in NY state tax. Because I'm about to be confirmed, my attorney suggested that I filed at the last possible moment and to request an installment agreement with the IRS to pay outside of the plan vs adding the additional amount to the BK plan. I have asked if this will be grounds for dismissal or a red flag to the trustee but my attny didn't think so and I have pressed her again to double-check and make sure. She's pretty competant so I don't doubt her. I just want to be 200% sure


So my plan right now is to pay off the $2K state tax immediately on April 15 and pay $1k towards the the $7k federal amount and request an installment payment for the remaining balance of $6k. OR my fiance has generously said that he will pay the entire $7K federal balance (as a gift and not a loan) just to get it done.

Ultimately, my question is: will owing the gov't money and doing the installment payment or paying it all off in one swoop raise any eyebrows when the trustee gets a hold of my 2009 tax returns (it is about $9K afterall)? The trustee has not asked for 2009 returns yet and the reason why I owe so much as due to rental income I had received in the 2009 year. My withholdings have now been adjusted and the rental income has now gone away so for 2010 I will not be faced with this issue again.

Thank you

[SMinGA]

My first question would be how you're able to make out a payment plan w/ the IRS, state when all of your DMI goes into the bankruptcy plan? I would think that if the trustee got wind of that, your trustee would want to re-evaluation your DMI & plan payment.

Could it be that your atty just doesn't want to deal with amending, and rescheduling? Amending your plan would push back your confirmation I believe.

Last thought on the topic - how much is your plan paying to unsecured creditors? It would seem reasonable to have BK protection on this debt as well, since it was incurred for 2009. Should be able to argue it preceeded the filing even though you did not know about it yet. And including the taxes as a priority debt would just decrease what is going to unsecured. (Unless you need to pay a certain amount to unsecured due to asset protection or preferential payments.)

[biotechsolution]

I don't think you'll be able to set up an installment agreement while in a BK. When you file your Bk the IRS puts a hold on your account, you can make voluntary payments but not an installment agreement.

[lrprn]

Since the fed and state taxes you owe are new debt that happened *AFTER* you filed, your lawyer can amend your plan to include paying them, even though they won't be a part of your actual Ch 13 plan.

It's the same as what happens to filers that have unexpected, long-lasting new debts that happen after filing that impact disposable income significantly; for example, when a filer has a major hospital bill for a severe illness that happens after filing, it has to be paid, yet wasn't a part of the original Ch 13 filing. Paying the bill off is going to significantly impact disposable income for a long time. That's when Ch 13 plans can be amended to account for the new debt that must be paid. If the new debt is paid in full before the Ch 13 plan is completed, then the Ch 13 payments typically return to their former confirmed level because disposable income is higher again.

Your lawyer will amend your current Ch 13 plan to reflect what you have to pay on the taxes for whatever payment plan you work out with the IRS. Contact the IRS and get started on this asap. A payment plan with the IRS can take some time to work out. Keep your lawyer informed about how the IRS negotiations are going.

One last thing - PLEASE sit down with a competent accountant and adjust your withholdings and deductions for this year to ensure this NEVER happens again while your Ch 13 is active. Your goal should be to slide in under whatever tax refund amount your trustee allows you to keep. This varies from trustee to trustee, so ask your lawyer what your trustee allows. Good luck!

[backwoods]

Be careful in dealing with the IRS.

I was in a similar situation as kinnari. We owed the IRS about $20K and my wife had been having payments deducted from her check right up to when we filed CH13 in 5/09. At that point we started making payments to the trustee and the taxes were included in the plan. No problem, right?

Wrong. Right after the confirmation in 10/09 the IRS sent a letter to my employer and instructed them to change my witholdings to zero/single from two/married. As you can imagine it completly ruined our budget plan that we were locked in to.

We had to hire a tax attorney to fight with the IRS in order to get this changed back. The beautiful thing is that the IRS was at the confirmation hearing via conference call and had no problems with the payment plan. Two months and $750 later they allowed my employer to change the witholdings back.

My advice is:

1. Be carfeul and get good professional advice
2. Don't believe anything the IRS says unless you get it on paper. If you work out a payment plan or deal with them make them send you a paper copy of the agreement.

Remember, the IRS is nothing more than a big collection agency for the Federal Reserve System and they don't give a damn about your well being.

[Flamingo]

Here is the key to your entire situation. If you do not have any past taxes with the IRS included in your Chapter 13 filing in 9/09, you will be able to get a payment plan with the IRS. If you have past taxes included in your filing, you will not as the IRS will not allow two payment plans at once and they consider Chapter 13 a "payment plan" even though it is not through the IRS. Since you filed in 9/09, your taxes are considered new debt after you filed and, therefore, your responsibility. You need good sound legal and tax advice since your plan is not yet confirmed and will probably have to be amended to include the taxes if allowed by the IRS. Again your key is if you currently have any federal taxes included in your present filing. As to any payments made to those taxes prior to any amendment with your situation, that is where you need competent tax and legal advice due to the trustee possibly questioning the source of funds to pay the IRS.

[kinnari416]

Great! Thank you all for your input.

I will likely have to amend my plan per my convo with my attorney last night. She is checking with the NY trustee to see what they want to do. NYC Chapter 13 trustee and judge are requesting additional information / status reports these days prior to confirmation. The courts are behind and they are trying to push the "easier" cases through. My case is fairly cut and dry with now the exception of this tax liability issue.

I will report back on what my attny hears from the trustee so everyone else can benefit.