Fed and State Have Not Filed Claim

[minan]

Here's the situation:

When we filed in Summer 2010, Atty stated that we had to include all debt incurred up to the time we filed - this would include the 2010 estimated taxes that were due, but not paid yet from self-employment. In addition, we had taxes due from 2008 and 2009 that were included in the 13 plan. Self-employment ended after we filed.

Fed did file claim for 2008 and 2009.

Re: the state taxes: claim was filed for 2008. When we asked about 2009, we were told they had not received our 2009 return so we mailed them a new copy. Now they told us return is being processed now.

Fast forward to Feb 2011 and we have now filed our 2010 tax returns for state and federal. Both returns have balances due. This is close to the amounts we listed on our chapter 13 bk paperwork for priority debt.

So far, we have not seen any new claim from the fed for the 2010 taxes owed or the state for the 2009/2010 taxes owed.

We don't want any issues at our confirmation in May and want to ensure all back taxes are paid in our plan as this is the only reason we filed.

What can we do?

[justbroke]

Governmental entities have 180 days, from the order of relief, to file a claim. This is because they are understandably... slow.

[minan]

Governmental entities have 180 days, from the order of relief, to file a claim. This is because they are understandably... slow.

We filed last summer (july) so 180 days have passed. We heard you can file a claim on behalf of creditor or something to that effect so that is what we are wondering? Can we file a claim ourselves on behalf of the state and IRS?

[justbroke]

Yes, you can file a claim on their behalf. I had to do that for Property Taxes in the year that I filed -- that is file a claim on their behalf, as well as for the HOA! However, they aren't "required" to file one, they just don't get paid during the Chapter 13. Depending on the situation, it may be in the debtor's best interest to file a claim on the creditor's behalf -- only secured or tax creditors -- so that you can include them in the Plan.

[despritfreya]

You filed in the summer of 2010. Unless you filed a part year return (I think that's what it is called - maybe it is a "short" year), in 2010, the 2010 tax debt was not due when you filed the bk. It became due on April 15, 2011. It is a post petition debt. You need to request that the IRS/State file a Section 1305 claim. This is not a claim you can file on behalf of the taxing agency nor is it mandatory that the creditor file the claim.

Contact your attorney and request that he/she communicate with the bk departments of the Federal and State taxing agencies in an effort to get the 1305 claims filed. If you do not act the claims may not be filed and the debts will not be paid through the Plan. If not paid, the 2010 tax debt will survive the bk with all of the accumulated interest.

Oh, one more thing. . . make sure this does not happen in the future. Failure to pay taxes as they become due is grounds to dismiss your case.

Des.

[justbroke]

Missed that... post petition tax debt. Yes, a different process indeed.

[minan]

Des: Understand what you are saying about the post-petition debt.

Just to clarify. Up until July 2010 we were self-employed and had estimated taxes which was not paid so attorney included in debt. Our atty stated that legally we were required to list all debt owed to anyone at the time of filing. In August 2010, we accepted jobs with a company and taxes were taken out of our paychecks so that portion was paid.

We were not advised about the short year tax return. However does that mean we should have filed a return in 2010 to cover Jan to Jul, then filed another in April 2011 to cover Aug to Dec 2010?

[minan]

Des/Justbroke, this is so upsetting to think that we filed to deal with taxes and now may be screwed even further. Sending an email to atty today to contact IRS (our tax return for 2010 was filed in Feb electronically and accepted) so he should be able to call next week and work out the 1305 claim. Do you think the IRS will make this a major issue?

State has been filed electronically and are awaiting word the return was accepted. If yes, then will request atty to do the same with the state. Funny, the state is so much easier to deal with and has always been so much more friendlier than the IRS. We believe the state will file a new claim as they have always been easier to deal with for us.

We are no longer self-employed and now are W-2 employees so additional tax debt should not be an issue next year. Based on what we project for 2011, we did a mock return for 2011 and there will be no refund. Even if there was a refund, we have no issue with giving the Trustee the refund.

Confirmation is in May and we just want to get confirmed. Other half feels devastated now. She can't stop crying now.

[despritfreya]

Up until July 2010 we were self-employed and had estimated taxes which was not paid so attorney included in debt. Our atty stated that legally we were required to list all debt owed to anyone at the time of filing. In August 2010, we accepted jobs with a company and taxes were taken out of our paychecks so that portion was paid. We were not advised about the short year tax return. However does that mean we should have filed a return in 2010 to cover Jan to Jul, then filed another in April 2011 to cover Aug to Dec 2010?

1. I disagree with your attny's assessment. From my understanding, unless you timely elected the "short year", your 2010 tax debt (regardless of your employment status) does not become "ripe" until 2011. Normally, when my clients know they will owe we try to hold off filing until the 1st of the following year. If we do, the IRS will automatically file a POC including the prior year and list it as "unfiled".

2. At this point, I must assume you will just file a normal 2010 tax return. Quite frankly very few folks file a short year return. Simply no real reason to and certainly not a requirement in the context of a Chapter 13.

3. I have never had a problem with either a State of Federal taxing agency filing a 1305 claim if I requested it. Even had one case where my client asked for a waiver of Plan payments in order to be able to pay the tax debt. We filed the Motion and about two weeks later the taxing agency took it upon itself to file the 1305 claim. The agency withdrew the claim once my client paid the tax and all was right with the world.

You should not have any problems with getting the agency to file the 1305 claim.

Des.

[minan]

1. I disagree with your attny's assessment. From my understanding, unless you timely elected the "short year", your 2010 tax debt (regardless of your employment status) does not become "ripe" until 2011. Normally, when my clients know they will owe we try to hold off filing until the 1st of the following year. If we do, the IRS will automatically file a POC including the prior year and list it as "unfiled".

Unfortunately either our atty did not know this or we did not do enough research on this topic. Our atty is very nice and we do not have any issue as they have been very helpful to us, always answering our questions, emails, phone calls in a timely manner. We really could not have made it through this as emotionally devastated as we were without our atty. We filed because the IRS had already filed 2 levies on us. Atty and we thought the time was right so we filed.

2. At this point, I must assume you will just file a normal 2010 tax return. Quite frankly very few folks file a short year return. Simply no real reason to and certainly not a requirement in the context of a Chapter 13.

Both state and fed 2010 returns were filed electronically already and agencies notified via email that the returns were accepted.

3. I have never had a problem with either a State of Federal taxing agency filing a 1305 claim if I requested it. Even had one case where my client asked for a waiver of Plan payments in order to be able to pay the tax debt. We filed the Motion and about two weeks later the taxing agency took it upon itself to file the 1305 claim. The agency withdrew the claim once my client paid the tax and all was right with the world.

You should not have any problems with getting the agency to file the 1305 claim.

We already contacted atty and asked to contact both agencies re: the 1305 so it's covered in our plan and both can get paid in full at the end of the 5 years. We cannot afford to pay the 2010 taxes now so want it included in our plan (which it was already), but we didn't know about the short tax year return.

[minan]

Des, we did more research today and here is what we found:

"5.9.10.9 (05-20-2008) Postpetition Tax Liabilities
.....The Service's position is the accrual date, not the date of the assessment nor the date the tax was payable, determines whether an account is considered a prepetition or a postpetition liability."

The taxes we owe were acrrued before the date we filed in 2010 so maybe this was why our atty included the debt. This applies to state also. Our plan payment already takes this amount into consideration so there is no need to modify our plan.

[despritfreya]

"5.9.10.9 (05-20-2008) Postpetition Tax Liabilities.. The Service's position is the accrual date, not the date of the assessment nor the date the tax was payable, determines whether an account is considered a prepetition or a postpetition liability." The taxes we owe were acrrued before the date we filed in 2010 so maybe this was why our atty included the debt. This applies to state also. Our plan payment already takes this amount into consideration so there is no need to modify our plan.

I do not know what your attny was contemplating, however, if you have access to looking up case law, the following case is close to (but not exactly) being on point.

In re Senczyszyn, 426 B.R. 250 (Bankr. E.D. Mich., 2010)

I am also including a link that has short synopsis of the case.

http://www.avvo.com/attorneys/48150-mi-charles-schneider-759760/legal_cases/33735

Debtor in this case filed bk in 2009, after he had filed his 2008 taxes but before April 15, 2009. Debtor's Plan provided for the 2008 taxes. IRS filed an appropriate claim. The State did not. The Debtor filed a claim for pre petition tax on behalf of the State. The State objected asserting that it was a post petition debt since the tax return was not yet due (despite the fact that it had been file pre petition). Court said the tax was pre petition and overruled the objection.

I beleive the difference between your situation and that in the reported case is as follows:

1. You filed in 2010.
2. Unless you elected a short tax year and filed said return before you filed the bk, I believe the tax obligation did not "accrue" until either December 31, 2010 or January 1, 2011.
3. Having filed bk before 12/31/10, the 2010 tax debt is a post petition debt and is subject to the 1305 claim.

Could be wrong, but I have not seen any case handled differently. Please let me know if your attorney is able to assert that the liability is pre petition as such might be helpful in the future.

Des.

[minan]

Des, will keep you posted as to what happens. Thanks so much for your advice. We're trying not to worry, but other half can't stop crying about yet another thing to keep us from possibly getting confirmed in May.

[despritfreya]

. . . but other half can't stop crying about yet another thing to keep us from possibly getting confirmed in May.

Ok, I'm a lawyer so, of course, I have to get the last word in. . .

You tell that other ½ to stop crying. Either it is a pre petition tax or it is a post petition tax. Either way it will get paid and it will not stop the Plan from being confirmed. There may be a need to tweak the Plan (doubt it) but it will be confirmed and your case will move forward to a final resolution. These issues pop up all the time and there is always an answer.

Des.

[df04527]

Ok, I'm a lawyer so, of course, I have to get the last word in

very interesting thread ----- laughed right out loud when i read this part though...... too funny des...... love it.