My own personal Chapter 13 nightmare (IRS)

[toph80]

OK - to answer the questions:

1. I changed careers about 2005 - so I make much less money than I did. I was self-employed for that one year, made a lot of money, and was basically a stupid kid. It was not 50K a year - that's what I make now.
2. Yes, this is for income taxes.
3. My bk attorney doesn't want to touch this. I know this because I talked to a paralegal and can't reach him. Secondly, I asked the paralegal if we could reopen the case and file an AP, and she said no. That the case was closed and discharged, and that was it.
4. The stamp on the return says "Received" and the date, as well as the department that received it - which was Compliance, and the address of the local office that received it. The Revenue Officer took it out of my hands and gave me a copy with the stamp on it.

So - you think I should get another attorney and file an AP? Will that freeze collections from the IRS?

Please let me know.

Thanks.

[despritfreya]

You are probably right that the attny does not want to deal with this issue, especially since we are now 4 years after filing. The paralegal who told you the case cannot be reopened is simply wrong. There is no time limit in which to have the court determine if the taxes were discharged and, in fact, the bk court is the more proper venue for such a determination than any other venue. You simply have to file a Motion to Reopen the case.

To repeat my suggestion. . . contact Special Procedures before you do anything else. It may be a simple phone call to the bk department of the IRS that will clear up the confusion. From the language of the stamp, clearly the return was filed.

Des.

[LadyInTheRed]

Another possible number to try from the IRS website IRS Tips for Bankruptcy Trustees: "Call 800-913-9358 to reach the Centralized Insolvency Operation. Hours are 7 a.m. to 10 p.m. eastern time."

[toph80]

OK - a couple of things:

First of all, I have spoken to a person in the Insolvency group. They told me that they didn't care if I had a stamped copy of the return - it was never put in the computer; therefore, it doesn't exist. I was dumbfounded. All of the IRS employees that I've spoken to, including the Advocate, keep going back to the fact that the return doesn't exist in the computer. The person in the Insolvency group told me that they don't have jurisdiction over this, and that I have to go through Collections. So I'm not sure what calling them will do.

Secondly, and more importantly ... if ANYBODY knows this, please answer. Will reopening my bk case stop the IRS from collections until this is resolved? I'm concerned that they will continue to collect this debt as of right now. If I have to file an AP, I can, but I'm going to have to use a different attorney than the one that did my bk, because they don't want to deal with it.

[despritfreya]

If you were talking to the LOCAL SPECIAL PROCEDURES division and were getting the runaround then you will have to do the AP.

Reopening the case alone will not stop collections since the automatic stay does not go back into effect. Now, will the AP stop collections. . .

1. Once the complaint is filed and served upon the DOJ both locally and in Washington, DC it is unlikely that collections will continue.

2. To be on the safe side there is nothing stopping you from filing a Motion for a TRO the moment the complaint is filed.

Des.

[despritfreya]

I found a case that appears to be directly on point. It stems from a Chapter 7 but should apply in the context of a Chapter 13. I have it as a Word and a pdf document on my computer but I do not know if there is any way to "upload" it to the forum so I am cutting and pasting only a small portion of it. If anyone who reads this knows if there is a way for me to “upload” such a document, please let me know. In the mean time the cite is:

In re Payne 306 B.R. 230 (Bankr. N.D.Ill. 2004) aff'd In re Payne, 331 B.R. 358 (N.D. Ill., 2005)

“In March 1992, approximately five years prior to his bankruptcy filing (in 1997), Payne mailed his income tax returns for tax years 1983 through 1990 without payment. . . The 1986 return had Payne's W-2 and other documentation attached. The Secretary of the Treasury made assessments for Payne's unpaid taxes for all the foregoing years except 1986 from the late-filed returns. . . In conjunction with each settlement offer, Payne tendered a down payment of $1,000. The IRS eventually rejected all those offers to compromise, but in negotiating the offers the IRS did not dispute that a Form 1040 had been filed by Payne for the year 1986. . . The United States acknowledges receipt of Payne's offers to compromise, his payments, and late Form 1040 tax returns except for the year 1986, and acknowledges the dischargeability of his tax debt for each tax year 1983 through 1990, except for the year 1986. The 1986 taxable year is the only year in dispute. . .

In 1999 (2 years after the bk), the IRS sent Payne notice stating that the 1986 tax return had not been received. . .In 2001, Payne received notice that the IRS again intended to levy his assets and income for failure to pay the 1986 tax debt. To forestall the IRS's levy, Payne moved to reopen his bankruptcy case and filed the instant Adversary Complaint. . . Accordingly, it must first be determined whether the 1986 tax debt was discharged, and if so whether the statutory discharge injunction was willfully violated. . .

The first basis for the Government's position is that the IRS has no record of ever receiving the Plaintiff's 1986 Form 1040 tax return for 1986. If Payne failed to file a tax return for 1986, that would except the 1986 debt from discharge. The Government argues that because it cannot locate the tax return for 1986 that Payne says he filed along with returns for other years, and Payne did not establish that the return was delivered through certified or registered mail as allowed by 26 U.S.C. § 7502(c); therefore it contends that Payne did not file anything. (But YOU have a receipt that the Return was received). . .The trial record contains evidence supporting Payne's contention of filing. . ."

And it goes down hill for the IRS from there.

Hope you can locate a copy of the case and I hope this helps. If you go to an attny have him/her pull up the case.


Des.

[toph80]

Can I recover attorney's fees here? In this case, it appears that he doesn't, but it's going to be an act of Congress for me to even be able to afford a lawyer for an AP.

[toph80]

UPDATE: I spoke to a bk attorney, and I received some DEVASTATING news. I told her my complete story, and she said because the originally filed a Substitute for Return (SFR) for me in 2004, which is before I filed my amended return in 2005, that the taxes are completely nondischargable. I will have to pay the full amount eventually, either through an Offer In Compromise or payment plan. She said that even filing another Chapter 13 later won't abate any of the penalties or interest. Wow. I'm totally in shock.

Are there any opinions or thoughts?

[justbroke]

Yes, there is caselaw and it has gone both ways. However, there is one case that went all the way to the appellate court. I didn't know that you filed "your" version of your tax return after the IRS filed a substitute form. However, your attorney may be playing it safe. There is some wiggle room. I'm assuming that your attorney is depending on the language in 11 USC 523 where...

11 USC 523 (a)(1)(B)(ii) was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or

The caselaw is pretty much that 11 USC 523 does not allow a tax debt to be discharged if you never filed the return before the last date that you could pay the tax without penalty. The problem I see is that that exclusion includes the conjunction "and" which means you must file more than 2 years after filing the late return.

You may want your attorney to look at In re: Gary Colsen, 446 f3d 836 (8th Circuit, 2006). This was the 8th circuit but may be something worth reading. It looks JUST like your case. I will say that this may be a "fight" to get the Court to understand that conjunction in 11 USC 523! So long as you filed a "return" and it was accepted by the IRS, you should be able to get this discharged.

[toph80]

I looked at the case, and I have this question. This return (my version) was filed in 2005, before the new code was in place. But my bk filing was in 2007, which was after. The crux in this situation is the fact that his bk petition and tax return filings were all on the old law. Mine would be based on the new law, and thus inapplicable, correct?

What do you think?

[justbroke]

I don't think anything really changed in this area, so those cases are still relative. I believe that the BAPCPA of 2005 only clarified some technical definitions. So, the caselaw is still referenced as you can see that even Des' citations references cases from 2003, 2004.

Further reading of the caselaw cited by us both (Des and I) further reveals that if you didn't file tax returns because you knew that you owed or would owe money, may be considered an omitted to avoid or evade taxation. Under that scenario the tax would not be discharged.

I think the key rests in the substitute form and and whether that is considered filed for purposes of the exclusion in the code.

I don't think anyone can guess how your case would go. It is intriguing though.