IRS Debt and possible refund

[berkeleygl]

Quick question:

Pretty much all of our payback in our plan is to the IRS for back taxes. We are in a 5 year plan at $288/month. If we get a refund this year, will we be able to keep it (assuming that the trustee lets us), or will the IRS keep it to pay back back taxes (that are being paid back in our plan)?

I hope that makes sense.
Thanks!
-Alison

[IamOld]

It makes perfect sense - as long as you (and me too!!! :-) owe the IRS money they WILL ALWAYS take the refund and offset what you owe them (which will reduce your balance with Trustee).

[AngelinaCatHub]

It makes perfect sense - as long as you (and me too!!! :-) owe the IRS money they WILL ALWAYS take the refund and offset what you owe them (which will reduce your balance with Trustee).

They WILL keep it. We know as three years going. You will get a letter to this effect with your reduced balance. 'Hub

[tammygirl1]

We owe both Federal and State back taxes along with back child support. We were able to keep our State and Fed refunds (first time we got refund since we married..got smart and stopped going to HR block and got a tax accountant). Our lawyer called trustee and they said keep it (158 fed and 1500 state). So I guess it all depends.

[berkeleygl]

Hmm, I really hope Tammy is right! This would also be the first time we would be getting a refund in many, many years. And seeing as we are below mean from a salary-perspective (and therefore could have qualified for a 3 year plan) I will be really pissed if this refund pays off enough of what we owe to have made a 3 year plan feasible for us. At the time of filing (October 2011), we owed enough taxes to make it too big a stretch for us to pay off in 3 years. Erg. Annoying.

[Flamingo]

Being in a Chapter 13, your Plan covers the years for which you owed taxes. Refunds will be for either the year one filed or years thereafter. It was explained to us by our attorney that if we receive a refund (we too had both state and federal taxes in our Chapter 13 Plan) that we would receive the refund as the IRS will not apply that refund to the balance owed in the Plan. I would suggest consulting with your attorney if you expect state or federal refunds and go by your attorney's advice as to what to do and notify him/her if the IRS does keep the refund. We received refunds during the last two years of our Plan and we got to keep them. The refund amounts were not applied by the IRS or our State to the amounts owed in our Plan.

[kayday]

We have back taxes in our plan and we will be done next month (5 year plan). We was told in the beginning that as long as you are paying back 100% that we would receive a refund. We have every year. Now the first year they tried to keep it and we had to fight to get it and we got it.

[karm43]

Darn I was actually gonna get a refund this year too. Guess not. Everytime my payment makes a indent they ncharge 750 dollar interest, cant wait until it stops

[berkeleygl]

Thanks again for the responses. I am feeling slightly more hopeful that we may get our refund, but I guess I will just have to wait and see.

[KAM465]

One way to not have to worry about them taking your refund is not to have one at all. Throughout the year you need to evaluate your withholdings and adjust up or down as needed, the goal is to pay as close to what you will owe at year end, no more no less. There are tools online to help with this including one on the IRS website.

[berkeleygl]

I understand that Kam, and I do evaluate my witholdings and change them constantly (I am the payroll administrator for my husband's small company), but as I just realized the IRS witholdings calculator is very limited and doesn't take into account a LOT of circumstances. One of which is our rental property that should have been foreclosed on over a year ago, but the banks are just sitting on for some reason. The upside to that is that we get to claim devaluation on it with our taxes which was unexpected (and will be nice IF we get to keep our refund). If it wasn't for that, we would have a negligible refund.

[KAM465]

Berkeleygl, sounds like you have a good handle on what to do, just sounds like your situtation is a little more complex thna most.

I never understood why people get so excited when they get a "BIG REFUND" when all they are getting is their own mony back that they loaned to the IRS interest fee. You think the IRS would be so nice as to not charge interest and late fees if/when you underpaid? I think not.

[berkeleygl]

Oh I know KAM. I am usually the one giving that lecture, so imagine my surprise last week when I did a preliminary run on my 2011 taxes and saw a decent chunk of change for a refund. Much better than the "surprise" I got a couple of years ago after we ran through our 401K during a period of unemployment...hence our current predicament.

[catleg]

Maybe you should apply the refund against next year's taxes and then reduce your current withholdings accordingly.
Perhaps that's a way out of your current situation.
It's sure nice finding that depreciation deduction when you're defaulting on the mortgage LOL.

[berkeleygl]

Ohhh, catleg, that sounds ingenious! I didn't know you could do that! Off to research... Clearly I am obsessed.