Tax Question

[murph996]

I am in a 100% CH13 plan that includes tax debt from multiple prior years. Part of this was from tax year 2011, and this was in the plan as priority debt. All of this priority claim has been paid to the IRS through the plan.

I am having my accountant file an amended return (On the initial return, my son's SS# was listed incorrectly, and the IRS modified the return resulting in my owing the taxes).

Would I receive the refund of this overpayment, or will they apply this to the earlier returns. I would expect that I will receive the refund--as I did for my 2012 taxes. Can anyone confirm? I also expect that I may be best served to turn this over to the trustee.

Thanks

[andy158]

If you owe any arrearages to the IRS, any refund(s) you expect will be taken and applied to the balance due. We have owed the in past and this has always applied. It may slip through the cracks, but highly unlikely.

[murph996]

Generally, I don't believe that is correct. I received my refund from 2012 despite the arrearage. IRS cannot take your refund and apply to debts that were incurred prior to filing. This situation is a little different, but I think it's substantially the same. I don't believe they can take the refund of the overpayment and apply it to the non priority debt.

[justbroke]

This is difficult to answer. Are saying that you had arrears back from 2011 and earlier and then filed bankruptcy in 2012? You would need to ask the IRS or talk to someone that understands the IRS's right of setoff on a debt that preceded the bankruptcy. Really too tough to answer on this forum.

The question is one of setoff and whether the IRS can setoff pre-petition "overpayments" for pre-petition arrears.

[murph996]

Yes, I had arrears from tax year 2011 and earlier. 2010 and 2011 were classified as priority debt, and have been paid in full through bankruptcy. I filed for bankruptcy in October 2012 and was confirmed in December 2012.

[justbroke]

If you have paid "both" the priority tax debt and the general unsecured tax debt, then you should expect a refund.

I do not know what happens if you have only paid the priority tax debt, but the general unsecured debt has not been paid or whether a setoff is allowed in that case.

You can either ask the IRS or you can just wait and see what they do.