Chapter 7 and Federal Taxes

[jetsfan2010]

Its truly amazing how much in interest and penalties the IRS can and will add to your debt. My principal balance owed with them is literally double due to that.

[olivies]

We just received our Ch 7 discharge. We actually had a $2500 refund coming to us when we filed our taxes in April. Of course, we never really expected to see the money, and assumed it would be applied to our tax debt. But to date we've received nothing in terms of a refund nor a notice saying the refund was applied to our balance. When I check the status online I get "there is a delay in processing your tax return. Please call us". Naturally, I haven't called them because I don't have hours to spend waiting on hold. I'm fairly certain it's not something like a missing social security number or anything of the sort since we've received no communication from them whatsoever. Any idea if this is standard procedure for a Ch7 with tax debt? Are they waiting for the case to close? Any insight you have would be greatly appreciated.

[crackedmuse]

I see it's been a few months since anyone posted to this thread, but I noticed someone asked my exact question a few pages back and never got a response, so I'll give it another go.

If you owe taxes that cannot be discharged, do you need to list them on Schedule E?

I am approx. 2 weeks away from filing Chapter 7 pro se, and an IRS assessment letter showed up at my door yesterday for underpayment of SE tax for 2009. I was on the phone with the Examinations department this morning and told it was an "assessment" (that I could agree or not agree with) and not an actual bill. But if I didn't respond within 30 days, a Notice of Deficiency would be sent which IS considered a bill.

There is background here as I actually paid the SE tax in June 2010 (after receiving a letter requesting me to file schedule SE). Just a request to file - no assessments or anything, which I assumed would come after they examined it). But I was moving to another city that same week, so I faxed the schedule (along with the letter) and made an electronic payment the same day. In July 2010, I called IRS to report my new address and to see if the money I paid was correct, and the agent said he couldn't see a schedule for me but saw that a refund had already been processed so I probably did pay enough. In August 2010, I received a letter stating, "we've reviewed your return and determined that you were entitled to credits you did not take and are sending you a refund. About a week later, I received a refund of $2,068. (The amount I paid was $2,385). It should be noted, my return indicated "amount owed" only. I was not expecting a refund of any kind, so I figured it must have been the stress of relocating that made me overpay so much.

A full year goes by, and in July 2011, I receive a letter asking me to please file Schedule SE for the exact same tax year! Because I had moved again in June (and the IRS had my new address but still sent it to my old one) it took 3-1/2 weeks to reach me, so I only had 8 days to respond to their 30-day request. After 4 phone calls, one agent finally figured out that the schedule I faxed was never scanned into my file, so since they couldn't match my payment to anything, they refunded it all back. Anyway, I gathered all my docs and went to the local office and had them forward everything to Fresno on 8/22 so I could make the deadline. I called 3 times to check status over the next 5 weeks, and was told my paperwork still was not in the system and to check back in a month. So yesterday I get this letter stating they haven't heard from me and here's your assessment.

I spoke to IRS this morning and was told docs were scanned into the database on 10/17, so it would be another 4-6 weeks before my case is examined by an actual agent, and not to worry about the Deficiency Notice because the computer generates it automatically. But then it will move from Examinations to Collections and then I'll be able to get the issue resolved.

I was told the Notice had not been generated as of today, so I don't actually owe anything yet. But since I will be filing Chapter 7 in the next two weeks, it will undoubtedly arrive the day I'm on my way to the courthouse. LOL.

I apologize for the rant, but my question remains: is this something I need to list as an unsecured priority debt, even though it's not eligible for discharge and I do not yet, in fact, owe it?

[crackedmuse]

I've been reading through as many of the tax threads I could find, and although I didn't find an answer to this specific question, I'm convinced I have to list is as an unsecured priority debt. Spoke with another agent later today and she stated with all the time lag between letters and responses, it would be best for me to wait until an actual Deficiency notice is received because it would move to collections and would then have 90 days to deal with a specific agent assigned to my file to resolve the matter because Examinations only makes the assessment. So even though "technically" I don't owe the IRS anything yet - the assessment will undoubtedly be formalized shortly. So I'll treat is as a done deal and list it on Schedule E when I file.

[despritfreya]

If you owe taxes that cannot be discharged, do you need to list them on Schedule E?

I apologize. I did not read through your entire post - too early in the am. But here is what gets listed on E vs. what gets listed on F and/or D.

Income taxes owed that are less than 3 years old are "priority" and are listed on E. As of today, taxes owed for 2008, 2009, 2010 are "priority".

Income taxes that are more than 3 years old, even if they do not meet the test for dischargeability, are listed on F. Such taxes are not "priority unsecured", they are simply "unsecured" and may or may not be dischargeable.

If the taxing agency has filed a lien (not a levy), to the extent you have property that supports the lien, those taxes are listed on D.

Taxes owed due to self employment income =’s income tax.

Des.

[crackedmuse]

I apologize. I did not read through your entire post - too early in the am.

Not a problem! You answered my question. The rant was mostly for entertainment purposes anyway. LOL. Thanks for responding Des.

[butterfly57]

First, I am brand new here and pretty overwhelmed at this point. I am preparing to file Chapter 7, I've talked to one attorney (fee's are almost $3,900 including court fees,etc.) he and I have a previous attorney client history together because of a business I operated with my ex. After finding this website and reading through it I have made an appointment with another attorney for Tues. for a consult.

In a nutshell - I owe Federal and NC state taxes, capital gains taxes to be exact, from a piece of property my ex-husband and I sold prior to our divorce. We operated a business off of it and closed the failing business, paid off over $100,000 in tax debt the business owed with the money made off our personal sale of the property. Also, paid off some business credit cards, personal credit cards, business vendors, my vehicle, etc. No one gave me or the ex a heads up as to what to prepare for as far as taxes due. We both waited from the sale, March '07 to when taxes finally got filed Oct. 2008 to be told I owed the IRS $50,000 and the state $25,000 (more now with penalties and interest) my ex-husband owed the same amount and he is finally making payments to the state, not the IRS. His income is much higher than mine. The reason I couldn't pay my taxes was there was barely any money left by the time the taxes were filed.

I was trying to survive on my own after being married 25 years and being a business owner. I started working part time, May '07 and dipping into what little money I had left to help pay rent, utilities, gas, food, etc. I became unemployed Feb. 2009 and finally employed by the grace of God, Jan. 2011, small part time job making what I made hourly 20 years ago. My situation has not improved financially. I own some household items. Owe about $2,000 CC debt and $2,000 medical bills. There is a home equity line of credit in my name and in my ex-husband's name against the home my ex-husband is still living in. The primary mortgage is in his name alone but the deed is in both our names. He has avoided foreclosure several times and has worked something out with the banks.

Fast forward to June 2011. The state has frozen my bank account so I am now at the 3 year mark to file bankruptcy. The attorney told me my taxes would be dischargeable, I was also told I'll only owe what I own in household items and vehicle value. But, after reading through here I'm terrifed about this tax debt. and the meeting with the trustee down the road. The attorney did mention I may have to sign off on the house, or sign my interest over to my ex-husband, something like that. Is there anything I'm missing here that I may need to ask the next couple of attorneys I confer with? I feel so lost and confused and not very comforted by the attorney I spoke with.

[spearmint]

I had a lot of tax debt prior to filing my bankruptcy. The attorneys at Trejo Law Corporation knew a lot about handling tax debt and bankruptcy. I wasn't able to discharge the tax debt but I was able to get an Offer in Compromise (i think that's what they call it) with the IRS. The folks at Trejo Law Corporation did a fair job. Look them up and give them a call with your tax questions. They gave me a free consultation back in August.

Jim

Did you have to pay on the back taxes for a few years before the offer in compromise?

[KAM465]

spearmint appears to be posting SPAM

[spearmint]

spearmint appears to be posting SPAM

I am not posting spam. I asked a question.

[KAM465]

Sorry I meant to say:

spearmint, jnewman appears to be posting SPAM

[spearmint]

Sorry I meant to say:

spearmint, jnewman appears to be posting SPAM

Ahhh. I didn't catch that! You might be right.

[butterfly57]

lol Replying to my own question

First, I am brand new here and pretty overwhelmed at this point. I am preparing to file Chapter 7, I've talked to one attorney (fee's are almost $3,900 including court fees,etc.) he and I have a previous attorney client history together because of a business I operated with my ex. After finding this website and reading through it I have made an appointment with another attorney for Tues. for a consult.

In a nutshell - I owe Federal and NC state taxes, capital gains taxes to be exact, from a piece of property my ex-husband and I sold prior to our divorce. We operated a business off of it and closed the failing business, paid off over $100,000 in tax debt the business owed with the money made off our personal sale of the property. Also, paid off some business credit cards, personal credit cards, business vendors, my vehicle, etc. No one gave me or the ex a heads up as to what to prepare for as far as taxes due. We both waited from the sale, March '07 to when taxes finally got filed Oct. 2008 to be told I owed the IRS $50,000 and the state $25,000 (more now with penalties and interest) my ex-husband owed the same amount and he is finally making payments to the state, not the IRS. His income is much higher than mine. The reason I couldn't pay my taxes was there was barely any money left by the time the taxes were filed.

I was trying to survive on my own after being married 25 years and being a business owner. I started working part time, May '07 and dipping into what little money I had left to help pay rent, utilities, gas, food, etc. I became unemployed Feb. 2009 and finally employed by the grace of God, Jan. 2011, small part time job making what I made hourly 20 years ago. My situation has not improved financially. I own some household items. Owe about $2,000 CC debt and $2,000 medical bills. There is a home equity line of credit in my name and in my ex-husband's name against the home my ex-husband is still living in. The primary mortgage is in his name alone but the deed is in both our names. He has avoided foreclosure several times and has worked something out with the banks.

Fast forward to June 2011. The state has frozen my bank account so I am now at the 3 year mark to file bankruptcy. The attorney told me my taxes would be dischargeable, I was also told I'll only owe what I own in household items and vehicle value. But, after reading through here I'm terrifed about this tax debt. and the meeting with the trustee down the road. The attorney did mention I may have to sign off on the house, or sign my interest over to my ex-husband, something like that. Is there anything I'm missing here that I may need to ask the next couple of attorneys I confer with? I feel so lost and confused and not very comforted by the attorney I spoke with.

Please someone, anyone have any insight or comments about my dilemma? I did meet and retain another attorney that was recommended by someone I know. His prices are more affordable even though I haven't come up with the initial $500 he needs. But, he also said the taxes are dischargeable except for 10% of what my personal items and vehicle add up to. He doesn't specialize in taxes, he just does the most bankruptcy cases in my county. I'm still feeling uncertain. I hate to claim bankruptcy if my taxes won't be dischcargeable, that's the only reason I'm forced into Bk.

[HHM]

I think your attorney is correct, the taxes appear to be dischargeable, but no one can really say without reviewing transcripts. If tax liens were filed (which sounds like they were), the tax debt becomes "secured" debt for purposes of your BK and your state or fed exemptions do not apply. So that is why your lawyer has told you some amount of tax debt [that equal to the net equity of your assets] will survive the BK.

[butterfly57]

I think your attorney is correct, the taxes appear to be dischargeable, but no one can really say without reviewing transcripts. If tax liens were filed (which sounds like they were), the tax debt becomes "secured" debt for purposes of your BK and your state or fed exemptions do not apply. So that is why your lawyer has told you some amount of tax debt [that equal to the net equity of your assets] will survive the BK.

Yes, I have tax liens. They are first thing on my credit report.

And thank you for responding, I believe now I finally understand "that" part of it. I realize every state is different in as far as they handle tax debt so I'm not sure how NC is in as far as discharging my debt (any ideas?).

I also am on the deed to a home that my ex-husband occupies and pays the bills on for the last 5 years. He's on the 1st mortgage solo and I'm on the home equity line along with him. I plan on including the home equity line in my BK. The first attorney I consulted with (30+ years in the business w/ immense tax knowledge but expensive to hire) he said I probably will have to "sign over" my rights to the house. He did not specify a legal form to do this with. I know it's not as simple as just writing a letter so do I need to prepare a quitclaim deed? The 2nd attorney did not address this part, all he asked was if the home had any equity and I told him "no" at this point in time (it did 5 years ago).

Also, I have read about filing this "motion to Value" with the IRS. First I've heard about it on this site. Is this something I do myself by finding the proper IRS form? Or does the BK attorney do it? I will bring it up with whoever I end up retaining (have reconsidered hiring "the expensive knowledgeable about taxes guy" over "the guy that files the most bankruptcies in our county". Not sure where the $$ is coming from to hire either but I'll have to start selling things on craigslist or ebay.