Is my monthly payment to the IRS considered an expense?

[topekajack]

Is my monthly payment of $900 to the IRS considered an expense? It is for last years taxes... in an installment agreement that was initiated 3 months ago.

If I can not claim it I cannot pass the means test for a chapter 7.

Thanks!

[StartingOver08]

This is a good question for your attorney. I was also in an installment agreement when I filed and what happened is the IRS stopped collecting the payments. The BK filing actually terminated the installment agreement. I had to contact them after the Ch 7 discharge and make a new installment agreement based on the 'new amount'. There was a new amount because of the lapse in payments.

If you don't contact the IRS after your discharge, then they will contact you!

[AngelinaCatHub]

This is a good question for your attorney. I was also in an installment agreement when I filed and what happened is the IRS stopped collecting the payments. The BK filing actually terminated the installment agreement. I had to contact them after the Ch 7 discharge and make a new installment agreement based on the 'new amount'. There was a new amount because of the lapse in payments.

If you don't contact the IRS after your discharge, then they will contact you!

Exactly true. All this happened with me. Even though you will owe them, the IRS "ORDERS" you to stop paying in the automatic stay. Once settled, they do not have the wisdom to contact you back, you will get the old nasty notes in quadruple as we did, and you will have to set up a new payment plan. Mine is $400 for eternity. 'Hub

[pcn]

Is the payment plan to the IRS not a priority debt?

[justbroke]

Is my monthly payment of $900 to the IRS considered an expense? It is for last years taxes... in an installment agreement that was initiated 3 months ago.

No, any IRS installment payment is not an expense in Chapter 7s. As noted, account collection goes into suspension during your case pendency. The IRS also cancels the current payment plan. Unfortunately, since it's in suspense, it's not a valid expense for purposes of the Chapter 7 Means Test.

Is the payment plan to the IRS not a priority debt?

Yes. However, since the IRS debt collection goes into suspension, it doesn't count as an expense in a Chapter 7. I'm not sure if this is the case because it's actually an unsecured debt (priority unsecured debt).

If your Chapter 7 has a distribution (is an asset case), then the IRS would be entitled to "priority" over other unsecured debt.

In a Chapter 13, you actually pay the IRS debt over 3-5 years without interest, and the IRS's "priority" claim is split into a priority unsecured portion and an "general" unsecured portion.

There may be other cases in which the IRS has levied upon your personal and real property, that it may be considered secured debt and can be included as an expense. However, if this is from taxes from the last 2-3 years, I'm sure it hasn't risen to the level of an IRS levy on say, your home.

[topekajack]

Thanks for all of the responses.

If I include the $900 IRS payment I have -$500 disposable income at the end of the month. So, if I can not claim it as an expense and I go into a chapter 13 how does everyone get paid? There no money to go around to anyone except for a couple hundred dollars.... but isn't the IRS going to want that? I owe the IRS $40k... $200 a month for 5 years in a chapter 13 is even going to make a dent.

[HHM]

This may be a district by district thing, but if the debtor has non-dischargeable tax debt and the assets of the BK estate will not pay it, you CAN claim it as an expense.

[justbroke]

If I include the $900 IRS payment I have -$500 disposable income at the end of the month. So, if I can not claim it as an expense and I go into a chapter 13 how does everyone get paid? There no money to go around to anyone except for a couple hundred dollars.... but isn't the IRS going to want that? I owe the IRS $40k... $200 a month for 5 years in a chapter 13 is even going to make a dent.

In a Chapter 13 context... if you owe the IRS $40K, you'd be paying them $667/month to them for 60 months. If you can't pay everyone else (your secured creditors and the Trustee fee), then your plan of reorganization is infeasible. That would mean you would have to get rid of other secured debt.

Also, if the IRS amount is from penalties and interest, please understand that the IRS claim will be split into two components. A priority component and a "general" unsecured component. The general unsecured component will be all the penalties and interest on the penalties. The priority component will be just the original liability plus the interest on the liability.

So, if your $40K IRS debt was $20K in liability plus $20K in penalties, then you'd be paying the IRS $333/month on the priority portion ($20K) and then the rest ($20K) would be lumped in with the rest of your unsecured debt paid pro rata (based on your disposable monthly income (DMI)).

This may be a district by district thing, but if the debtor has non-dischargeable tax debt and the assets of the BK estate will not pay it, you CAN claim it as an expense.

Will they (the Trustee/UST) not still do the hypothetical Chapter 13? I guess I mean, don't they use the "hypothetical" Chapter 13 to figure out what the actual monthly cost is by determining the priority unsecured portion over the general unsecured portion and use that number?

[anuta]

I continue to pay my tax bill/ agreement through the BK ( state and Feds). They have stopped sending me any statements, but still cash the checks. I was allowed to claim it as an expense.

[justbroke]

I continue to pay my tax bill/ agreement through the BK ( state and Feds). They have stopped sending me any statements, but still cash the checks. I was allowed to claim it as an expense.

What State are you in? Also, were you over or under-the-median?

[anuta]

NM & under the median.