Owe state tax but refund from federal

[dakota112]

If filing in January and have a refund of several thousand from Federal Taxes but will owe the state at least 2000.00, will the trustee take care of this since it is part of my debt which is part of the BK estate he owns now or will I be left paying this if the CH7 is discharged? That would seem unfair if I can't use the federal tax refund to offset the state tax not yet paid. There would probably be some leftover for my creditors. Just wondering how this works. My atty told me to ask my accountant but he didn't know the answer.

[redhunter]

Looks like your attorney punted. It's a bankruptcy question not a tax or accounting question. I'm a tax accountant not a attornery, however in years past I prepared many final tax returns for chapter 7 corporations and I never saw this netting. The trustee would likely view your fed refund as any other "stash" or account of cash and the state tax due seperately.

[justbroke]

You would just need to show the "underpayment" to the Trustee. They actually calculate over/under in their version of the Means Test. They do this specifically to account for people "stashing" money by increasing withholdings.

As a non-tax accountant, your accountant should show your P&L (balance sheet) as having a liability to the State... right redhunter?

[iv65536]

One other thing to consider would be that the state tax liability may be a secured debt under state law, but otherwise it would probably be an unsecured priority claim.

[tlcabk]

Question, We filed CH7 and have trustee Rpt of No asset no Dist. He asked at 341 if we expected Tax return we said no due to not paying tax on unemployment, etc. Since I see no mention of it does it mean if we do have situation as above (owe state but refund on Fed or vice versa) would the Trustee get it still if his rpt No Assets?

[redhunter]

As a non-tax accountant, your accountant should show your P&L (balance sheet) as having a liability to the State... right redhunter?

Yes, since they are not the same tax authority.

I'm actually in about the same boat as the OP. Plan to file ch7 first week of January and I plan to have a $3k fed refund and need to pay a few hundred to a couple of states. I'm viewing the refund as a casualty of the bk and I know I'll end up paying the states. Unfortunately I can't wait to file until after I file my 2009 returns and use the refund on living expenses or exempt assets.

[redhunter]

. . . He asked at 341 if we expected Tax return we said no due to not paying tax on unemployment, etc. . . would the Trustee get it still if his rpt No Assets?

You might be OK if you're planning a fed refund due to income tax but need to pay the feds unemployment, since it is the same tax authority. Where is the unemployment coming from? Sole proprietorship (Schedule C) business? If so, that unemployment tax will reduce your overpayment from withholding or other sources on your federal individual return (Form 1040) anyway. In other words it will automatically be netted together; the IRS wouldn't view them as separate accounts.

[JoeBankrupt33]

Here's what happened to me:

I filed early February 09, before I filed my taxes. I owed the state of CO about $1500 and I got a Federal refund of about $1650.

The trustee took my $1650 and made me an asset case. He also took some unpaid wages and some from my bank account. I made payments to him for 4 months, ending Jun/July.

I had CO listed on my paperwork as a priority unsecured creditor. I checked PACER regularly to see if CO filed a claim. If they hadn't filed a claim, then they wouldn't get any money and I would have to pay them separately. The trustee's paralegal told me that I could file a claim on their behalf if I needed. Because they are my only priority creditor, they are the only creditor to get paid.

My bankruptcy was discharged around May 20 and CO began trying to collect the debt from me and threatened a judgement in July. Then, I had to set up a payment plan with CO for about $140 a month. They backed off of the judgement when I explained that the trustee had the money.

So, I've been paying CO since August and the trustee has not made the payment yet. He is rediculously slow (in my oppinion) and the only thing I am waiting on is him to make the distribution. In the mean time, the interest and penalties have been adding up (roughly an additional $500 so far).