Tax Liabilities on Seized Assets

[GAfootballFa]

My wife and I have filed chapter 7 and during our 341 meeting we were informed that assets of a beneficiary IRA are considered non exempt and subject to seizure. We've decided against going to litigation on this are will most likely allow this asset to be seized. However, if this asset is seized there are serious tax consequences on my part that could be realized. My question to the forum, is under seizure of this property, would the bankruptcy estate be liable for the taxes and penalties imposed by terminating this beneficiary IRA or would I be personally?

[justbroke]

The Bankruptcy Estate "is" you, and therefore would be liable for any tax realized. Especially since income taxes are considered priority debts.

So, the Estate should pay the taxes from the proceeds since they are unsecured debt, but have priority over other unsecured debt. The only real question will probably be if the tax liability is created post-petition or pre-petition. I would hope that the Trustee would pay the taxes.

Just my opinion... how it plays out could be different.

[GAfootballFa]

Thanks JB, the tax liability will most definately be created post petition, but to retain cetain non exempt assets I would allow for the beneficiary IRA to be seized. I guess the question of voluntary or involuntary seizure may come to into play. Other non exempt assets are mainly cars and such, but the beneficiary IRA is cash, which is very appealing to the trustee. The tax liability would be substantial for the estate given the liability of income and potential early withdrawal penalties on $38K, but my concern is that the trustee will object to the estate paying taxes on an asset where the liability is created post petiton.

[justbroke]

but my concern is that the trustee will object to the estate paying taxes on an asset where the liability is created post petiton.

Mine too, but that should be considered a "cost" of liquidating (or disbursing) the IRA. At least that's what I'd argue.