Irs

[stefwest]

I am looking for guidance on how to handle the IRS. My husband and I filed Chapter 13 in 2017. Due to loss of income in 2018 during Hurricane Harvey it was dismissed and refiled. The original filing included back payroll taxes. Apparently when refiled the payroll taxes did not get included. This is a sole proprietorship business. The IRS signed off on the discharged we received in 2023. Now the IRS is trying to collect the back payroll taxes. Not sure if this is the attorney's error for not including or IRS for not verifying. How do we proceed?

Thank you

[justbroke]

Payroll taxes are what they call "trust fund" money. They are not dischargeable in a bankruptcy because 11 USC 523(a)(1) excepts from discharge debts under 11 USC 507(a)(8)(C). You guessed it, (a)(8)(C) is "a tax required to be collected or withheld and for which the debtor is liable in whatever capacity." This is that so-called "trust fund" money. If it's the IRS, then you will have a 100% penalty on top of what was owed.

Just as other creditors, the IRS does not "sign off" on a bankruptcy. From what I understand about non-dischargeable debt, those "trust fund" debts are automatically non-dischargeable. The IRS creditor doesn't need to do anything since the debt passes through the bankruptcy untouched and without discharge. This is for public policy reasons.

Now to get to the heart of your question. It reads as if you scheduled (listed) the IRS "trust fund" debt as a claim (and creditor) in the first Chapter 13. Even if the IRS didn't file a claim, the debt still passed through and was not discharged. Are you saying that you didn't notice that the IRS was not in the (refiled) Chapter 13 plan?

It is really up to the debtor to list all debts when given to the attorney. They typically have you complete a massive packet that asks for all debts. If it was on your forms and you missed in when you signed your Chapter 13 petition and the attorney missed it, I can't say why it was missed. As a debtor, you do bear some responsibility to make sure everything on the completed petition contains everything. If you didn't bring up this IRS massive back payroll tax debt on the second filing, then that is not on the attorney. It is not the attorney that verifies; it is the debtor that verifies everything is in the filing.

The IRS is usually pretty good at getting bankruptcy things correct. If you wanted to fight the classification or the dischargeability of the IRS "trust fund" delinquency, then you could have filed an adversary proceeding (AP) in the bankruptcy.

At least that's what I think.

[stefwest]

I appreciate your feedback. But let me clarify. I'm not looking to have anything dismissed. Perhaps I'm using wrong terminology. Initially, when we filed, we told attorney to include payroll taxes because we wanted to make sure we paid IRS everything we owed. Second filing IRS was listed as one of the creditors. We didn't question the amount, so I guess that is on us. We assumed this is the amount we owed totally. So, as we are paying the trustee we are thinking this included IRS payroll taxes as well. IRS is saying that amount paid did not include payroll taxes. They stated they tried to get amendment, but case was dismissed. That would have been the first filing. Which payroll taxes were listed on their POC. I don't understand when they would have amended since first case was filed in 2015 and second case was filed in 2018. Prior to discharge we received a letter from the IRS regarding payroll taxes, we wrote to IRS and our attorney stating these should be included in the monthly amount sent to the Trustee. Never heard back from IRS neither did they respond back to attorney according to him. But our attorney stated to us that the taxes were being paid. Now after completing the Chapter 13 IRS is trying to collect $72,000 saying, it was not included. I understand what you are saying about our responsibility. I guess I'm questioning if an attorney files a case and then turns around and files the same case again, I will think they would have "cross checked" paperwork also. As well as IRS when filing out POC since we are listed as self-employed. Seem to me they would also check to see if payroll taxes are owed. At least that's my thinking.

[justbroke]

I think I understood that you're not trying to get it discharged; I just added that as a way to determine if it could have been in the second Chapter 13 filing.

I too wonder how it was missed in the filing and whether it was purposefully not listed? Seems that the IRS didn't file a proof of claim in the second Chapter 13 and that may have contributed to it not being included.

I don't know how the IRS files claims when there is a claim against a sole proprietorship for unpaid trust taxes. I don't know if they file two separate claims; one for personal taxes, and one for the trust fund taxes and penalties. If the IRS filed only one claim (with or without priority), the Trustee is going to pay that claim.

I hope you can figure out what happened because it could happen to others. To me, this looks like a proof of claim issue from the IRS and no one double or triple checked that the claim filed by the IRS in the 2018 case was accurate. That's a shame. Did your Chapter 13 have additional money that could have gone to the IRS, or did most of your DMI go to priority IRS tax debt and penalties?