IRS Proof of Claim

[lgeiger99]

The IRS sent a Proof of Claim for tax debt. They classified it as $42k
of unsecured General Claims. There is a tax lien that shows up on my credit report for $50k.

The lien is unsecured (does not attach to any real property). There is no real property other than household items valued at around 2k to attach to.

AZ local law (I think...and here is where I am asking for others to chime in who have been here), allows an Objection to Creditor Proof of Claim.
My plan is to object to the amount they say I owe by having the court remove interest and late fees.

I will also file a Motion to Strip lien based on the unsecured lien. I believe the only recourse the IRS will have is to reduce the lien to the value of my
household exemptions if they even do that.

What I think I will accomplish is other than 42k in unsecured debt, I will reduce it to what I actually owe versus what I have already repaid - the original IRS tax debt was for 2004 and the date the tax was accessed was February 2008. Original debt was 33k, I have repaid 25K and still owe 42k which is comprised of mostly penalties and late fees. I hope to end up with an unsecured debt of 9k or so.

With the Lien stripping motion, I hope to end with no lien or at the worst,
a lien that is attached to what little property I have.

Alternatively, since they have classified the debt I owe as a Unsecured General Claim, it would be treated as any other Unsecured Claim and when my plan is completed, the lien would be removed anyway.

Comments and/or advice will be greatly appreciated (other than simply referring me to a tax lawyer to handle this piece, which is NOT affordable to me).

Previous advice I got from a lawyer said that the IRS would file a Proof of Claim as a Priority Secured Claim with 60 days, but that didn't happen so the advice wasn't helpful at all.

[HHM]

First, what chapter of BK are you filing?

1. Won't be able to remove interest and penalties, no legal theory to do so.

2. Exemptions DO NOT apply to tax liens. So, 100% of the value of ALL equity in assets secures the lien.

Thus, a portion of the tax lien will survive the BK. The real issue is whether these are dischargeable tax debts?

[lgeiger99]

I'm filing Chapter 13.

I believe that in a Chapter 13, the Debts, including some taxes, may not have to be paid in full, in the discretion of the bankruptcy judge. The debts are referred to as "crammed down." To be discounted, taxes must be (a) income taxes; with (b) the returns due more than three years before filing and (c) taxes were assessed by the IRS at least 240 days ago.

To be crammed down, the IRS must not have recorded a lien (or there is no property for that lien to attach to). In my situation, a lien was recorded for $50k, but there is NO property for that lien to attach to.

If a tax return was due less than three years ago, or the taxes were assessed less than 240 days ago, or the taxes are not income taxes (such as for payroll), they are "priority" taxes. Priority taxes must be paid off in full through the plan. My tax return was due in 2004, the taxes were accessed in February 2008. The IRS responded on their Proof of Claim that "Total Amount of Unsecured General Claims: $42,000

Tax penalties may be greatly reduced by the court. Even fraud penalties, never dischargeable in Chapter 7, might be cut down in Chapter 13. My tax debt does NOT qualify under Chapter 7 rules. Though actual filing of tax returns more than two years ago is a requirement to discharge taxes in a Chapter 7, there is no "2- Year Rule" in Chapter 13.

The date taxes were accessed - 2/08 is not the same date I filed the return -
9-08, but it doesn't matter in a Chapter 13 anyway, because there is no "2-Year Rule".

I agree with you that clearly 100% of the value of ALL equity in assets secures the lien. I was using the amount of equity I possess from the exemptions (I get what you are saying). I just don't have much.

I appreciate your help. I hope you will challenge the statements I have made above and my understanding. It's very helpful.

[HHM]

Okay, it is clear you are doing this without a lawyer, which frankly, is probably a mistake (if you can afford to a chapter 13, you can afford a lawyer for a chapter 13...either stubbornness or stupidity.)

You are misunderstanding what happens and your options with tax debt.

Cram down ONLY refers to cramming down the value of the LIEN; the value of the security interest. So, if you owe $50K in taxes, but only have equity of $10K in assets, then the tax lien has a value of $10K. The remaining $40K, (assuming it is dischargeable and non-priority) simply gets treated as an general unsecured creditor and shares in whatever % you are paying to class 4 creditors.

So, it sounds like your tax debt is dischargeable (not discountable, wrong wording on your part). If the tax debt is dischargeable, so are the penalties. All it means is that your tax debt (and penalties and interest) will be treated as a class 4, general unsecured creditor. It is not that the BK court can "reduce" the penalties, it is simply that penalties are dischargeable in many circumstances and non-priority, therefore, you are not required to pay it 100%. The BK court does have discretion to reduce tax penalties, but that is more in the context of whether the penalties were properly assessed; the court cannot just arbitrarily reduce penalties as you seem to imply.

Actually, there is a 2 year rule in chapter 13...the two year rule applies whether the debt can be discharged in bankruptcy (for all chapters of BK). For example, if YOU didn't file the tax return in this case, the tax would be non-dischargeable.

[lgeiger99]

Okay, it is clear you are doing this without a lawyer, which frankly, is probably a mistake (if you can afford to a chapter 13, you can afford a lawyer for a chapter 13...either stubbornness or stupidity.)

Hi HMH,

There is a difference between being able to afford a monthly payment than having to come up with a $2,600 retainer for a lawyer to handle a Chapter 13.
So, no, I don't agree if you can afford a Chapter 13 you can afford a lawyer for a Chapter 13.

Honestly, the only reason I can see to file pro se if is you cannot afford a lawyer. Although, I have experienced reading and talking to pro se filers
who have either had a negative experience with their lawyer or who filed on their own (who claim that affordability is not the reason they chose to file pro se).

So, as for it being either "stubborness or stupidity"? I truly am looking for advice here and value the opinions of posters who are more knowledgeable than I. If the pro se forum is the wrong place for that, please advise me.

If I may ask you a personal question - are you a bankruptcy lawyer? If you choose not to answer, I'll understand.

Thank you.

[tigergem]

lgeiger,

Here is some information I have found with regard to attempting to Avoid a Lien. Not specifically an IRS lien, mind you, because I am only researching information that is pertinent to my own case. But, hopefully you will find something useful in my collection.

"How To For Young Lawyers - Bankruptcy Rule 9014"

http://abiworld.net/newsletter/ynmcnews/vol4num1/Contested_matters_article.pdf

"How to Think About and Figure Out Whether A Lien Impairs an Exemption"

http://www.law.mercer.edu/academics/handouts/Lien%20Avoidance%20--%20Massey1.pdf

And here is an article that I ran across that explains how taxes are handled in bankruptcies. I cannot vouch for its accuracy, however.

http://www.unclefed.com/AuthorsRow/Daily/Fwdcsea.html

Oh and also the Internal Revenue Manual contains valuable insight.

https://www.irs.gov/irm/part5/irm_05-017-011.html

Good luck!

[justbroke]

HHM doesn't say that pro se filers are stubborn because he is... stubborn. It's because in certain instances, the complexity of the case is one that instantly merits legal representation. Someone with $50K of tax liability should not be filing a Chapter 13 by themselves. There are too many pitfalls in misinterpreting the law and finding out that you tried to cramdown something when it was otherwise dischargeable if you scheduled it properly and correctly accounted for it in your Chapter 13 Plan of Reorganization (priority unsecured versus general unsecured).

I'm a Chapter 13 pro se filer who went almost 2 years into a Chapter 13 and converted to a Chapter 7. I'm amongst a very very very few pro se Chapter 13 filers who get to confirmation. My tax issue was SMALL ($4K) and I was only trying to save my investment property. That just made it worse! In the end, I just completed my Chapter 7 discharge and I am now moving along.

This is the correct place to ask questions, but we will in fact direct someone towards representation when they are not understanding certain intricacies of the bankruptcy code.

Some of the statements you have made, such as "there is no "2- Year Rule" in Chapter 13", is why I would say that in your case, with that type of tax liability, you need an attorney because you don't understand the law. There is nothing in the code which reads that dischargeability of taxes doesn't apply in a Chapter 13. All priority unsecured debt must be paid in a Chapter 13. Generally speaking, penalties and the interest on the penalties are dischargeable in a Chapter 13. However, if you end up in a 100% plan... you've done nothing but arrange to pay off all your debt in 5 years.

Bankruptcy pre-planning can be very important to someone with that type of tax debt looming.

As to your specific question, the IRS Claim should have a "Form 10 Attachment". On that form there should be two amounts "Total Amount of Unsecured Priority Claims" and "Total Amount of Unsecured General Claims". If all the amounts are in "Total Amount of Unsecured General Claims" and there is nothing in the "Priority" section, then it is "dischargeable".

However, if you're in a plan more than 0%, you will be paying a portion of it back. You do not need to do ANYTHING other than correctly complete your Plan of Reorganization, classifying it correctly.

Now, if they have recorded a lien, you may need to wait for a discharge and then seek to have the lien voided. Whether you can void the lien is beyond my experience.

[tigergem]

HHM doesn't say that pro se filers are stubborn because he is... stubborn. It's because in certain instances, the complexity of the case is one that instantly merits legal representation. Someone with $50K of tax liability should not be filing a Chapter 13 by themselves. There are too many pitfalls in misinterpreting the law and finding out that you tried to cramdown something when it was otherwise dischargeable if you scheduled it properly and correctly accounted for it in your Chapter 13 Plan of Reorganization (priority unsecured versus general unsecured).

I'm a Chapter 13 pro se filer who went almost 2 years into a Chapter 13 and converted to a Chapter 7. I'm amongst a very very very few pro se Chapter 13 filers who get to confirmation. My tax issue was SMALL ($4K) and I was only trying to save my investment property. That just made it worse! In the end, I just completed my Chapter 7 discharge and I am now moving along.

This is the correct place to ask questions, but we will in fact direct someone towards representation when they are not understanding certain intricacies of the bankruptcy code.

Some of the statements you have made, such as "there is no "2- Year Rule" in Chapter 13", is why I would say that in your case, with that type of tax liability, you need an attorney because you don't understand the law. There is nothing in the code which reads that dischargeability of taxes doesn't apply in a Chapter 13. All priority unsecured debt must be paid in a Chapter 13. Generally speaking, penalties and the interest on the penalties are dischargeable in a Chapter 13. However, if you end up in a 100% plan... you've done nothing but arrange to pay off all your debt in 5 years.

Bankruptcy pre-planning can be very important to someone with that type of tax debt looming.

As to your specific question, the IRS Claim should have a "Form 10 Attachment". On that form there should be two amounts "Total Amount of Unsecured Priority Claims" and "Total Amount of Unsecured General Claims". If all the amounts are in "Total Amount of Unsecured General Claims" and there is nothing in the "Priority" section, then it is "dischargeable".

However, if you're in a plan more than 0%, you will be paying a portion of it back. You do not need to do ANYTHING other than correctly complete your Plan of Reorganization, classifying it correctly.

Now, if they have recorded a lien, you may need to wait for a discharge and then seek to have the lien voided. Whether you can void the lien is beyond my experience.

Oh. That is what this guy says. No 2 year rule in Chapter 13. Is this article wholly inaccurate? It's one of the links I gave lgeiger in my post above.

http://www.unclefed.com/AuthorsRow/Daily/Fwdcsea.html

Actually it looks as if lgeiger may have quoted this article in an earlier post.

[justbroke]

Oh. That is what this guy says. No 2 year rule in Chapter 13. Is this article wholly inaccurate? It's one of the links I gave lgeiger in my post above.

I don't read where it says that. The rule is really about what is a priority tax debt and what is not. You cannot discharge priority tax debt.

I don't like that article, but the it is NOT a cramdown, it's a bifurcation of an unsecured debt into a priority unsecured component and a general unsecured component. Cramdown was a term created specifically for secured debts.

I think the article is correct in some aspects but uses wrong terminology for me. I guess it's the use of cramdown. Generally speaking, the IRS usually does submit an accurate Proof of Claim.

Okay, so I found the "2-year" rule language. It reads

Though actual filing of tax returns more than two years ago is a requirement to discharge taxes in a Chapter 7, there is no "2- Year Rule" in Chapter 13.

I think this is misleading, only because a Chapter 13 is for 36-months to 60-months so the 2 years is technically built in, if you ask me. A Chapter 13 is nothing more than a "pending" bankruptcy that protects the debtor over a longer period, so long as they make payments into their Plan of Reorganization.

So first, the Chapter 13 requires that you file ALL prior year tax returns as a condition (under 11 USC 541 I believe, but don't quote me). Second, because you have filed the missing return before getting confirmed, you actually wait out as many as 36 months or more in order to receive your discharge. To me, that doesn't bother me and the 2 years seems "built-in" to me.

[tigergem]

Thank you for the clarification. Being pro se is difficult enough without being mislead by inaccurate resources. Glad I am not dealing with a tax lien. Still no new developments at all on my IRS matter hehehe. Biding my time and waiting for the next hand to be played.

[lgeiger99]

"I think this is misleading, only because a Chapter 13 is for 36-months to 60-months so the 2 years is technically built in, if you ask me."

No, Justforbroke. It is not misleading. The two years is not technically built in and in fact, in a Chapter 13, you would add six months plus the time you had remaining prior to filing if you didn't finish your plan before you could file Chapter 13 again. A separate issue that doesn't apply to me, but I think is interesting is that the tax debt would survive a conversion to Chapter 7 and would then not be subject to discharge. But, that's not what I am asking.

And yes, I am fully aware that by the IRS categorizing their claim as a General Unsecured Claim that if I finish my plan the lien will be discharged. However, it is always advantageous to have a lien removed if you can. In my situation, because the lien is unsecured and the amount of the lien is $50,000, I want to have it removed.

Thanks for the links, Tigergem. I appreciate your attaching them. You brought up some good stuff.

I'm not so sure that the link is misleading at all. In any case, since the $50k lien is unsecured as I stated previously, there was nothing for it to attach to at the time I filed Chapter 13. I believe I can have the lien removed. I'm fairly clear on that.

As to the issue of the claim itself, I was waiting to see how the IRS would file their claim. If it had come back priority secured as the lawyer I saw predicted, I would be forced to add monies to my plan to accomodate the repayment. Since it did not, that is good news for me.

I have read much to suggest that the Bankruptcy court does have jurisdiction over the IRS and and as such, can remove certain tax penalties and late fees (although I don't have to worry about that one) from Chapter 13 debt:

The debts are referred to as "crammed down." To be discounted, taxes must be (a) income taxes; with (b) the returns due more than three years before filing and (c) taxes were assessed by the IRS at least 240 days ago.

You can call it, crammed down, discounted or reduced - the terminology is not as important or even worth argument - my intention is clear.

At the risk of repeating myself, Justforbroke, I don't want to be filing pro se Chapter 13.
I don't want to represent myself in my vehicle cramdown (even though I did read your blog and it was very helpful - unlike your state, AZ doesn't allow for negative notices to value collateral, although I was able to wait for their claim and then provide a negative notice - so thank you!). I also don't want to represent myself for this tax debt, but I don't think filing a Motion to avoid lien for tax debt is that complicated - Local Rules for AZ has a form on the website.

When I post here, I am testing my understanding. I value posts from posters that offer their experiences, even test my understanding because that's how I learn. I particularly appreciate Tigergem's links - so thanks again and I will spend time studying them.

[justbroke]

No, I don't think filing a motion to avoid lien is anything difficult as many Districts do have standard templates. Some Districts even have "model plans" for Chapter 13 cases as well.

If the IRS filed as general unsecured, then I would try to avoid the lien since they don't think it attaches to anything. The tax stuff just is special to me and having to serve things on the United States Attorney is just intimidating.

I agree that any lien that can be avoided, should be. This just clears up any issues that can occur later.

[lgeiger99]

Thanks, justbroke. I'll agree that serving items on the IRS is intimidating. No more intimidating than being chased for 60k of tax debt is though. 10k is to the State of CA, whom I owe as well. I'm waiting for their claim.

My 341 is next Wednesday. I read that a pro se filer should call the trustee and ask what they are required to bring. I did and they told me they can't answer legal questions lol. I asked the court clerk yesterday if the items you are sending have to be attached when you are filing a Proof of Service and she said she couldn't answer because that was a legal question. I couldn't gleen the answer from Local Rules, so I attached the docs. Then the clerk said, "are you really filing all of this with your Proof of Service?"
I responded, "am I not supposed to?" She answered that she couldn't give legal advice.

I'm seeing the humor in that response as a pro se filer. I'm probably spending too much time on it (lol).

I've read that I have to bring my D.L. and S.S. card. I'll probably include my proof of car insurance. I already sent a copy of my 2009 IRS & State tax returns via mail to the trustee. I've read some places that the court requires copies of the last 4 years of tax returns. On my amended plan, I added a statement that I have filed all previous tax returns.

Do you (or anyone else)know if I should bring the last 4 years of tax returns with me even if I haven't been asked for them? Or for that matter, anything else I need to bring that I'm not thinking of?

Thanks!

PS: I did attempt something yesterday, and I'm only writing it in case it helps someone else - but I filed a Motion for exemption to AZ Pacer fees. I'll still get charged from other jurisdictions because my motion, if successful will only exempt me from AZ Pacer fees. And I wouldn't attempt it if you are in a high income, I've read the court will only grant the motion if you can prove hardship. It should be interesting though if they did approve my motion. As I mentioned before, I am drawing unemployment right now.

[HHM]

First off, that article is WAY old, did anyone happen to notice the copyright...1997. I think that is why the terminology is not making sense because it is a bit archaic and the words used in that article no longer are used in today's context.

As to the 2 year rule. The 2 year rule is in BK code section 523 (exception to discharge). It USED TO BE true that you could discharge income tax debt in chapter 13 without having filed the tax return (hence, the 2 year rule had no effect in chapter 13). The 2005 amendment changed that. The 2 year rule is very much an issue in chapter 13 (all BK chapters).

Priority tax debts are non-dischargeable, but not all non-dischargeable tax debts are priority. For example, you could have an income tax debt that is more than 3 years old, and assessed more than 240 days ago (through a substitute for return); yet the debtor never actually filed a tax return. That tax debt would be non-priority, but it is also non-dischargeable.

I think justbroke is right, aside from the tax lien, there isn't really whole lot you need to do. About all you need to do is a Motion to Value the Tax Lien which establish the value of the secured portion, if any, of the IRS Debt. Otherwise, the remainder of the debt appears to be general unsecured, so all you need to do is schedule
properly. In fact, you may not even need to do the motion to value; if the only assets with equity are household items, you can call the local IRS insolvency division and simply ask them to remove the lien, and most of the time, they will.

As for removing tax penalties etc., I think you are missing the point, yes, the BK has jurisdiction, but you need a REASON why the penalties SHOULD BE REMOVED; aside from a mistake in assessing the penalty, there really is no legal basis for the BK court to remove properly assessed tax penalties. For example, if you filed your tax return on time, but the IRS assessed a Failure to File penalty, the BK court can undue that (as will a phone call with the IRS), but simply requesting a reduction if penalties for no reason, not gonna happen. Also, penalties are never priority, so removing penalties is usually moot.

[tigergem]

First off, that article is WAY old, did anyone happen to notice the copyright...1997. I think that is why the terminology is not making sense because it is a bit archaic and the words used in that article no longer are used in today's context.

As to the 2 year rule. The 2 year rule is in BK code section 523 (exception to discharge). It USED TO BE true that you could discharge income tax debt in chapter 13 without having filed the tax return (hence, the 2 year rule had no effect in chapter 13). The 2005 amendment changed that. The 2 year rule is very much an issue in chapter 13 (all BK chapters).

Priority tax debts are non-dischargeable, but not all non-dischargeable tax debts are priority. For example, you could have an income tax debt that is more than 3 years old, and assessed more than 240 days ago (through a substitute for return); yet the debtor never actually filed a tax return. That tax debt would be non-priority, but it is also non-dischargeable.

I think justbroke is right, aside from the tax lien, there isn't really whole lot you need to do. About all you need to do is a Motion to Value the Tax Lien which establish the value of the secured portion, if any, of the IRS Debt. Otherwise, the remainder of the debt appears to be general unsecured, so all you need to do is schedule
properly. In fact, you may not even need to do the motion to value; if the only assets with equity are household items, you can call the local IRS insolvency division and simply ask them to remove the lien, and most of the time, they will.

As for removing tax penalties etc., I think you are missing the point, yes, the BK has jurisdiction, but you need a REASON why the penalties SHOULD BE REMOVED; aside from a mistake in assessing the penalty, there really is no legal basis for the BK court to remove properly assessed tax penalties. For example, if you filed your tax return on time, but the IRS assessed a Failure to File penalty, the BK court can undue that (as will a phone call with the IRS), but simply requesting a reduction if penalties for no reason, not gonna happen.

oops. Normally I do look for those dates and discard any info that is dated pre-BAPCA. Very good point, HHM. I apologize, and thank you.