Old taxes not discharged???!?

[debrouillant]

So post-bk (pro se!) discharged earlier this year. Got a notice from the IRS that some taxes that I thought would be discharged are actually not. They maintain that the IRS filed a substituted return for the year in question (2003) BEFORE I filed my (albeit late) return. Mine was files about two months after the substituted return (July 2007 - October 2007 respectively). The one they filed was incorrect and overtaxed me yet they are saying that it stands even though they sent me a notice after I filed my return that my assessment was correct.

Do I have a leg to stand on? I read in re Payne and I don't believe it applies to me at all. I maintain my tax liability is discharged. The ninth circuit might agree with me. The IRS maintains it's position. There's only about 1k atstake here (I made payments for years after my late-filed return) but it's a matter of principle now. Any suggestions?

[tobee43]

i know this is an older post, however, the OP was never responded to, and many have the same question. but if the mods think my response may not be helpful no problem



bankruptcy is not always the best way to get rid of federal tax debt. given enough time, the tax may just go away. the IRS is given 10 years from the date the tax is assessed to collect in most cases by 26 USC §6502, a section of the Internal Revenue Code. the date after which the tax can no longer be collected is called the “Collection Statute Expiration Date” or “CSED” for short in IRS lingo.

however, there are many things that can give the IRS more time to collect the tax. under most circumstances, when the IRS collection officers are prevented from taking action to collect an overdue tax, the collection time is extended by the amount of time they can’t collect plus some extra time to restart their collection work.

federal law prevents the IRS from using its powers to forcibly collect unpaid tax when an Offer in Compromise is pending and for an additional 30 days after the offer has been rejected if it was unsuccessful. likewise, if a taxpayer has appealed a decision by the IRS to collect the tax by levy or seizure, the time that is taken to review the appeal, plus 30 days is added to the collection period and the CSED is extended. both of these extension rules are contained in 26 USC §6331.

additional provisions for extending the collection period are contained in 26 USC §6503. this section of the Internal Revenue Code provides for extension when the assets of a taxpayer are in the custody or under the control of any court, and for 6 months after they are released. the collection period also is extended for the period of time when a taxpayer is outside of the United States continuously for six months or more.

one common way the IRS collection period is extended and the CSED is delayed is by the filing of a bankruptcy court proceeding. because federal law prohibits collection of a pre-bankruptcy tax while the case is being processed, 26 USC §6503(h) allows the IRS tax collectors additional time equal to the amount of time the case was open plus an additional 6 months for collection after the case is closed or the stay is released.

unless it has a secured claim, the IRS is no longer able to collect tax after bankruptcy if the tax was discharged.

these are some of the reasons the taxes should have been discharged:


so many people are under the impression that you can’t wipe out IRS debt in bankruptcy. the good news is YES, you can wipe out not only IRS debt, but state tax debt, as well. BUT the tax debt must meet certain criteria. mostly, for the sake of this post discussion, we are talking about income taxes, but some other kinds of taxes may be dischargeable as well. the requirements for discharging income tax in bankruptcy are as follows:

1. the most recent due date of the return is more than three years prior to the filing of the bankruptcy petition [the "Three-year Rule" 11 U.S.C. � 507(a)(8)(A)(i)];

2. the tax return was filed at least more than two years before the filing of the bankruptcy petition [the "Two-year Rule" 11 U.S.C. � 523(a)(1)(B)];

3. the tax was assessed more the 240 days prior to the filing of the bankruptcy petition (the “240-Day Rule” � 507(a)(8)(A)(ii));

4. the tax return was non-fraudulent [� 523(a)(1)(C)];

5. the taxpayer is not guilty of a willful attempt to evade or defeat the tax.

if you owe the IRS a significant amount of money for income tax, regardless of whether your taxes meet these requirements, you should get with a bankruptcy attorney who is familiar with the dischargeability requirements for taxes to plan how to eliminate the most tax debt that you can. he/she should have advised that may not be able to file a bankruptcy right away, but you will know that you have a plan in place to eliminate as much tax as possible.

[AngelinaCatHub]

Tobee, would you do my taxes this year? 'Hub

[tobee43]

Tobee, would you do my taxes this year? 'Hub

LOL!!!! yes, hub i will do your taxes for you...any time

[justbroke]

So post-bk (pro se!) discharged earlier this year. Got a notice from the IRS that some taxes that I thought would be discharged are actually not. They maintain that the IRS filed a substituted return for the year in question (2003) BEFORE I filed my (albeit late) return. Mine was files about two months after the substituted return (July 2007 - October 2007 respectively). The one they filed was incorrect and overtaxed me yet they are saying that it stands even though they sent me a notice after I filed my return that my assessment was correct.

No. The caselaw suggests that if the IRS filed your return for you -- a substitute return -- then YOU did not file a return. Therefore, you cannot discharge the tax. You can try to fight it by filing a complaint in the bankruptcy court (an Adversary Proceeding (AP)), but expect to go up against an assistant U.S. Attorney.

The key is in 11 USC 523 which defines a "return" as one being filed by the due date (with extensions). Since you didn't file and the IRS filed a substitute return, that is generally non-dischargeable.

The only way is to file a complaint. I don't think Payne has any "case-specific" things which would make the decision -- as rendered -- any different than you not filing a tax return until after the substitute return was filed (and tax assessed). The IRS' acceptance of your late filed return, does not mean that it magically becomes a "return" by definition in 11 USC 523 or the IRM.

There's only about 1k atstake here (I made payments for years after my late-filed return) but it's a matter of principle now. Any suggestions?

My suggestion is that unless you're prepared to litigate in a trial, you may want to settle.

As for an incorrect assessment, you need to go through the Office of Reconsideration (OIR). Once a tax is assessed, they aren't necessarily required to take your late filed return and use your numbers. I had a situation where a company filed a 1099 where they should not have. I never included it on my tax return, but the IRS assessed taxes for it during a routine audit (not audit of me, but audit of 1099s). It took me two years to get it fixed! Even after the dumb company filed a correct 1099 showing $0 in taxable dollars, I still needed to go through OIR to get the taxes removed!

[HHM]

For purposes of BK, if you replace the SFR with a "filed" return, that counts. So long as 2 years has passed from the filing of the "taxpayer filed" return before filing BK, the tax should be discharged (assuming all other rules satisfied). Thus, it really doesn't matter if the IRS disagrees with the amount stated on the filed return, it is still a filed return for purposes of BK.

[justbroke]

The IRS' General Counsel issued a notice since this was (still is) a litigious aspect since the BAPCPA changes in 2005.

The Government successfully argued in a number of circuits that a Form 1040 filed after assessment does not qualify as a return for discharge purposes under section 523(a)(1)(B)(i). For example, In re Hindenlang, 164 F.3d 1029 (6th Cir.), cert. denied, 528 U.S. 810 (1999), the Sixth Circuit held that a document must qualify as a federal tax return under tax law to be a return for bankruptcy purposes. The court applied the test in Beard v. Commissioner, 82 T.C. 766 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986), which held that if a document “contains sufficient information to permit a tax to be calculated” and “purports to be a return” and “is sworn to as such, and “evinces an honest and reasonable attempt to satisfy the law,” it is a return. The Hindenlang court concluded that a Form 1040 filed after assessment serves no tax purpose and therefore was not an honest and reasonable attempt to satisfy the tax laws. Other circuits largely followed Hindenlang. See In re Payne, 431 F.3d 1055 (7th Cir. 2005); In re Moroney, 352 F.3d 902 (4th Cir. 2003); In re Hatton, 220 F.3d 1057 (9th Cir. 2000). The
Eighth Circuit disagreed in In re Colsen, 446 F.3d 836 (8th Cir. 2006), holding that a document that on its face evinces an honest and reasonable attempt to satisfy the tax laws qualifies as a return, whether or not it was filed after assessment.
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.
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2. Whether or not a Form 1040 filed after assessment is a return under nonbankruptcy law, is the related tax debt dischargeable?

No. A debt for the portion of a tax that was assessed prior to the filing of a Form 1040 is nondischargeable under 523(a)(1)(B)(i). The debt is not dischargeable because a debt assessed prior to the filing of a Form 1040 is a debt for which is return was not “filed” within the meaning of section 523(a)(1)(B)(i).
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Conclusion

A Form 1040 is not disqualified as a “return” under section 523(a) solely because it was filed late.
Regardless of whether a Form 1040 filed after assessment is a “return” for tax purposes, the
portion of a tax that was assessed before the Form 1040 was filed is nondischargeable under section 523(a)(1)(B)(i). All bankruptcy cases involving application of the discharge exception under section 523(a)(1)(B)(i) to cases involving a Form 1040 filed after assessment should be coordinated with Branch 5, Office of the Associate Chief Counsel (Procedure and Administration). Questions about this Notice should be directed to Branch 5 at (202) 622-3620.

http://www.eugenebankruptcylawyer.com/bankruptcy/BKAuth/CC_2010_016.pdf

At least, one can read the IRS' position on this and see how they think of it. The memo does include references to "portions" of the tax being dischargeable under certain circumstances.

I think it will be a fight. The IRS has already stated their position by sending the memo.

[tobee43]

unfortunately, another conclusion is once the IrS has their teeth in you, it's really difficult getting them to relax their jaws.

hhm, just a brief comment:

Thus, it really doesn't matter if the IRS disagrees with the amount stated on the filed return, it is still a filed return for purposes of BK.

i do really wish for the sake of many this was so, i have been working with someone that owed 250k prior to their filing and now, discharged, however, not closed due assets, the IrS has turned what was supposed to have been discharged into a 650k IrS debt. has seized numerous times this persons checking and saving accounts, all even while in the midst of a proposed discussion with Offer in Compromise in progress. apparently, as jb points out, it's going to be an ongoing fight. i know it is for the person i have working with/for. so much for what was filed on the return.

[debrouillant]

Thanks for all the recent posts - I actually won my argument with the IRS and their insolvency department cleared me of any liability about 4 months ago. My late return had the correct tax assessments, their substituted return did not.

I believe the reason why I won was my argument that their correspondence made references specifically to a "proposed" assessment, not the actual filing of a "substituted" return. Also, the subsequent payment plans I entered into with the IRS were based on MY return, not THEIRS.

Regardless, it was truly useful to have all those old papers from 8 years ago neatly stacked in a "never destroy" box. I was able to reference every single letter I had ever gotten on the subject. My advice: keep sh*t from the IRS forever!!

[tobee43]

debouillant, very glad it worked out for you. great advise! save it all from the IRS!!! (even though they say you no longer have to, just up to 3 years). one never knows what happens in life.

you fought the IRS and WON!!!!!!!!!!! congrats!

[justbroke]

debrouillant I too am happy that you were able to prove your position! Dealing with the IRS is never really a fun thing.

[jetsfan2010]

Just a note, I discharged in late November, with approx 30k IRS debt, and just like the OP, a few months later, I get a note about taxes that I assumed to have been discharged. Approx 9k. I reached out to my Bk attorney first, and he said the same advice that was posted here. I will keep you guys updated.

[GoingDown]

Regardless, it was truly useful to have all those old papers from 8 years ago neatly stacked in a "never destroy" box. I was able to reference every single letter I had ever gotten on the subject. My advice: keep sh*t from the IRS forever!!

This is so true, not just for the IRS, but for any creditor.

I scan old letters, documents, etc., and then send them as an attachment from one of my email accounts to another one of my email accounts, so I have them if I ever need them at some point in the future. And I put the key words and the dates right in the subject line of the email, so I can find them quickly if I ever need them again.

[BarkingCat]

Thanks for all the recent posts - I actually won my argument with the IRS and their insolvency department cleared me of any liability about 4 months ago. My late return had the correct tax assessments, their substituted return did not.

I believe the reason why I won was my argument that their correspondence made references specifically to a "proposed" assessment, not the actual filing of a "substituted" return. Also, the subsequent payment plans I entered into with the IRS were based on MY return, not THEIRS.

Regardless, it was truly useful to have all those old papers from 8 years ago neatly stacked in a "never destroy" box. I was able to reference every single letter I had ever gotten on the subject. My advice: keep sh*t from the IRS forever!!

So glad to hear this, debrouillant! I'm in a similar situation -- taxes meet the 3 yr/2 yr/180 days rules, but several of the years have late-filed returns. I'll definitely report in on the situation as it progresses.

[BarkingCat]

Curious to hear what folks think about the recent McCoy decision of the fifth district:

http://opinions.ca5.uscourts.gov/opinions%5Cpub%5C11/11-60146-CV0.wpd.pdf

I wasn't aware of it until this morning when my EA mentioned it during my annual tax prep appointment.